Australia's ICA launches pandemic business interruption test case in NSW Supreme Court

The Insurance Council of Australia (ICA) has launched a  test case in the NSW Supreme Court to examine the application of certain infectious diseases exclusions in business interruption policies.

The test case consists of two separate small business claims that were lodged with the Australian Financial Complaints Authority (AFCA) as part of its dispute resolution process.

Hollard and HDI Global Specialty have offered claims to assist in reaching a better understanding of how the infectious disease exclusions in policy documents respond to the unique circumstances of the COVID-19 pandemic.

The ICA notes that globally, insurers have designed and priced their policies on the basis that pandemics are not insurable due to the magnitude of potential losses, and the challenges of modelling the risk and ensuring coverage affordability.

The ICA understands AFCA will use the outcomes of the test case in determining complaints arising in respect of business interruption claims with the infectious disease exclusion.

“The Insurance Council initiated this test case on behalf of insurers that sell commercial property policies with business interruption cover," said Rob Whelan, CEO of Insurance Council of Australia. “The ICA believes this test case is an important step towards providing greater clarity to insurers and small business customers in the treatment of pandemic-related claims.

“The industry wishes to have the case heard as quickly as possible, given the challenging times being experienced by the small business sector because of COVID-19, the past season of natural disasters and the recession.

“Most insurers have never contemplated coverage for pandemics in their policies, and did not price pandemic risks into premiums. They believe pandemic-related exclusions are appropriate, but wish to provide greater clarity through engaging a superior court process.”

Richard Enthoven, CEO and founder of The Hollard Insurance Company, said: “We remain of the clear view that business interruption coverages do not cover pandemics. However, we volunteered to be part of the test case process so that the court system can clarify for our policyholders, Hollard and the industry how to handle this important issue.”

Richard Taylor, CMO of HDI Global Specialty SE, added: “As a global and prominent insurer in Australia, we take this matter very seriously and we are pleased to be able to make a positive contribution through our involvement in the agreed test case process.”