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Business interruption losses and the uncertainty around whether policies cover pandemic-related losses have been contentious issues for the insurance industry since the pandemic took hold in early 2020. 

The insurance industry recognised the importance of seeking clarity on the interpretation of further aspects of business interruption policies and has been working with stakeholders and policyholders to provide resolution as quickly as possible. In November 2020, the NSW Court of Appeal rejected the insurance industry’s argument that pandemic exclusions in business interruption policies referring to the repealed Quarantine Act excluded claims arising out of COVID-19. The High Court of Australia today ruled on the special leave to appeal application, lodged by the Insurance Council of Australia (ICA).

The High Court dismissed the application for special leave and, accordingly, the decision of the NSW Court of Appeal stands. As a result, the industry now knows where it stands on the exclusion clause issue; exclusion clauses that contain a reference to the Quarantine Act will be of no effect. The matter is however far from over. In particular, the issue of how insuring clauses are to be interpreted and applied is still uncertain. Policy wording issues in relation to the definition of a disease and the proximity of an outbreak to a business are also yet to be resolved. We are now dealing with the same issues that were key to the UK test case and how these insuring clauses will be applied to the facts in Australia remains to be seen.

Following this outcome, insurers will have to rethink their risk appetite, their underwriting principles and policy wording construction.

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