The New South Wales (NSW) Court of Appeal ended the business interruption (BI) test case by rejecting the insurance sector's argument that policies should not cover COVID-19 pandemic-related losses. With many insurers expected to pay out for thousands of pandemic-related BI claims, major insurers have started assessing the financial impacts of the ruling.
The Insurance Australia Group (IAG) halted trading to examine the financial impacts of the ruling and its capital requirements. Meanwhile, QBE refused to request a trading halt on the grounds that policyholders still need to meet “a number of policy triggers” before they could receive a BI payout, even without the pandemic exclusion.
QBE said the net cost of any BI claims in the country is likely to be limited to US$5 million per occurrence, including expected recoveries under the group's catastrophe reinsurance protections.
“This is subject to contributing losses (after recoveries under the group's main catastrophe and quota share reinsurance treaties) not exceeding the group's catastrophe aggregate reinsurance treaty limit of US$500 million,” QBE said, as reported by the Australian Financial Review (AFR).
Suncorp set aside an additional $125 million before the court's ruling this week, totalling $195 million set aside for pandemic-related BI claims. However, it clarified that the provision would not cover claims arising from a prolonged lockdown, including the one in Victoria between July and November.
Michael Lalji, a commercial disputes practice leader at Shine Lawyers, expects an influx of claims that would cost insurers a lot of money.
“We always considered the denial of business interruption insurance claims by citing repealed legislation to be wrong as a matter of law, and I'm pleased the NSW Court of Appeal has found these exclusions are invalid,” Lalji said, as reported by AFR.
