Investor Claim Partner and Clayton Utz are starting a collective action on behalf of thousands of business interruption (BI) insurance policyholders against insurers that have knocked back claims for losses following forced COVID-related closures.
The move is aimed to provide a potential lifeline for tens of thousands of businesses crippled by financial losses incurred during COVID-19 lockdowns, including restaurants, bars, gyms, cinemas, retailers and tourism operators.
It follows a NSW Court of Appeal ruling last November in a test case that insurers could not rely on standard “quarantinable disease” exclusions when knocking back claims for losses caused by COVID-19 under business interruption (BI) policies. Insurers had incorrectly asserted that the exclusion was a “pandemic exclusion” and the Court found that it did not apply to COVID-19.
Lawyers had previously told Lawyers Weekly that the insurance industry could be subject to hundreds of millions in COVID-linked payouts after suffering the loss of the test case that was designed to solidify their position on rejecting claims.
ICP is asking all businesses that suffered pandemic-related financial losses to submit their BI insurance policies for review before registering interest in the joint response to insurers.
Clayton Utz will be engaged to advise individual businesses on whether they have a basis for pressing their BI claim and should consider joining in the collective action. The firm had previously also acted for the successful policyholders in the recent test case.
“COVID-19 cut a swathe through the livelihoods of thousands of business owners who, through no fault of their own, were forced to close for extended periods. If they have valid claims for business-interruption losses, then insurers need to step up, not deny and delay payment,” ICP managing director, John Walker, said.
“Our message to business owners is do not take your insurer at its word when it says you’re not covered for BI losses – check your policies closely and get independent advice.”
More than 100 small businesses had contacted ICP and Mr Walker said he expects this to reach “in the tens of thousands”, adding failure to pay could have wider implications for the economy.
ICP also said that the action is bolstered by a decision handed down recently by Britain’s highest court, the Supreme Court, that upheld earlier UK court rulings affirming the ability of UK businesses to make BI claims related to COVID-19 closures. UK legal precedents are relevant to Australian legal proceedings.
“ICP is offering an efficient way for businesses to have policy wordings reviewed by insurance law experts at Clayton Utz, at no charge to the business. If their BI claim looks valid, they then have the option of joining our collective process to have claims resolved,” Mr Walker said.
“We intend to engage constructively with insurers to see if claims can be resolved without the need for litigation but if that is necessary, Clayton Utz will act for the lead applicants in those proceedings.”
Uncertainty surrounding the validity of pandemic-related BI claims centred on exclusion clauses set out in many standard insurance policies that excluded losses arising from “quarantinable disease” as defined by the Commonwealth Quarantine Act. However, when this act was repealed and when its replacement Biosecurity Act 2015 commenced, the “quarantinable disease” wording in those standard policies was not updated.
In the test case brought by the insurance industry last year to resolve the issue, the insured businesses, represented by Clayton Utz, argued successfully that the reference to “quarantinable disease” under the Quarantine Act in policy wording does not apply to COVID, as it is not a quarantinable disease. The NSW Court of Appeal ruled unanimously in favour of insured businesses.
ICP said that a range of other BI policy wordings that were not the subject of the recent NSW test case could also provide openings for businesses to make a valid claim for pandemic-related losses.
Mr Walker said the courts have spoken decisively on this issue and insurers need to respect that.
“For many businesses, the payout of their BI insurance claim is all that stands between ongoing viability and collapse,” he said.
“Insurers have an important role to play in Australia’s recovery from Covid and the public expects them to meet, and not shirk, their legal obligations. They should be actively assessing claims and communicating with policyholders, even while their application to appeal to the High Court is considered.”