Does COVID-19 exclude me from making an insurance claim?
The New South Wales Court of Appeal has delivered a stunning judgment in relation to insurance claims made by small businesses during the COVID-19 pandemic. The recent decision of HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 was concerned with so called “pandemic exclusion” clauses contained in certain insurance policies covering business interruption.
Business owners who may have suffered loss due to business interruptions are urged to reconsider their position on whether they are capable of making a claim. If your policy contains a similar exclusion for quarantinable diseases, then you may be entitled to cover.
Conversely, Insurance companies should refer to the recent decision and invite policyholders to make a claim if they have suffered a business interruption as a result of the pandemic. Contingent upon a possible appeal, insurance companies may be forced to pay significant sums to those businesses which have been interrupted by the pandemic.
Background of the Case
Insurance companies have been regularly refusing claims for COVID-19 related issues on the basis that their policies excluded business interruptions caused by “quarantinable diseases”. It was backed by the Insurance Council of Australia and brought as a test case with the aim of validating their position on rejecting claims made throughout the pandemic.
The policies contained provisions to provide cover for business interruptions caused by:
“Outbreaks of infectious or contagious human diseases within a 20km radius of the relevant business premises.”
However, it contained an exclusion for diseases determined to be:
“Quarantinable diseases under the Quarantine Act 1908 (Cth)”
The problem was that the Quarantine Act had been repealed and replaced with the new Biosecurity Act 2015 (Cth). Whilst much of the wording contained in the Quarantine Act was incorporated into the new Biosecurity Act, there was no reference to “quarantinable diseases”. Instead, the Biosecurity Act provides for certain diseases to be determined as “listed human diseases”. It was also accepted that COVID-19 had been determined as a “listed human disease”.
The insurance companies argued that their policies excluding quarantinable diseases should be interpreted as excluding listed human diseases. Therefore, they insisted that policyholders should be prevented from making a business interruption claim in relation to COVID-19.
Reasoning
The primary argument put forward by the insurers was that, as a matter of construction, the Court should effectively replace the wording so as to avoid absurdity. The Court did not accept that the mistaken reference to the Quarantine Act 1908 (Cth) could attract the benefit of the principles of absurdity. The Court observed that the exclusion could still operate in a workable manner because it could still exclude diseases which had been previously declared as quarantinable diseases.
Therefore, the actual wording of the contract could not be displaced.
The Court of Appeal also struck down an argument that the reference to “subsequent amendments” in the policy could include the new Biosecurity Act 2015 (Cth). It was held that “subsequent amendments” did not encompass a reference to a new, replacement statute.
Outcome
For the reasons detailed above, the Court of Appeal unanimously concluded that the relevant exclusion did not apply to the COVID-19 pandemic. The disease had not been declared a quarantinable disease under the repealed Quarantine Act.
Whilst this decision marks a major blow to the insurance industry, it is expected that the Insurance Council of Australia will support an urgent appeal to the High Court of Australia.
Conclusion
The key takeaway is to carefully read your insurance policy and seek advice if you think you have been wrongly denied in a claim for a COVID-19 related business interruption.
If you require any assistance with any of the above, please do not hesitate to contact a member of Coleman Greig’s Litigation and Disputes team, who would be more than happy to assist you.
