A Federal Court ruling on a crucial test case on whether insurance companies’ business interruption insurance policies cover payments for financial losses suffered during COVID have been overwhelmingly favorable to the insurance sector.
In what Maurice Blackburn’s lead attorney Josh Mennen called a “major setback” for small businesses, a Federal Court ruling found that a range of insurance policies did not cover policyholders for those insured. financial losses during COVID.
As a result, this means insurers appear poised to avoid paying billions of dollars in policy claims that small businesses hoped to cover for losses resulting from coronavirus outages.
The Federal Court today ruled that the majority of the nine business interruption (AI) policies submitted to it for review would not need to be paid by insurers.
Mennen commented “It’s not the end of the road for all claims, but it narrows the field considerably.
“Obviously, as a consumer advocate, this is a disappointing result.”
Business interruption insurance has become a controversial space during the pandemic, with insurance companies claiming they never provided such policies to cover pandemics.
Estimates suggest more than 200,000 businesses in Australia had business interruption insurance policies when the pandemic hit, with total potential liability of $ 10 billion.
Friday’s test case examined under what conditions a business could claim a trade slowdown during the pandemic, including whether a government lockdown order was sufficient or whether a business needed an actual case of the virus nearby to claim. .
Mennen noted that “the Court’s narrow interpretation means that claims under similar policies will have to show a direct link between COVID outbreaks on or near premises and government restrictions that have caused loss of business.”
Essentially, this means that a business cannot be compensated if it cannot prove that its losses are due to the government lockdown or a general economic downturn caused by the closure of international borders.
This will make it very difficult for a range of businesses to claim insurance, including those in tourism as well as entertainment,
Decision impacts Melbourne-based gym group
Melbourne-based fitness group Results Based Training is a company that has suffered significant losses due to the extended Victoria lockdowns in 2020 and 2021, and is receiving business disruption coverage with QBE, one major Australian insurers.
Co-owner Liv Jones told the CBA “I don’t think there’s a person, especially in Victoria, who wouldn’t understand how important a payment is to small businesses right now. The impacts have long and almost immeasurable summers
“The payment for this would be an opportunity for us to reset after 18 very stressful months and a lot of debt.
“It’s never the decision you want in our position. It sounds like David vs. Goliath already.
“We all knew this would be an argument fought on all fronts with absolute enthusiasm. There is a lot at stake for everyone involved.”
With an appeal already filed against today’s Federal Court ruling, Jones, whose results-based training group has 13 gyms in Victoria and Western Australia, added “We are very confident in the process. call. It’s just a few weeks. We have been in this for 18 months
“On both sides, we will fight tooth and nail for every game.”
The insurance industry lost another test case on appeal earlier this year. This was due to confusing clauses in policies which saw old legislation not replaced by newer laws.
The Federal Court ruling also ruled that the amount of insurance payouts for businesses could be reduced if they had also benefited from government subsidies, including JobKeeper or rent reductions.
Justice Jayne Jagot explained that “these payments would therefore reduce each of the insured’s losses.”
In a statement, the Insurance Council of Australia (ICA) said the ruling upholds insurers’ arguments in eight of the nine cases in the test case before it.
CIA Executive Director Andrew Hall said: “We welcome today’s Federal Court judgment, which is an important step towards finalizing these issues.
“Insurers, including those not directly involved in court proceedings, are committed to applying the principles of final court decisions consistently and effectively to all business interruption claims. “
Two class actions have already been filed by an Australian law firm against industry giant QBE and foreign insurer Lloyds for its refusal to pay BI policies to small businesses and a specialist line of jewelers.
Bottom image: Travis Jones and Liv Jones from the results-based training.
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