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UK points to hurdles for BI test case: law firm

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Business interruption court decisions in the UK and South Africa related to the COVID-19 pandemic point to uphill battles for Australian insurers in their second test case, legal firm HFW has highlighted.

The law firm says in comparable jurisdictions the “overwhelming trend” has been that courts have found in favour of policyholders when looking at the types of issues to be considered in the Insurance Council of Australia case, due to start at the end of next month.

In the UK, the Financial Conduct Authority is currently reporting monthly figures on insurer payments for business interruption claims, following a Supreme Court appeal decision largely favouring policyholders.

“The policies that are being considered in this second test case don’t necessarily use the same wording, as the UK and there are also very Australian specific factual circumstances,” HFW Special Counsel Sophy Woodward told

“My punt though, is that in relation to the broader legal issues, like the business trends clauses and the issue of causation, I think it is more likely than not that Australia will follow the UK.”

The broad range of policy wordings being considered include issues around the proximity of COVID-19 to a business premises and whether that is the actual cause of shut-downs and losses.

The UK decision found examples of a disease at or near a premises could trigger cover, with all the outbreaks of the disease taken together causing the government to close down premises.

“Some of the issues around evidence and proof will be very different in Australia compared to in the UK,” Ms Woodward says “For example, we have had a lot less cases here, so being able to point to a recorded case at or near your premises is going to be harder.”

Australia’s state and federal divisions also differ from the UK and add another layer of complexity locally.

“Where the state and federal divide comes in is really when you consider the application of exclusion clauses that refer to the Biosecurity Act, which sets up a federal scheme for managing certain diseases, and the fact that the restrictions have mostly been imposed by state governments,” Ms Woodward says. “Although the significance of this depends on how the exclusion clauses are worded.”

The second test case could also have implications for a broad range of disasters, as it tests legal principles for adjusting business interruption claim payments for surrounding circumstances.

The UK judgment, looking at “trends” issues, rejected a landmark Orient Express Hotels decision that found a hotel damaged by a hurricane wouldn’t have experienced major losses under a business interruption claim as its business would have been impacted anyway from the surrounding devastation.

HFW expects the UK Supreme Court view rejecting the Orient Hotels decision is likely to also prevail in Australia, with the decision on that point having “significant ramifications”.