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Long wait expected for Australia business interruption clarity

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Legal battles over business interruption cover for COVID-19 may bring little clarity to the Australian market until later in the year, QBE Group Interim CEO Richard Pryce said today.

The Insurance Council of Australia has sought leave to the High Court to appeal an initial test case over exclusions citing the Quarantine Act, while further actions are expected over other policy wording issues.

“These cases will take some time to be heard and even longer for the rulings to be handed down,” Mr Pryce said at a results briefing.

“It is difficult to see any clarity emerging with respect to Australian business interruption in the first half of 2021 and the timeframe could easily extend toward the end of 2021 and beyond.”

QBE in January made an extra $US185 million ($238 million) allowance for potential Australian business interruption claims, and today confirmed it had not changed its group-wide ultimate COVID-19 net cost estimate of $US785 million ($1 billion).

Mr Pryce says the group has allowed for potential extreme “albeit highly unlikely” Australian business interruption claims scenarios and has continued to speak with its reinsurers, including in the wake of last month’s UK Supreme Court decision, which largely favoured policyholders.

QBE says its UK exposure remains capped after reinsurance at $US70 million ($90 million) despite the court decision and continued lock-downs in the nation.

‘While the result in the recent Supreme Court ruling was surprising, and overturned established case law precedent, it does bring certainty to the UK business interruption landscape,” he said.

In North America, QBE says it has minimal exposure with US industry wordings “far less affirmative” than in the UK. Cover requires physical damage and almost all QBE policies also have explicit virus exclusions.

Mr Pryce says the US industry has won about 121 out of 131 federal level court cases testing whether the virus causes physical damage and, while it can’t be completely ruled out, the chance of a UK-style social-justice based court case outcome is remote.