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ICA pursues High Court appeal on BI exclusion

The Insurance Council of Australia (ICA) will seek leave from the High Court to appeal a decision that found business interruption exclusions citing the Quarantine Act are not valid in rejecting COVID-19 related claims.

ICA says it remains of the view that pandemics were not contemplated for coverage under most business interruption policies and it will request the matter be heard as quickly as possible if special leave to appeal is granted.

“The industry understands that this is a challenging time for many small and medium businesses and is doing what it can to ensure a fair and sustainable resolution that provides clarity,” CEO Andrew Hall said today.

Insurers say premiums were not collected to reflect the cost of cover for pandemics and reinsurance was not generally available, nor were reserves established for pandemic related claims.

Australian Prudential Regulation Authority (APRA) data shows Fire and Industrial Special Risk insurance, which generally covers business interruption, had a gross loss ratio of 84% in the 12 months to September and a net underwriting ratio of 115%.

The APRA data shows the category of insurance already costs more to the industry than it recovers, Mr Hall says.

“Those business insurance policies that were intended to cover pandemics predominantly in the entertainment and health sectors, have paid out,” he said.

“However, if the industry is forced to pay out for risks it has not collected premiums for, or sought reinsurance for, it would compromise our ability to provide the Australian business market with protection against other risks.”

The NSW Court of Appeal decided in a 5-0 judgment on November 18 that policies citing the repealed Quarantine Act 1908 and subsequent amendments could not be read as including the current Biosecurity Act 2015.

ICA says it intends to file a second test case that explores other policy issues not dealt with in the first case, including proximity and prevention of access, and is working with stakeholders to finalise the parameters.

The industry will meet the costs of both the policyholders and the insurers in the further test case, as it did in the first, and will also do so for any appeal.

The High Court receives hundreds of applications each year for appeals to be heard, but only a handful are granted. Broad criteria include matters of importance, questions of principle, or where there is a question over a serious error in a lower court in the administration of justice.

The court is the final avenue for appeal for decisions from lower courts around Australia.