The Australian Financial Complaints Authority (AFCA) has found against dental practices in two business interruption disputes decided following legal clarifications provided by covid-related test cases.

In both claims, AFCA finds there hadn’t been an order made by a “competent government, public or statutory authority” to close the premises due to the outbreak of covid.

In addition, while there most likely was a covid outbreak within a 20km radius of the dental practices, AFCA says government orders reflected a wider public health risk and weren’t “as a result of” outbreaks in the complainants’ areas. The claims were for premises in Sydney and Queensland.

The disputes were decided after being put on hold while the courts clarified legal issues. AFCA agreed to the industry test cases as policyholders including shops, restaurants, bars and other enterprises disputed refusals by insurers to cover pandemic-related business interruption claims.

The first Insurance Council of Australia (ICA) test case found insurers couldn’t rely on outdated exclusions citing the Quarantine Act 1908. In the second test case, the Federal Court made orders across wordings involving ten claims, with appeals also heard.

Elements of the dental disputes, determined in favour of Suncorp, were examined in the light of court rulings on the Swiss Re International v LCA Marrickville claim.

In the Queensland dispute, the insurer was unable to rely on an exclusion wording that still cited the Quarantine Act, but said the complainant hadn’t shown sufficient causal link.

The complainant says the practice was closed on March 26 2020 due to the outbreak of covid after the Queensland Government imposed level three restrictions, as outlined in Australian Dental Association (ADA) guidelines.

A claim was lodged on March 30 under a hybrid clause offering cover “as a result of the closure or evacuation of the whole or part of the premises by order of a competent government, public or statutory authority” as a result of causes including the outbreak of a notifiable human infectious or contagious disease occurring within a 20km radius of the premises.

AFCA says the Queensland Government on March 23 ordered certain non-essential business to stop operating or to operate under new restrictions to slow the virus spread, but dental and medical facilities weren’t classed as non-essential.

The ADA issued directives and the Australian Health Protection Principal Committee (AHPPC) recommended cancellation of elective surgery.

AFCA says the ADA is a professional association and “as determined by the Federal Court, ADA and AHPPC were not competent government, public or statutory authorities”. The court also ruled an order must be mandatory.

“It cannot contain a choice even if the choice is constrained by recommendations and professional considerations,” AFCA says.

The claimant says there were 493 covid cases in Queensland on March 26. About 260 were in the metropolitan area, and information supplied pointed to “many” occurring within a 20-kilometre radius.

AFCA says it’s not disputed that mostly likely there was an outbreak of covid within 20 kilometres, but the government orders were general and a result of concern for the public health risk that covid presented to the state.

“The orders were not as a result of an outbreak at or within a 20-kilometre radius of the complainant's premises,” it says. “There is no reference to the complainant’s premises. There were no specific government orders specifying business locations.”

The ADA guidelines were also to all dentists in Australia, with no evidence the communications were sent as a result of an outbreak within the radius area of the complainant’s practice, it says.

In the Sydney practice dispute, the insurer says the complainant has not established a loss within the terms of the policy, and alternatively, it’s not covered due to an exclusion citing the Biosecurity Act 2015.

The insurer had issued a supplementary product disclosure statement in February 2019 which amended the wording to replace the Quarantine Act reference with a new clause citing the subsequent Biosecurity Act.

AFCA notes the NSW Premier’s announced restrictions on non-essential activities made no reference to dental or medical facility closures, while the same reasoning applied as in the Queensland case on statements by the dental and health bodies.

It similarly found the state orders were not in response to an outbreak at the complainant’s premises or within its 20km radius.

“Even if the complainant could establish the closure or evacuation of the premises by order of a competent authority, the exclusion relating to a biosecurity emergency would apply,” AFCA says.

“The panel is satisfied that the loss or damage arose directly or indirectly as a result of a biosecurity emergency or human biosecurity emergency declared under the Biosecurity Act 2015.”

AFCA in both cases says it recognises that the coronavirus has had a devastating impact on small businesses throughout Australia, but it has been guided by the interpretation of policies as applied by the Federal Court.

“In the circumstances it is fair that the insurer be entitled to rely upon the terms and conditions of the policy to deny liability for the claim,” it says.

The AFCA decisions are available here and here.