The Council of Financial Regulators, the coordinating body for Australia’s main financial regulatory agencies, has been closely monitoring the progress of efforts to test the validity of pandemic exclusions in business interruption (BI) insurance policies.
The council comprises the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, the Australian Treasury and the Reserve Bank of Australia.
“The New South Wales Court of Appeal recently ruled in favour of policyholders on one key issue, though other areas of uncertainty remain,” said the council in an official statement that was published after its recent regular quarterly meeting.
Council members noted a number of insurers had increased their provisions for potential claims in light of the court decision. They encouraged the industry to work with the Australian Financial Complaints Authority and move as quickly as possible to resolve any remaining uncertainty and promptly pay out valid claims.
The court case on BI insurance was initiated by the Insurance Council of Australia and Australian Financial Complaints Authority to resolve the uncertainty surrounding potentially outdated wording in pandemic exclusions.
Several insurers in Australia have denied COVID-19-related BI claims on the grounds that their policies specifically excluded disruption caused by ‘quarantinable diseases’. However, these policies referred to the ‘Quarantine Act’ which had been repealed in 2015 and replaced with the ‘Biosecurity Act’.
Despite the insurers arguing that the intent of the clauses was clearly to exclude a pandemic even after amendments in the Biosecurity Act, the court said that COVID-19 is not “declared to be a quarantinable disease under the Quarantine Act 1908 and subsequent amendments”, and “accordingly was not excluded from the disease benefit clauses”.