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Insurers told to have BI court result plan

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Insurers should have a plan for responding to the outcome of the business interruption test case heard earlier this month, the Australian Securities and Investments Commission (ASIC) has told company directors.

“This plan should include how to communicate with policyholders if the NSW Court of Appeal finds in favour of policyholders in the case,” Deputy Chairman Karen Chester says in a letter released on the regulator’s website.

“General insurers should also provide appropriate information to insurance brokers to pass on to small business policyholders.”

Most business interruption policies sold to small firms contain an exclusion for losses arising from a pandemic where the disease has been designated under the now repealed Quarantine Act or the replacement Biosecurity Act.

The Court of Appeal on October 2 heard a case brought by the Insurance Council of Australia, with support from the Australian Financial Complaints Authority, to test whether exclusions referring to the Quarantine Act are valid.

The full bench is still considering its decision on the case, which was fast-tracked straight to the NSW appeal court. Any appeal of that ruling would need to go to the High Court.

ASIC says it has also been monitoring international developments including the recent test case ruling in the UK High Court, which found claims should be paid in some cases.

In Australia, ASIC has collected and reviewed 392 policy wordings issued by insurers to small businesses employing less than 100 people and says despite exclusions it has identified a range of wordings that may respond to losses arising from COVID-19.

Policies may respond because they do not include a pandemic exclusion or contain an exclusion that applies only to “infectious disease” coverage clauses and not to other clauses in the policy such as “prevention of access” or “closure by authority”, ASIC says.

Where cover applies, insurers have been advised to settle claims in a timely manner to ensure financial pressures on businesses are not exacerbated by slow payments.

“If there are reasonable grounds to pay part of a claim but not to pay the full claim, we encourage general insurers and Lloyd’s coverholders to make an interim payment,” the regulator says.

Insurers, coverholders and brokers should also ensure information they provide about coverage before claims are lodged is clear, accurate, balanced, and does not, whether deliberately or inadvertently, mislead or deceive.

“We expect that you, as directors, will seek ongoing confirmation through board reporting that your firm’s approach to business interruption insurance claims by small business policyholders is consistent with the approach outlined in this letter,” Ms Chester says.