The NSW Court of Appeal has ruled pandemic exclusions are invalid, and insurers will have to cover COVID-19; a ruling that has seen IAG go into a trading halt.
IAG entered a trading halt on the back of the news, with the ruling possibly meaning insurers could face a flood of claims.
The court declared that COVID-19 is not a quarantinable disease under the Quarantine Act 1908. Business insurance policies generally exclude the impact of quarantinable diseases.
The Quarantine Act 1908 was repealed in 2016 and replaced by the Biosecurity Act 2015. The court has now ruled that references in insurance policies to quarantinable diseases under the old act and subsequent amendments should be construed as a reference to listed human disease under the Biosecurity Act.
Maurice Blackburn principal Josh Mennen said that insurers essentially made an error in policies by referring to the outdated act.
"This case re-affirms that clear, unambiguous language in a contract will be enforced," he said.
"It is good news for consumers. Insurers cannot get out of paying claims by referring to outdated legislation."
The test case was brought by AFCA on behalf of a tourist park business that experienced interruption due to the ongoing COVID-19 pandemic. The Insurance Council of Australia (ICA) defended the case and has said it will 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," the council said.
QBE responded to the ruling in a release to the ASX. It estimated the next cost of any business interruption claims in Australia is likely to be limited to $5 million per occurrence.
"The ICA has already taken steps to fund and progress a further test case through AFCA to provide clarity on whether policy coverage triggers in certain business interruption policies, including QBE business interruption policies, are satisfied in the unprecedented circumstances of COVID-19," QBE said.