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Australian businesses lose BI Covid-19 test case

Australian businesses have lost a test case challenging insurers that denied payments for Covid-19 losses under their business interruption (BI) policies.

The Federal Court of Australia ruled in favour of insurers in nine of the ten cases but policyholders, many of which are small businesses, are expected to appeal.

The Federal Court has already set aside time in the second week of November to hear appeals from either side.

The insurers claimed BI policies were not intended to cover the scale of losses from a pandemic and argued that the policies do not cover economic losses due to government-ordered lockdowns or a general downturn in revenue because of Covid-19.

Although the court found one policy type was triggered by Covid-19, the court said it would be difficult for policyholders to prove relevant business interruption. In particular, proof of a Covid-19 outbreak at or near the business premises.

The arguments for and against are in line with test cases heard in other countries. In the UK, the test case brought by regulator the Financial Conduct Authority fell in favour of policyholders on appeal, with insurers now paying out.

Earlier this year, Australia’s High Court upheld an earlier court ruling in favour of policyholders after it found insurers could not invoke the Quarantine Act, replaced by the Biosecurity Act in 2016, to exclude pandemic cover in BI policies. The second test case heard by the Federal Court was held to resolve other issues over policy wordings, including definition of disease, proximity and government mandates.

The Insurance Council of Australia (ICA) said it is reviewing the court’s decision and it will provide a full statement next week. Andrew Hall, CEO of the ICA, said the judgment “provides an important step towards finalising these matters”.

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