An Australian Financial Complaints Authority (AFCA) decision on a covid business interruption dispute has shut the door on many claims and is likely to lead to more legal action, a lawyer says.

An insurer’s decision to decline a Melbourne audio-visual and events supply company’s claim has been upheld by an AFCA panel despite lawyers saying evidence was provided that was not part of a Federal Court test case process. 

Two test cases were held to provide clarity for such disputes, with the crucial second case finding mostly for insurers. The court findings have led to many claim denials. 

Berrill and Watson Lawyers Principal John Berrill says AFCA has effectively “rubber-stamped” the insurer’s decision, related to the 2020 covid restrictions, and did not fully consider much of the evidence provided, in a determination that involved several important claim issues. 

“AFCA publicly encouraged small businesses affected by covid to lodge complaints and assured them they would be dealt with fairly in a timely manner and, after four years waiting, frankly, it hasn’t done either,” Mr Berrill told insuranceNEWS.com.au. “It has effectively slammed the door shut on a significant proportion of claims.” 

Mr Berrill says small businesses that have claims with similar issues will have to pursue them through the courts on an individual basis or through class actions. 

AFCA has been working through covid-related business interruption disputes following the end of the industry test cases, finding mostly against insureds. Some AFCA decisions remain on hold as the Federal Court considers whether class actions involving four insurers should go ahead. 

Decisions on hybrid clauses have often said state government covid restrictions and shutdown orders were not directly in response to specific covid outbreaks in a complainant’s area, but were general. 

But Mr Berrill says submissions have been made to AFCA to make the link between general shutdown orders and outbreaks near a policyholder’s premises. 

AFCA says the decision in favour of Suncorp’s AAI on the audio-visual and events supply business was guided by policy interpretations as applied by the Federal Court in the second test case and appeal. 

“The complainant has argued strongly that AFCA should not follow the reasoning of the Federal Court given it says the court did not have access to all relevant information,” the decision said. “The panel acknowledges the passion with which the argument is put but does not agree.” 

The authority found firstly that the policy required a loss of income due to “any legal authority closing or evacuating all or part of the premises”. It ruled that was not the case for the events business and the government orders.  

It then considered other issues raised, including if the closure was “as a result of” the outbreak of an infectious disease within a 20-kilometre radius of the premises. 

In the case of July 2020 government directions, the decision says “the complainant concedes” there were no orders specifying the business’ location, but the orders relied on Australian Health Protection Principal Committee advice on closure of the Melbourne metropolitan area, and at times specific suburbs, due to the rapid spread of covid. 

The test case and the appeal did not address the more geographically targeted public health orders, but the insurer argued that, like in the test cases, the orders were ultimately about reducing the risk of spread statewide, or at least across a region much larger than the 20-kilometre radius specified in the policy. 

AFCA agrees the July directions were not a result of an outbreak within the complaint’s 20-kilometre radius but were due to the increasing spread of the coronavirus across the broader metropolitan area. 

“The panel accepts the closure was most likely a result of the threat of the spread or risk of an outbreak of an infectious or contagious human disease occurring across the broader metropolitan area and associated risk to the state,” it said. 

The decision has also ruled in favour of the insurer on an exclusion clause, and on a prevention of access cover extension that the claimant argued was different to test case clauses.  

AFCA says it agreed to the covid test cases to obtain clarification of issues associated with various policies and while it is not a court and is not bound by strict legal principles, it is required to “have regard to those principles”. 

“In the circumstances, the panel accepts it is fair for the insurer to rely on the terms and conditions of the policy to deny liability for the claim,” it said. 

In response to Mr Berrill’s criticism, AFCA says that while it cannot discuss individual complaints, it does not “rubber stamp” insurers’ decisions, and that each ruling “turns on the specific facts and circumstances of that complaint”. It says last year, 74% of complaints were closed by agreement or in favour of the complainant. 

It says it acknowledges the impact of the pandemic on small businesses, but it had to place related insurance complaints on hold while waiting for test case outcomes, and 110 complaints are still on hold as they may be affected by class actions. 

AFCA says it has received 418 covid-related business interruption complaints since the start of the pandemic – 257 have been closed, and 161 remain open. It says the 51 open complaints not affected by class actions are being progressed by case workers or ombudsmen. 

“Our goal remained at all times to work as quickly as possible, as soon as we were able,” Lead Ombudsman Insurance Emma Curtis said.