https://www.abc.net.au/news/2021-10-08/insurance-test-case-second-outcome-small-busines/100525568

Insurance companies overwhelmingly win crucial test case on COVID payouts

Small businesses have been dealt "a major setback" by a court ruling that found a range of insurance policies did not cover them for financial losses during COVID.

Key points:

• A Federal Court decision on a crucial test case overwhelmingly found in favour of insurance giants
• It means insurers may be able to avoid paying out policies that small businesses hoped would cover them for COVID downturn losses
• The decision is being appealed

The Federal Court ruling on a crucial test case means that insurance companies may potentially avoid paying out billions in payouts.

The court found that the majority of nine business interruption (BI) policies put before it for scrutiny would not need to be paid out by the insurers.

"It's a major setback for the insureds," Maurice Blackburn principal lawyer Josh Mennen said.

"It's not the end of the road for all claims but it significantly narrows the field."

"Obviously, as a consumer advocate, it's a disappointing result."

Business interruption insurance has emerged as a controversial space during the pandemic, with insurance giants claiming they never intended for these sorts of policies to cover pandemics.

It is estimated there were roughly 250,000 policies of this ilk in Australia when the pandemic struck, with a total potential liability of $10 billion.

Friday's test case looked at under what terms a business could claim for downturn in trade during the pandemic, including if a government lockdown order was sufficient or whether a business needed an actual case of the virus in its proximity to claim.

The insurance industry lost another test case on appeal earlier this year. That was due to muddled clauses in policies that saw an old piece of legislation not replaced by newer laws.

The Federal Court ruling also ruled that the size of insurance payouts for businesses could be reduced if they had also taken government subsidies including JobKeeper or rental abatements.

"Those payments would therefore reduce each of the insured's loss," Justice Jayne Jabot said.

The insurance industry has been footing the bill for the test cases on both sides.

In a statement, the Insurance Council of Australia said Friday's decision upheld the insurers' arguments in eight of the nine matters in the test case put before it.

"We welcome today’s judgment of the Federal Court, which provides an important step towards finalising these matters," ICA chief executive Andrew Hall said.

"Insurers, including those not directly involved in the court proceedings, are committed to applying the principles of the courts' final ruling consistently and efficiently to all business interruption claims."

An appeal is already being lodged against Friday's decision.

Two class actions have already been lodged by an Australian legal firm against industry giant QBE and the overseas insurer Lloyds over its refusal to pay out BI policies to small businesses and a speciality range of jewellers.