It’s now official that the Australian Financial Complaints Authority (AFCA) will commence a business interruption (BI) test case, legal proceeding which is expected to deliver an “authoritative decision” on how insurance policies should address the issue of losses arising due to the Covid-19 partial or total shutdowns.
As previously reported by Storm Assist, a good number of law firms argue that insurance company exclusions that mention the recently revoked Quarantine Act may not hold up. However, insurers feel the intention of having exclusions is clear irrespective of the act that has been referred to.
Business interruptions insurance cover is widely considered as vital to the survival of nearly any business that may potentially suffer a significant loss yet due to the exclusions in the repealed Quarantine Act; many Australian businesses may end up on their knees—for good.
AFCA has stated that it truly “appreciates the importance of the current issues relating to business interruption policies and their application during the COVID-19 crisis, and the potential impact this has for the broader community and the insurance industry”.
The Authority added that it had received a request to consider undertaking a business interruption test case proceeding.
Essentially, the test case would be handled by a court like the Federal Court which has power to make a more binding decision. The court’s final decision would then inform AFCA when resolving any arising contractual uncertainty in business interruption insurance policies in future.
“We are in discussions to approve and then settle the issues that would form part of such a test case, including several issues of interpretation and construction of some of these policies and relevant policy exclusions,” AFCA stated.
The AFCA is responsible for regulating general insurance business to ensure accountability for and provide oversight over individual insurance companies.
The AFCA notes that in some circumstances, particularly where policy holders have purchased BI insurance covers but the insurer claims that the cover purchased does not qualify as a loss caused by the impact of the coronavirus pandemic, there exists a mismatch between what the customers’ and insurers’ understanding of what each one thought was covered under the BI policy.
Thousands of Aussies filing BI claims across the country..
To resolve the many emerging cases of uncertainty for thousands of Aussies filing BI claims across the country, and to know more about the basis used by insurers to make decisions as to whether to accept or reject insurance claims, the regulator has chosen to seek a court declaration on an urgent and agreed grounds.
“Those issues are expected to arise in a large number of cases involving a large amount of money. We appreciate there could be a potentially large economic impact. There may also be identical or very similar issues that will arise in many other cases under similar wordings of other insurers.
“In the circumstances, an authoritative decision as to the proper construction of the policies will be of great benefit to insurers and consumers alike.”
When reached for further comment as to which organisation had requested the test case, the AFCA declined to disclose stating that it couldn’t release any information regarding “specific active cases”.