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Historical blunder? ICA and AFCA agree to BI test case

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The Insurance Council of Australia (ICA) has agreed to file a business interruption (BI) test case seeking a ruling on outdated policy wordings that have been described as potentially “one of the biggest drafting blunders in history”.

As insuranceNEWS.com.au has reported, many Australian insurers’ policies still include exclusions referring to the now repealed Quarantine Act 1908, which was replaced by the Biosecurity Act 2015. As a result, some claimants hope the exclusions will not apply to COVID-19 claims.

ICA says it has agreed with the Australian Financial Complaints Authority (AFCA) to file the case in a “superior court”. It says the primary purpose of the case is to decide whether references to the old act should be construed as references to its replacement.

Lawyers have previously expressed differing views, but The Australian newspaper today quotes Maurice Blackburn Principal Josh Mennen as saying insurers only have themselves to blame.

“If this goes the wrong way for the insurance industry, I don’t think it’s overstating it’ll be one of the biggest drafting blunders in history,” he said.

ICA says it will seek leave to have the test case heard as an expedited matter, and that it will fund the legal costs.

“ICA has prepared this test case on behalf of the general insurance industry,” CEO Rob Whelan said today.

“Insurers believe the intention of pandemic and communicable human disease exclusions are clear. However, a judicial determination will provide insureds and AFCA with greater legal certainty on this issue.”

AFCA’s Lead Ombudsman Insurance John Price says the agreement to file the case came following discussions which also included the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority and Treasury.

“Resolution of this threshold issue is important to assist AFCA in its dispute resolution role,” he said.

“I am pleased [ICA] and its members have engaged with AFCA in identifying claims that will form the combined test case. I am also appreciative of the complainants for agreeing to have their cases heard in this manner.

“The outcome of the case will provide some clarity for all stakeholders, in particular small business and insurers.”