Australia's ICA and AFCA launch pandemic business interruption test case

The Insurance Council of Australia (ICA) and the Australian Financial Complaints Authority (AFCA) have agreed to file a test case considering the application of infectious diseases cover in business interruption policies.

ICA said the primary purpose of the test case is to seek a decision from a superior court on whether references to a quarantinable disease under the Quarantine Act 1908 should be construed as a reference to a listed human disease under the Biosecurity Act 2015 in various policies issued to small businesses containing business interruption cover.

On behalf of all insurers who offer commercial products, the ICA will seek leave to have the test case heard as an expedited matter. The legal costs of the test case will be funded by the ICA.

The outcomes of the test case will be used by AFCA in determining relevant complaints arising in respect of business interruption claims.

Rob Whelan, CEO of the Insurance Council of Australia, said: “The Insurance Council of Australia has prepared this test case on behalf of the general insurance industry. A decision from a superior court will assist insurers, AFCA and customers in developing a better understanding of how exclusions in policy documents respond to the unique circumstances of the COVID-19 pandemic.

“Insurers believe the intention of pandemic and communicable human disease exclusions are clear. However, a judicial determination will provide insureds and AFCA with greater legal certainty on this issue.”

John Price, lead Ombudsman Insurance, AFCA, added: “Following discussion with the Insurance industry, ASIC, APRA and Treasury, AFCA has agreed that a test case before a superior court should proceed to allow for a determination of this threshold issue. Resolution of this threshold issue is important to assist AFCA in its dispute resolution role.

“I am pleased the Insurance Council of Australia and its members have engaged with AFCA in identifying claims that will form the combined test case. I am also appreciative of the complainants for agreeing to have their cases heard in this manner. The outcome of the case will provide some clarity for all stakeholders in particular small business and insurers.”