Small businesses have been treated “a major setback” by a ruling that found a number of insurances did not cover them for financial losses under COVID.
- A federal court ruling on a crucial test case found overwhelming in favor of insurance giants
- This means that insurance companies may be able to avoid paying out policies that small businesses hoped would cover them for loss of downturn in COVID
- The decision is appealed
The federal court’s ruling on a crucial test case means insurance companies can potentially avoid paying billions in payouts.
The court found that the majority of nine business interruption policies (BI) submitted to it for review were not to be paid for by the insurance companies.
“It’s a big setback for the insured,” said Maurice Blackburn, attorney general Josh Mennen.
“As a consumer advocate, it’s obviously a disappointing result.”
Business interruption insurance has emerged as a controversial spot during the pandemic, with insurance giants claiming they never intended this type of policy to cover pandemics.
It is estimated that there were around 250,000 policies of this kind in Australia when the pandemic hit, with a total potential liability of $ 10 billion.
Friday’s test case looked at the conditions under which a company could demand a drop in trade during the pandemic, including whether a government’s lockdown order was sufficient, or whether a company needed an actual case of the virus near claiming. .
“The Court’s narrow interpretation means that claims under similar policies must show a direct link between COVID outbreaks on or near the premises and the public restrictions that caused the loss of trade,” Mennen said.
This essentially means that a company cannot be compensated if it can only prove that its losses were due to the government’s lockdown or a general economic downturn caused by the closure of international borders.
This will make it very difficult for a number of companies to claim insurance, including travel, which has largely experienced a decline due to the loss of holidaymakers and tourism.
Business owner promises to keep fighting
Liv Jones owns a chain of gyms in Melbourne that is facing significant losses due to Victoria’s extended barriers in 2020 and 2021.
She has business break coverage with one of the giants, QBE.
“I do not think there is a person, especially in Victoria, who would not understand how important a payout is for small businesses right now. The effects have been long and almost immeasurable,” she says.
“It’s never the decision you want in our position. It already feels like David against Goliath.
“We all knew this would be an argument that was fought on all fronts with absolute enthusiasm. There is a lot at stake for everyone involved.”
Friday’s decision is already being appealed.
“We are very confident in the complaint process. It is only a few weeks. We have been here for 18 months,” Ms Jones said.
“On both sides, we fight tooth and nail for every single party.”
The insurance industry lost another test case on appeal earlier this year. This was due to confusing clauses in policies where old legislation was not replaced by newer laws.
The Federal Court’s ruling also ruled that the size of insurance payments to companies could be reduced if they had also taken out state subsidies, including JobKeeper or lease agreements.
“These payments would therefore reduce each of the insured’s losses,” Judge Jayne Jagot said.
The insurance industry has been responsible for the test cases on both sides.
In a statement, the Australian Insurance Board said Friday’s decision upheld the insurers’ arguments in eight of the nine cases in the test case submitted to it.
“We welcome today’s ruling by the Federal Court, which is an important step towards concluding these issues,” said ICA CEO Andrew Hall.
“Insurance companies, including those not directly involved in litigation, are required to apply the principles of the final decision of the courts consistently and effectively to all claims of termination of business.”
Two class actions have already been filed by an Australian law firm against industry giant QBE and overseas insurance company Lloyds over its refusal to pay BI policies to small businesses and a specialist committee of goldsmiths.