The Insurance Council of Australia (ICA) has criticised proposed COVID-19 business interruption class actions, labelling them “premature” while test cases on the issue are still active.

As insuranceNEWS.com.au has reported, insurers lost an initial test case last year after the NSW Court of Appeal ruled insurers could not rely on exclusions that referenced the now repealed Quarantine Act.

The industry is seeking leave to appeal that decision, but in the meantime Federal Court of Australia proceedings have commenced to test the application of “further issues” in relation to pandemic coverage in BI policies.

The second case will look at issues such as the definition of a disease, proximity of an outbreak to a business, and prevention of access. It will consider nine small business claims lodged with five insurers – Allianz, IAG, Chubb, Guild, and Swiss Re Corporate Solutions.

ICA will be represented in the case by Allens (lead partner being Guy Foster), and Ian Jackman SC, Perry Herzfeld SC and Jerome Entwisle of counsel.

Most of the insured are represented by Clayton Utz and John Sheahan SC, Derek Wong and Deborah Horowitz of counsel. One of the insured is represented by the firm Corney & Lind.

As insuranceNEWS.com.au has previously reported, Clayton Utz is separately advising individual firms on whether they have a basis for pressing a class action claim, working with litigation funder ICP.

ICA declined to comment on that arrangement but did say calls for class action participants are “premature given the business interruption test cases that are underway”.

“If policyholders seek to resolve a claim through class actions they will have to pay substantial fees and disproportionate legal costs to litigation funders and lawyers,” an ICA spokesman told insuranceNEWS.com.au.

“Based on past class actions, policyholders who sign up with a class action syndicate, many of whom are small businesses, risk losing up to 40% of any payment to class action funders and lawyers.

“For claims that fall outside of the test case parameters or cannot be resolved using insurers’ own dispute resolution processes, AFCA is able to make binding decisions on claims up to $1.085 million free of charge for policyholders, in contrast to a fee of up to 40% to class action funders and lawyers.”