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COVID test case judgment: insurers win the day

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The Federal Court today found in favour of insurers on the vast majority of issues in the second business interruption test case on COVID-19 claims – but an appeal looms.

Justice Jayne Jagot handed down her judgment via web conference this afternoon after presiding over eight days of hearings that concluded on September 15.

The second test case consisted of nine small business claims lodged with the Australian Financial Complaints Authority as part of its dispute resolution process. Insurers involved are Allianz, Chubb, Guild Insurance, IAG and Swiss Re. A case involving QBE was also rolled into the proceedings.

“Other than in one case [IAG/Meridian Travel] I have concluded that the insuring clauses do not apply in the circumstances of each case,” Justice Jagot said today.

The hearings considered whether COVID-19 was covered under hybrid and diseases clauses and whether government restrictions in response to the pandemic triggered prevention of access cover. But Justice Jagot concluded that in almost all cases the clauses did not apply.

“As these conclusions are not able to be affected by further evidence, I have informed the parties that I consider I should make declarations in each of these cases, other than [IAG/Meridian Travel] to the effect that the insurer is not liable to indemnify the insured in respect of the insured’s claim.”

In the IAG/Meridian Travel case Justice Jagot said the infectious disease clause does apply.

“There is an infectious disease clause which operates by reference to the outbreak of a human infectious or contagious disease occurring within a 20km radius of the Situation,” her summary said.

“The clause does not require that the premises/situation be closed. It does not require that the closure be by order/action of a competent authority resulting from the outbreak of a human infectious or contagious disease occurring within a 20km radius of the Situation.

“The Meridian Travel premises are located in inner Melbourne and the insurer conceded that there was an outbreak of COVID-19 within a 20km radius of the Situation. The infectious disease clause therefore applies.”

However, Justice Jagot said there are “substantial issues” as to whether Meridian Travel can prove its business was interrupted or interfered with as a result of disease within its 20km radius.

There was some bad news for insurers in relation to the QBE case, as Justice Jagot concluded that section 61A of the Property Law Act 1958 (Vic) does not apply to Commonwealth Acts.

“Accordingly, the insurers cannot rely on section 61A to operate to replace references to the Quarantine Act 1908 with references to the Biosecurity Act 2015,” she said.

“Exclusions in the policies based on the Quarantine Act 1908 therefore do not apply.”

Justice Jagot granted all parties leave to appeal, with hearings already pencilled in for next month.

The ICA lost the first test case, heard last year, which centred on whether insurers could rely on exclusions referencing the Quarantine Act 1908 and subsequent amendments. The Act has since been replaced by the Biosecurity Act.

More details in our Monday bulletin.