Small businesses lose business interruption test case but press on with appeal

Small businesses are pressing ahead with a legal appeal in a bid to compel insurers to pay out pandemic-related losses, after the Federal Court ruled in favour of six large insurance companies on Friday.

A group of small businesses in industries hard hit by COVID-19 restrictions, including operators of hospitality, travel, fitness and dental businesses fought six insurance providers in a second business interruption test case.

On Friday, Justice Jayne Jagot ruled in favour of Allianz, Chubb, Guild, Insurance Australia, QBE and Swiss Re, upholding the insurance providers’ arguments in eight of nine matters considered.

Justice Jagot found “the policies do not respond to the claims” other than in one dispute between Insurance Australia and Meridian Travel.

Lawyers representing the business owners will challenge the ruling in a legal appeal set to take place in the second week of November.

If small businesses win the appeal, insurers could be on the hook for more than $1 billion in payouts.

The Federal Court has so far considered whether small businesses are entitled to payouts under their business interruption (BI) insurance policies.

The court assessed the circumstances where businesses could claim for losses in trade during the pandemic, such as during government lockdowns or closure due to a positive case in a business venue.

Justice Jagot looked at common wording in each insurance policy, including what an “occurrence” or “outbreak” of COVID-19 meant in practice.

Insurers argued that they did not create their business interruption policies with the intention to cover COVID-19-related losses.

Andrew Hall, chief executive of the Insurance Council of Australia, acknowledged the ruling and said it “provides an important step towards finalising these matters”.

“Insurers, including those not directly involved in the court proceedings, are committed to applying the principles of the courts’ final ruling consistently and efficiently to all business interruption claims,” Hall said in a statement.

Along with an earlier test case, Friday’s ruling looked at the legislation cited in business interruption policies.

Some BI policies have exclusion clauses that referred to the now superseded Quarantine Act, which was replaced with the Biosecurity Act in 2016.

The battle over whether businesses are owed payouts under certain BI policies is expected to continue for some months.

Travis Gooding, senior associate at the legal firm Herbert Smith Freehills, tells SmartCompany there could be a subsequent appeal in the High Court after the first appeal in November is heard.

“This is not necessarily the end,” he says.

“There is the potential for an appeal. It may well be that the appeal court decides that the original judgement was decided correctly, it could well be that they decide to overturn, but that won’t be known until the appeal is decided.”

The legal firm Gordon Legal has also lodged two class actions against the Australian insurance company QBE and London-based global insurance giant Lloyds over COVID-19 pandemic payouts.