The Insurance Council of Australia began legal action on Thursday to seek formal clarification on whether they need to pay insurance claims to small businesses hit by the coronavirus pandemic.
The ICA, whose members represent about 95% total premium income written by private sector general insurers, submitted pleadings to the New South Wales Supreme Court for a test case.
The industry is turning to the courts following numerous complaints to the Australian Financial Complaints Authority (AFCA) by small businesses whose claims on business interruption policies because of the pandemic have been denied by their insurers.
The ICA said the Australian units of Hollard Insurance Group and HDI Global Specialty had offered two rejected claims from a caravan park and a food distribution business for the test case. The industry has agreed to pay the legal costs of the two businesses.
“We remain of the clear view that business interruption coverages do not cover pandemics,” Hollard Insurance Company Chief Executive Richard Enthoven said in a statement. “However, we volunteered to be part of the test case process so that the courtsystemcan clarify for our policyholders, Hollard and the industry how to handle this important issue.”
The ICA said that insurers globally have designed and priced their policies on the basis that pandemics are not insurable due to the magnitude of potential losses, the challenges of modelling the risk and ensuring coverage affordability.
“The industry wishes to have the case heard as quickly as possible, given the challenging times being experienced by the small business sector because of COVID-19, the past season of natural disasters and the recession,” ICA Chief Executive Rob Whelan said in the statement.
A similar test case is already underway in the United Kingdom, while another is being considered in South Africa.
QBE Insurance Group Chief Executive Patrick Regan said on Thursday that Australian insurers had included specific pandemic exclusions in their policies after the SARS pandemic of 2002 and 2003.