High Court rejects further pandemic insurance appeals

The High Court has put an end to further key test cases about whether insurers had to pay out interruption claims for businesses devastated during COVID-19 lockdowns.

A string of test cases about the business interruption insurance went before the High Court on Friday, seeking special leave to take their cases to the highest legal venue in Australia.

Lockdowns in the pandemic hit businesses hard. Wayne Taylor

But the High Court refused the applications, which was a high bar with research from law firm Clayton Utz found only an average of 12 per cent of requests for leave to appeal were actually granted annually since 2012.

The move means some Full Federal Court rulings from earlier this year, which were seen as largely supportive of insurers, still stand.

But one thorn for insurers was that the Full Court said that JobKeeper subsidies should not be subtracted from any business interruption insurance payouts they must make, and this will remain too.

The move means that insurers can now examine releasing more than $1 billion in provisions stocked away in the event that cases went pear-shaped for the industry. Shares in Sydney-based IAG, which analysts viewed as having the lion’s share of provisioning among industry, were in a trading halt on Friday.

Insurance lawyer John Berrill of Berrill and Watson, which is acting on behalf of businesses, said they welcomed the High Court decision in relation to the JobKeeper offset.

While the decision also will wipe out a string of claims in relation to issues of proximity to outbreaks, Mr Berrill argued that thousands of businesses still had “viable claims” in relation to the issue. He said such businesses should seek legal advice, rather than relying on the word of insurers.

Among the cases seeking a High Court appeal had been one from Townsville craft beer and restaurant The Taphouse. That partly focuses on arguing the Full Federal Court erred in finding a Queensland health shutdown direction in March 2020 was not made as a result of a COVID-19 outbreak occurring within 20 kilometres of the venue.

The business interruption policy had covered any legal authority closing the premises due to an outbreak of an infectious disease within that radius of the venue.

But the restaurant’s request for an appeal stated the Full Court had found the lockdown orders were imposed “instead to prevent the risk of spread … throughout that state”. Its application says that there had been an outbreak in Townsville and it was “unrealistic to infer that this outbreak played no part in the [government] decision … to impose state-wide restrictions extending into north Queensland”.

Another Full Federal Court finding that was the subject of insurer protest was about insurers not being able to subtract from any payouts the amount of compensation a business had received in JobKeeper, a government subsidy to help firms retain staff.

But in an application for appeal about its coverage of a Melbourne travel agency, insurer IAG argued other courts had found insurers have a right to recoup payments received by a customer from third parties that reduce the customer’s losses.

IAG maintained the Full Court had erred in concluding that a specific “settlement of claims” wording in this policy excluded the application of the general principles about insurers being able to recover third-party payments.

“Considering the generosity of the ‘JobKeeper’ program, the quantum of those payments is likely to be significantly affected by the answer to the questions that [IAG] seeks to raise on appeal,” the insurer’s application stated.

These test cases were a second round of tests cases.

The first test had earlier gone badly for insurers. That case surrounded policies quoting the outdated Quarantine Act – the new updated version is the Biosecurity Act. That case went against insurers and was finalised once the High Court refused to hear further appeals on the matter.

More to come …