Insurance industry braces following latest business interruption legal ruling

In late November 2020 & Legal reported on the NSW Court of Appeal decision in relation to business interruption insurance policies (refer to our earlier “News” article).

An oversight within the policy wording of Australian insurance contracts issued by multiple insurers had, subject to the court’s interpretation, left various insurance companies exposed to the potential of having to pay client claims due to the interruption of their business through measures applied by various authorities in relation to the COVID-19 pandemic.

As reported the NSW Court of Appeal found in favour of the claimants leaving the insurers little other option other than to seek leave to appeal the decision in the High Court.

In possibly a further blow to insurance companies a separate appeal heard in the in the UK Supreme Court last Friday ruled against a defence filed by six UK insurance companies.  In handing down its decision the Court somewhat surprisingly overturned established UK case law and extended the parameters under which a claimant may lodge a claim for business interruption in circumstances of a full or partial COVID-19 based shutdown.

Whilst it is acknowledged that the UK case relied upon business interruption policy wordings that may differ significantly from those contained within Australian business interruption policies, there is a risk that the generous interpretation by the UK court could have flow-on impacts globally.

Local insurers have, as predicted, sought leave to appeal to the High Court of Australia where they are seeking to have the earlier decision of the NSW Court of Appeal case overturned.

Following the UK decision insurers will no doubt be nervous, especially also given the news that a well-known litigation funder has begun working with a major Australian law firm to determine the merits of mounting a class action on behalf of business interruption policy holders.

It is important to stress that although the success so far of cases in Australia and the UK could be good news for business interruption policy holders impacted by the effects of COVID-19, it is important to recognise that every policy relies upon different wording and may or may not provide the individual policy holder protection against business interruption effects caused by the pandemic.

If your business has experienced economic distress due to the pandemic, we suggest that you initially consult on the extent of your policies coverage with your insurance broker.  If you are dissatisfied with the response or have further questions phone or email & Legal on 9328 2944 or email; info@andlegal.com.au and we will assist.