Last week, the High Court of Australia refused applications for special leave to appeal in the second industry case involving business interruption insurance (BI) policies and the COVID-19 pandemic.
“With the exception of the one case that might go back before the Federal Court, the High Court’s rulings on these matters draws to a close the formal test case process concerning COVID-19 related business interruption matters,” said the Insurance Council of Australia (ICA) in a statement responding to the ruling.
The judgement means the High Court’s February ruling on four matters stands as final. In that judgement, Justice Jagot found that the insuring clauses did not apply and the policies were not triggered.
The fifth matter in that case could still return to the Federal Court, the ICA said, but that would depend on the policyholder identifying a loss covered by the policy.
“As a consequence of the High Court’s decision to refuse special leave, the Full Court judgement now stands as the leading authority on the range of issues considered,” said Gareth Horne (pictured above), partner with Clyde & Co and faculty member with the Australian College of Insurance Studies (ACIS). “There are now no further avenues to appeal.”
Horne said that given that the first instance judgement of Justice Jagot was largely already upheld by the Full Federal Court of Australia on appeal in February, it was unsurprising that the applications for special leave to appeal were refused.
“In any given case, it is difficult to convince the High Court to grant special leave,” he said. “In this instance, the legal principles applied by the Federal Court were well-established, even if there was disagreement about how those principles were ultimately applied in the test cases.”
According to law firm Clayton Utz, only 12% of requests for leave to appeal have been granted since 2012.
Horne said the appeal judgements are now final judgements and will provide important judicial guidance for the assessment of COVID-19 business interruption claims.
“In particular, this judicial guidance will now allow the insurance industry to progress the vast majority of claims to final assessment,” he said.
However, he said, each COVID-19 BI claim will still need to be assessed on its own merits.
“It therefore remains possible that, in the context of litigation that remains in the court system, the judicial determination of more discrete questions of law that were not addressed in the second test case could influence a small sub-set of claims in Australia,” he said.
Horne said that insurers will now be able to settle “most, if not all, of the COVID-19 related claims” by applying the reasoning from the second test case judgements.
“That said, insurers will need to consider their policy wordings carefully, as the availability of cover will ultimately depend on the specific policy wording issued and the unique factual circumstances pertaining to each insured,” he said.
Horne said Australian regulators will also expect insurers to have kept policyholders informed during this litigation process.
“Insurers should also be mindful of their claims handling requirements under the General Insurance Code of Practice and the Insurance Contracts Act 1984 in their assessment of claims, and should aim to clearly communicate timeframes or delays in the assessment of claims with insureds,” he said.
Another possible remediation course for policyholders disappointed with this latest ruling could be the Australian Financial Complaints Authority (AFCA).
“AFCA had agreed to apply the reasoning of any final non-appealable judgement delivered in the Second Test Case,” said Horne. “Now that special leave has been refused, it is expected that AFCA will commence the process of assessing complaints before it.”
It’s also possible that class actions involving BI interruption disputes will now go ahead. According to the ICA, the Federal Court ordered that four class actions commenced in July 2021 be adjourned until all the applications for special leave were determined
“As the special leave applications have now been decided the Federal Court will now consider whether the class actions (or a part of them) will proceed,” said the ICA in a media release this week.
Several class actions related to business interruption disputes may also still move forward after they had been placed on hold pending the outcome of the High Court process.
In response to last week’s ruling, some of Australia’s big insurers have significantly reduced their reserves.
Insurance Australia Group (IAG) announced its intention to buy back up to $350 million of its shares funded by a reduction in its BI provision.
“The company has reduced its net BI provision from $975 million to $615 million, after the High Court on Friday, October 14, denied special leave to appeal the decision of the Full Court of the Federal Court of Australia,” said IAG in a statement.
“Suncorp’s provision for potential losses due to COVID-19 related business interruption claims as at June 30, 2022, was $179 million,” said the insurer in a statement. “Today’s announcement means that the majority of this provision will now be released.”
