HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296: Court Rules Against Insurers

Thursday 26 November 2020 @ 7.56 a.m. | Legal Research | Torts, Damages & Civil Liability

In HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 (18 November 2020), the NSW Court of Appeal (the “Court”) has found in favour of a business which was affected by the COVID-19 pandemic.

According to the Sydney Morning Herald (“SMH”), the test case was brought by the Insurance Council of Australia to “determine if pandemic exclusions that referenced the Quarantine Act [1908 (Cth)], that was replaced by the Biosecurity Act [2015 (Cth)] in 2015, could be used to reject claims”.

The SMH also noted that the outcome of this case may mean that many of businesses affected by COVID-19 could be entitled to insurance payments under business interruption policies when the Court found pandemic exclusions were not valid.

Background

Insurance News reports the Insurance Council of Australia (“ICA”) and Australian Financial Complaints Authority (“AFCA”) agreed to launch the case to resolve uncertainty about outdated wording in pandemic exclusions.

It is reported that some Australian insurers’ policies still include exclusions referring to the repealed Quarantine Act 1908 (Cth), which was replaced by the Biosecurity Act 2015 (Cth). As a result, some claimants hope the exclusions will not apply to COVID-19 claims.

According to the SMH, many Business Interruption (“BI”) policies (including those provided by Suncorp, IAG and QBE), reference the expired Quarantine Act 1908 (Cth), but relied on the argument that “quarantinable diseases” exclusions were relevant for the pandemic.

As noted by the ICA, business interruption cover "may protect a business for a financial loss incurred because it cannot trade for a period due to loss or damage to the business itself from an interruption covered by the policy".

About the Case

The test case consisted of two separate small business claims that were lodged with AFCA as part of its Dispute Resolution process. The claims were with HDI Global Specialty (“HDI”) and The Hollard Insurance Company Pty Ltd (“Hollard”).

The insurers argued that the intention of the policies was clear, despite the reference to the repealed Act, but the Court held that COVID-19 is not a disease, with their Honours noting at [para 133] of the judgment:

“… COVID-19 is not a disease declared to be a quarantinable disease under the Quarantine Act 1908 (Cth) and the exclusion in the HDI Disease Benefit is not enlivened”.

The Guardian Australia reports that the insurance industry had argued that the reference to the Quarantine Act 1908 should be read to include the Biosecurity Act 2015, which replaced the Quarantine Act 1908, however, all five Court of Appeal judges who heard the case said this was incorrect, with Justice Hammerschlag commenting at [para 128]:

“One may suspect that, in not amending their policy documents to refer to the Biosecurity Act, a mistake was involved. Suspicion is insufficient. There is no basis to suspect that the insureds overlooked anything …”

About the Ruling

The Court found COVID-19 was not declared a “quarantinable disease” under the Act referenced in current policies, and therefore insurers cannot reject these claims, meaning the insurance industry could be liable for large payments.

Justices Meagher and Ball found at [para 78]:

“… Thus, the policies provide for the exclusion from cover of particular diseases by reference to a repealed Act.”

Comment and Reaction to the Ruling

The SMH reports the insurance body had previously been confident the Court would rule in the insurance industry's favour but in a statement said it would consider appealing the judgment:

“The Insurance Council of Australia notes today's judgment by the New South Wales Court of Appeal. The ICA, in consultation with its members and legal representatives, will urgently review the determination and specifically the grounds on which it could seek special leave to appeal against the decision to the High Court of Australia.”

Insurancenews.com.au reveals that as at 23 November 2020, the ICA is “consulting on both an appeal to the High Court regarding the current decision, and is also looking at a second case that would look at other issues that could exclude claims related to COVID-19”.

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