Millions in payouts on the table for SMEs, as insurers lose landmark COVID-19 claims case

Small businesses affected by COVID-19 may qualify for insurance payments, after insurers lost a test case in the New South Wales Supreme Court of Appeal on Wednesday.

In the case, brought by the Insurance Council of Australia, insurers argued that businesses were not covered under their business interruption polices if they had suffered losses due to COVID-19.

The court rejected the insurers’ arguments on the basis that the policies referred to the now-repealed Quarantine Act, which was replaced in 2015 with the Biosecurity Act.

Council of Small Business Organisations Australia chief executive Peter Strong tells SmartCompany that SMEs “heavily affected by COVID-19” have not been able to make insurance claims.

“If this opens up the door for hundreds of millions of dollars in payouts, then that’s a good thing, because that’s what insurance is for.

“We’ll look at this decision, and hopefully, it means that businesses that have insured themselves in good faith will now collect insurance.”

Suncorp, QBE and IAG have rejected COVID-19-related business claims, arguing that their policies do not cover ‘quarantinable diseases’ such as COVID-19.

The court found that COVID-19 was not considered a ‘quarantinable diseases’, making insurers potentially responsible for thousands of claims.

According to John Berrill, an insurance lawyer with Berrill & Watson, the ruling could bring out “tens of thousands” of claims, but did not automatically mean all claims would be successful.

Berrill said small and medium operators that have lost income due to lockdown restrictions would potentially stand to win from the judgement.

“The sorts of businesses that do have business interruption and need it are public-facing — so cafes, restaurants, gymnasiums, dance studios,” Berrill said.

The Insurance Council of Australia had previously expressed confidence in the court ruling in the industry’s favour.

In response to the outcome, the Insurance Council said it would “urgently review the determination” and consider an appeal in High Court of Australia.

The ruling follows Suncorp’s announcement on Monday that it would allocate an extra $125 million to potential business interruption claims in response to Victoria’s extended lockdown.