Business insurance appeals to High Court look at JobKeeper, overlapping clauses

Mr Berrill, whose firm represents some businesses battling their insurers, said requests for leave to appeal could take between six to eight months to hear. If the High Court grants leave to appeal, a ruling could take up to another 12 months, he estimated.

Still, research from law firm Clayton Utz found only an average of 12 percent of requests for leave to appeal were actually granted annually since 2012. The High Court considers factors such as whether an appeal would involve an important question of law, resolve differences of opinion between courts and be in the interests of the administration of justice.

The Insurance Council of Australia said it understood there was “frustration that the matter continues through the courts”, but policyholders and insurers needed “definitive guidance from the courts” about applying business interruption policy wordings.

Operations from laser-cosmetic surgeries to restaurants that were shut down in the pandemic have tried claiming on business interruption policies.

It has triggered disputes, with insurers initially arguing pandemics were never meant to be covered. Nonetheless, the Australian Financial Complaints Authority and industry group Insurance Council of Australia decided to legally test some key areas.

An initial case surrounded policies quoting the outdated Quarantine Act – the new updated version is the Biosecurity Act. That case went against insurers and was finalized once the High Court refused to hear further appeals on the matter.

Another bevy of cases was run to test different interpretations of business interruption insurance, including COVID-19 outbreak proximity or the impact of specific policy clauses banning pandemic claims.

The Full Federal Court last month issued a ruling backing earlier judgments that largely went the way of insurers.

Still, some court findings also helped customers including that insurers could not subtract from any payouts the amount of compensation a business had received in JobKeeper, a government subsidy to help firms retain staff.

But in an application for appeal about its coverage of a Melbourne travel agency, insurers IAG argued other courts had found insurers have a right to recoup payments received by a customer from third parties that reduce the customer’s losses.

IAG maintained the Full Court had erred in concluding that a specific “settlement of claims” wording in this policy excluded the application of the general principles about insurers being able to recover third-party payments.

“Considering the generosity of the ‘JobKeeper’ program, the quantum of those payments is likely to be significantly affected by the answer to the questions that [IAG] seeks to raise on appeal, ”the insurer’s application stated.

If the Full Court’s decision stands, it would have “far reaching consequences for the insurance industry”. “It would come as a great surprise to insurers” that they had given up rights to such recoveries, it said.

A ruling that went against customers is up for appeal by a laser cosmetic clinic against insurer Swiss Re.

The Full Court had upheld if one clause of business interruption policy, relating to government mandated closure or evacuations, had specifically ruled out covering diseases under Australia’s Biosecurity Act, then the customer could not rely on other clauses, including one in which a civil authority’s action prevented access to the business.

But the clinic’s lawyers said the correct approach encapsulated a “reasonable” customer reading the policy and if “cover for a risk is stated to be available and is not specifically excluded, conclude that the risk was covered”. “They would not read an unexpressed exclusion into one clause because another clause covers similar (but not identical) subject matter,” the application said.

Townsville craft beer and restaurant The Taphouse has also requested an appeal. That partly focuses on arguing the Full Federal Court erred in finding a Queensland health shutdown direction in March 2020 was not made as a result of a COVID-19 outbreak occurring within 20 kilometers of the venue.

The business interruption policy had covered any legal authority closing the premises due to an outbreak of an infectious disease within that radius of the venue.

But the restaurant’s request for an appeal stated the Full Court had found the lockdown orders were imposed “instead of preventing the risk of spread… throughout that state”. Its application says that there had been an outbreak in Townsville and it was “unrealistic to infer that this outbreak played no part in the [government] decision… to impose state-wide restrictions extending into north Queensland ”.

While not part of the official test cases, casino giant The Star Entertainment has also appealed its failure to obtain a business interruption payout from insurers including Chubb. It argued the Full Court wrongly found part of the insurance policy did not cover pandemics.

In initial hearings, Star had made arguments for a payout based on part of the policy about business interruption, while the insurers countered another part of the policy specifically excluded notifiable diseases listed under the Biosecurity Act, and COVID-19 was such as disease. The Full Court backed the insurers’ argument when looking at the policy as a whole.

But Star’s request for appeal argued “overlap between insuring clauses is not inconsistency.” A reasonable businessperson would see that restrictions and limitations of one policy section do not apply to “serious events” covered by another policy section and “identify that it offers materially different cover”, Star’s request said.

Insurers including Suncorp, QBE and IAG have stowed away more than a billion dollars for potential payouts, with IAG encompassing the lion’s share of those provisions. The final court decisions will help determine the scale of any releases of these provisions.

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