Steadfast and AUB Group believe some business interruption (BI) policies will respond to coronavirus-related shutdowns, despite insurers’ intentions to rely on pandemic exclusions.

As previously reported, the Insurance Council of Australia (ICA) and insurers have argued that BI cover generally only responds to physical damage at an insured premises.

Infectious diseases cover is available as an extension, but this applies to localised outbreaks like Legionnaires’ Disease, and is not intended to respond to pandemics.

While many pandemic exclusions refer to the now repealed Quarantine Act, not the current Biosecurity Act, insurers argue the intention was clear and the exclusions will hold up.

As reported by insuranceNEWS.com.au earlier this week, the Australian Financial Complaints Authority (AFCA) is considering a test case proceeding, to provide an “authoritative decision” on certain issues.

AUB Group CEO and MD Mike Emmett told insuranceNEWS.com.au brokers act on behalf of clients and will work with insurers to get claims paid.

He says many BI claims will need to be tested in court but in his view “the intent of both parties at the time of entering into the contract” will be crucial.

Mr Emmett says the outcome of court proceedings will also depend on specific policy wordings but predicts “there will be insurance payouts as a result of the government shutdown”.

Steadfast MD and CEO Robert Kelly told insuranceNEWS.com.au that it is “not a broker’s position” to tell a client that a claim won’t be paid. Instead, brokers will work with clients to detail how a loss occurred and put that to the insurer.

“It is the insurer that adjudicates on it,” he said.

Mr Kelly believes an AFCA test case “makes sense” but adds that each circumstance is different and there are wide variations in policy terms.

Like Mr Emmett, he believes that some policies will pay out and that the issue isn't as clear cut as it might have first appeared. “I would expect and hope that [ICA] has a different view today than when COVID-19 first broke out”.

AFCA says “an authoritative decision as to the proper construction of the policies”, made by a court, will benefit insurers and consumers.

“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.”

insuranceNEWS.com.au understands issues that could be settled by the test case include whether the impact of COVID-19 can be interpreted as damage, the definition of an outbreak, and whether or not exclusions referring to outdated legislation hold up.

ICA and a number of major insurers are believed to be working closely with AFCA on next steps.

“Business interruption cover is usually triggered when the insured property is directly affected by physical damage, though each insurer’s policy is different,” ICA spokesman Campbell Fuller said today.

“Most current business interruption policies contain exclusions where the intention is to rule out losses caused by notifiable, quarantinable or infectious diseases.

“ICA is aware of debate about some insurers relying on certain laws as the basis of the denial of claims.

“Where insurers’ decisions on claims are in dispute, measures that provide greater clarity and certainty to insurers and consumers may be necessary.

“A test case may assist, and ICA is discussing this with members.”