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Insurers respond to BI defeat: QBE warns of second case, IAG enters trading halt

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QBE says industry preparations are underway for a second test case over business interruption cover for COVID-19 claims after the NSW Court of Appeal yesterday ruled against insurers on wordings citing the repealed Quarantine Act.

The first case was brought by the Insurance Council of Australia (ICA) and the Australian Financial Complaints Authority (AFCA) to determine whether references to the Quarantine Act and subsequent amendments included the Biosecurity Act 2015.

QBE said today that despite yesterday’s ruling against insurers, which was reported first by insuranceNEWS.com.au, the particular wordings of its policies require a number of triggers to be met before an insured would be entitled to cover.

“The ICA has already taken steps to fund and progress a further test case through AFCA to provide clarity on whether policy coverage triggers in certain business interruption policies, including QBE business interruption policies, are satisfied in the unprecedented circumstances of COVID-19,” it said.

QBE says including reinsurance recoveries the group’s net cost of any business interruption claims in Australia is likely to be limited to $US5 million ($6.8 million) per occurrence.

“This is subject to contributing losses (after recoveries under the group’s main catastrophe and quota share reinsurance treaties), not exceeding the group’s catastrophe aggregate reinsurance treaty limit of $US500 million ($684 million).

IAG today requested a trading halt on its shares to enable the insurer to consider the impact of the Court of Appeal decision.

Suncorp, which has made a provision of $195 million for potential claims, said yesterday’s judgment does not mean that policies referencing the Quarantine Act will automatically respond to COVID-19 related claims.

“When assessing whether a business interruption claim may be triggered, each policyholder’s individual circumstances will need to be considered against the various other clauses relevant to their policy,” it said in a statement today.

ICA is considering whether there are grounds to appeal to the High Court on yesterday's decision, with parties able to lodge appeals until December 16.

Comment from the ICA and AFCA on a further test case wasn’t immediately available.

insuranceNEWS.com.au understands that a second case, addressing issues such as proximity to outbreaks and prevention of access, has been under consideration for some time, but no agreement has yet been reached with AFCA for it to proceed.

More details in our afternoon Daily bulletin.