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BI test case imminent after ICA, AFCA agree launch

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A business interruption (BI) test case will be held in “a superior court” to rule on matters relating to COVID-19 shutdowns.

The Insurance Council of Australia (ICA) confirmed last week it has agreed with the Australian Financial Complaints Authority (AFCA) to file the case “as an expedited matter”.

As insuranceNEWS.com.au has reported, many Australian insurers’ policies still include exclusions referring to the now repealed Quarantine Act 1908, which was replaced by the Biosecurity Act 2015.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.

The council, which will pay the legal costs, says the primary purpose of the case is to decide whether references to the old act should be construed as references to its replacement.

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

“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.

Industry sources reacted angrily after Shadow Assistant Minister for Financial Services Matt Thistlethwaite released a statement welcoming the test case and urging the Morrison Government “to ensure large general insurers are doing everything possible” to help SMEs.

“Labor understands the frustrations of many SMEs that have been left in the lurch by their insurers after business interruption claims were rejected,” the statement said.

“The outcome of the test case will provide further certainty for loyal small business customers that have paid their premiums but been denied payouts when it counts.”

The comments drew a sharp reaction form senior industry sources, who said Mr Thistlewaite was implying that just because premiums have been paid all claims should be accepted regardless of coverage limits.

“In the middle of a health and economic crisis, if politicians haven’t got a positive contribution to make then maybe it’s better to say nothing,” one source told insuranceNEWS.com.au.

“That would be better than trying to stir up trouble between stakeholders. No-one really needs it and it’s transparent political point-scoring.”