Insurers Liable for Business Interruption Caused by COVID-19

Insurers have failed in their attempt to rely on exclusions clauses in insurance policies which exclude “diseases declared to be quarantinable diseases under the Quarantine Act 1908 (Cth) and subsequent amendments” to avoid liability for business interruption caused by COVID-19. This issue was considered in the recent NSW Court of Appeal decision of HDI Global Specialty Se V Wonkana No. 3 Pty Ltd [2020] NSWCA 296 which resulted in a unanimous rejection of the arguments put forward by the insurers.

The Facts

This case involved two insurer plaintiffs, HDI Global Speciality and Hollard, and three insured defendants. The three insured defendants put forward claims to the insurers for loss suffered due to business interruption arising from COVID-19. These claims were all rejected by their insurers, the plaintiffs.

The insurers attempted to avoid liability for business interruption loss suffered by the insured defendants by relying on an exclusion clause in the policies which excluded loss arising from “diseases declared to be quarantinable diseases under the Quarantine Act 1908 (Cth) and subsequent amendments”. After seeking a Court declaration on whether this was correct, the matter was subsequently moved to the Court of Appeal and fast tracked due to its importance.

At the time, the relevant policies were first entered, the Quarantine Act had been repealed and the Biosecurity Act 2015 had commenced in its place. The policies gave no mention of this new Act.

The insurers argued that the exclusion clause should be construed to include “diseases determined to be listed human diseases under the Biosecurity Act 2015 (Cth)”. Specifically, they argued that the Biosecurity Act was covered by the clause as a “subsequent amendment”. In the alternative, they argued that reference to the Quarantine Act was an obvious mistake and the clause should be construed to include the Biosecurity Act because of this.

The Court’s Decision

The Court held, unanimously, that the insurer’s argument should be rejected, and the exclusion clause could not be construed as encompassing diseases listed in the Biosecurity Act. As COVID-19 was not a ‘quarantinable disease’ under the Quarantine Act, business loss arising from it could not be excluded under the policy.

As to the first of the insurer’s arguments, the Court reasoned that as the Biosecurity Act was an entirely separate Act, it could not be construed as a ‘subsequent amendment of the Quarantine Act’. As to the insurer’s second argument, the Court posed that mistakes should only be corrected where the literal wording of the contract was adverse to the party’s intention. However, this did not apply here.

It is worth noting that the Insurance Council of Australia, which funded the case for the insurers, has announced that they will be reviewing the decision and considering an appeal to the High Court.

What does this mean for Insurers and the Insured?

Unless the decision is successfully appealed to the High Court it will be applied throughout Australia.

This decision will require Insurers to review their position with respect to a large number of business interruption claims that have been declined by attempting to rely on similar exclusion clauses. For the insured, this decision likely allows for claims to be made under their policies for business loss arising from COVID 19 where the only relevant exclusion clause under the policy is one of this kind.

The author acknowledges the contribution of law student Damon Boswell in the drafting of this article.