Business interruption insurance test case rules in favour of policyholders

There has been uncertainty around the eligibility of pandemic-related claims on business interruption cover. Insurers have argued that pandemics are excluded from business interruption insurance policies because of the complexities with pricing the risk and have referred to exclusion clauses in policy fine print. As such, many businesses have either had their claims for business interruption held up or denied, or the businesses have not lodged a claim at all because of this uncertainty.

On 31 July 2020, the Insurance Council of Australia and the Australian Financial Complaints Authority launched a test case in Australia. You can read more about the test case in our previous Insight here. The main thrust of the test case relates to references to the Quarantine Act 1908 in policy wording. The Quarantine Act was repealed in 2015 and replaced by the Biosecurity Act 2015.

The NSW Court of Appeal has now ruled unanimously that insurers cannot deny claims by policyholders for losses caused by business interruption as a result of COVID-19 by relying on exclusion clauses that reference the Quarantine Act 1908. The Insurance Council of Australia is considering whether it appeals this decision to the High Court.

The recent decision in the test case may be a prompt for businesses who may have had their claim denied or held up by insurers, or who have held off making a claim at all, because of the Quarantine Act exclusion, to reconsider their position. A key step here is to ensure its records are in order to support any claims. These records should include:

  • Detailed account of the series of events, including directives from the Government, the impact on the operation of the business from its current premises, staff availability, the constraints in the supply chain, and your business’ response.
  • Documentary evidence of additional costs incurred in response to COVID-19, for example, additional cleaning costs.
  • Reports of any mitigating actions your business has taken, for example, restaurants moving to a take-away or home delivery only model, a reduction in orders for inventory, promoting the sale of excess stock, offering of any discounts.
  • History of financial performance including financial statements and monthly management accounts (including, if recorded, details of foot traffic or visitors). Monthly reports are useful to compare the disrupted period with the same months of past unaffected years.
  • Budgets or forecasts prepared before COVID-19. This is important to show the expectations of your business except for the event.
  • Amended budgets or forecasts that reflect the impact of COVID-19.


Cathy Zhao

Cathy Zhao
Director, Sydney
T: +61 2 9248 9981
E: czhao