NSW Court of Appeal rules against insurers

In an important test case judgment, the New South Wales (NSW) Court of Appeal has rejected the industry’s argument that policies should not cover COVID-19 pandemic-related losses. The test case was initiated by the Australian Financial Complaints Authority (AFCA) and the Insurance Council of Australia.

The test case involved two plaintiffs – HDI Global Specialty SE and The Hollard Insurance Company – and four defendants from the tourism and retail sectors. Both insurers argued their BI insurance was never intended to provide cover for quarantinable diseases under the Australian Quarantine Act 1908.

But the court dismissed the insurers’ declarations, ruling: “COVID-19 is not a disease declared to be a quarantinable disease under the Quarantine Act 1908 (Cth), and the exclusion in the HDI Disease Benefit [and the Hollard Disease Cover are] not enlivened.”

For context, the court explained: “On June 16, 2016, well before the period of cover for either policy commenced, the Quarantine Act 1908 (Cth) was repealed and the Biosecurity Act 2015 (Cth) came into force. The Biosecurity Act did not provide for declarations of quarantinable diseases by the Governor-General. Instead, the Director of Human Biosecurity was able in certain circumstances to determine a disease to be a “listed human disease”. Before the repeal of the Quarantine Act, COVID-19 was not declared to be a quarantinable disease. On January 21, 2020, COVID-19 was determined to be a listed human disease under the Biosecurity Act.”

The ICA is considering whether to appeal the decision. In a statement it said it was “in consultation with its members and legal representatives” and would ”urgently review the determination and specifically the grounds on which it could seek special leave to appeal against the decision to the High Court of Australia”.  

The Council is also considering whether a further test case could offer more clarity on “outstanding policy matters, including proximity and prevention of access, relating to the pandemic and business interruption insurance”.

”The industry’s intention is that it would again meet the costs of both the policyholders and the insurers in any legal process, in the same fashion as the first test case regarding the Quarantine Act,” stated the ICA.

“The industry seeks to progress a court resolution of these matters quickly, and regardless of any decision around an appeal on the first test case. The Insurance Council will continue to work with all stakeholders and government to provide clarity for all parties and the industry. It will provide an update on these matters as soon as they are settled in coming weeks.”