Pandemics were not contemplated for coverage under most business interruption policies, insists ICA
The Board of the Insurance Council of Australia (ICA) has said it will appeal the decision of the New South Wales Court of Appeal regarding the application of the Quarantine Act exclusion to business interruption policies.
While the insurance industry is sympathetic to businesses, particularly small and medium enterprises, that have experienced hardship as a result of COVID-19 restrictions, it remains of the view that pandemics were not contemplated for coverage under most business interruption policies and that the Quarantine Act exclusion excludes COVID-19 related claims.
”Premiums were not collected to reflect the cost of cover for pandemics and reinsurance was not generally available for pandemic cover, nor were reserves established for pandemic-related claims,” said ICA in a statement. “Where appropriately priced business interruption policies were designed to cover pandemics (predominantly in the entertainment and health sectors) claims have already been paid out.”
The ICA intends to file a further test case that explores other policy issues foreshadowed with policyholders but not dealt with in the first test case, including proximity and prevention of access, and is working with stakeholders to finalise the parameters of this second test case.
According to Andrew Hall, CEO, Insurance Council of Australia:
”The industry understands that this is a challenging time for many small and medium businesses and is doing what it can to ensure a fair and sustainable resolution that provides clarity.
”Business interruption insurance plays a crucial role in providing protection for businesses and enabling them to function with assurance, and APRA data shows that this category of insurance already costs more to the industry than it recovers.
”Those business insurance policies that were intended to cover pandemics, predominantly in the entertainment and health sectors, have paid out. However, if the industry is forced to pay out for risks it has not collected premiums for, or sought reinsurance for, it would compromise our ability to provide the Australian business market with protection against other risks.”