The Australian Financial Complaints Authority (AFCA) has confirmed it is considering a business interruption test case proceeding, to provide an “authoritative decision” on how policies should respond to COVID-19 shutdowns.

As insuranceNEWS.com.au has previously reported, some law firms are arguing that insurer exclusions that cite the now repealed Quarantine Act would not hold up. Insurers, however, say the intention of the exclusions is clear regardless of which act is referred to.

AFCA told insuranceNEWS.com.au today that it “appreciates the importance of the current issues relating to business interruption policies and their application during the COVID-19 crisis, and the potential impact this has for the broader community and the insurance industry”.

It says it has received a request to consider whether it would agree to a business interruption test case proceeding.

A test case would be dealt with by a court, such as the Federal Court, with the power to make a binding decision. That decision would then help inform AFCA in any subsequent dispute.

“We are in discussions to approve and then settle the issues that would form part of such a test case, including several issues of interpretation and construction of some of these policies and relevant policy exclusions,” AFCA said.

“Those issues are expected to arise in a large number of cases involving a large amount of money. We appreciate there could be a potentially large economic impact. There may also be identical or very similar issues that will arise in many other cases under similar wordings of other insurers.

“In the circumstances, an authoritative decision as to the proper construction of the policies will be of great benefit to insurers and consumers alike.”

AFCA declined to reveal which organisation has requested the test case, saying that it can’t release information about “specific active cases”.