Insurance Claims and COVID-19 Business Loss

Following the unprecedented economic downturn of COVID-19, many businesses have sought to rely on insurance policies to redress loss endured.

After a multitude of these claims have been denied or held up, as believed to be excluded through a clause relating to diseases, the New South Wales Court of Appeal delivered an important decision.

What did insurers claim?

In the case of Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296, insurers attempted to rely on a clause which excludes “diseases declared to be quarantinable diseases under the Quarantine Act 1908 (Cth) and subsequent amendments”.

They argued the exclusion should be construed as intending to contain diseases listed on the Biosecurity Act 2015 (Cth), to which COVID-19 is included.

The intention was said to be inferred on the basis that:

  • the Biosecurity Act was included subsequent amendments to the QA exclusion, within the contract; and
  • references to the Quarantine Act were mistakes which ought to have been construed as references to the Biosecurity Act.

The Court of Appeal’s decision

The Court of Appeal rejected both of these arguments.

Regarding the first argument, the Court held that the subsequent amendments do not amount to reference of an entirely new replacement enactment and that a reasonable person would not have understood it that way.

The second argument was rejected on the basis that contractual construction of the commercial contract as the language of the particles does not infer the inclusion of the Biosecurity Act.

Justice Hammerschlag went on to say that if the insurers wished for COVID-19 to be covered, it would have made more “commercial sense…to have chosen words to allow for the exclusion of serious diseases which would break out during the cover period”.

What does this mean?

This decision is important as it provides judicial support for the finalisation of insurance claims related to COVID-19 business interruption.

Insureds whose claims have been held up or denied will now have strong precedent to support their entitlement to a claim and may be entitled to interest under section 57 of the Insurance Contracts Act 1984 (Cth).

Moreover, if insurers wish to exclude COVID-19 loss from insurance policies they will now need to ensure that this expressly says so.

The Insurance Council of Australia, funding the case, has notably stated they will review grounds for appeal in the High Court of Australia.

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