The wave of disappointment and frustration levelled against insurers over their wholesale denial of business interruption claims linked to COVID-19 has swelled into a major accountability exercise for insurers.
Two test cases have been running concurrently in the Supreme Court over recent months and judgement has now been handed down in the first case. The result – it appears that certain insurers will at least be obliged to pay claims associated with COVID-19. We say ‘certain insurers’ because the situation to date has seen insurers deny claims on the basis of the ‘fine print’, relying on exclusions that mention epidemics and pandemics. It is ironic that these very exclusions are now being challenged because other sections of insurer policy wordings refer to now defunct legislation – which has the effect of making the entire initial exclusion null and void.
The Insurance Council of Australia (ICA) is the body that represents licensed insurers operating in Australia. It stood firm behind its members in their continual denial of all COVID-19 related business interruption losses. This left clients not only angry and frustrated; it led to the failure of many small businesses and made individuals and families endure unprecedented economic hardship.
It is not surprising that the ICA appealed against the judgement in the first test case. The financial ramifications for insurers would have been significant, especially should the second test case resulted in a similar judgement. It is encouraging to see that leave for appeal has now been denied –so the judgement in the first test case stands.
This has prompted comment from the ICA, clearly now accepting the decision and publicly advising clients to contact their insurers to commence the claims process in anticipation of (if and when) the second test case delivers a favourable client outcome. The ICA has been quoted in the insurance industry press as saying; “Insurers are committed to applying the Court’s decision”. The second test case should come to completion in late September and if all goes to plan, claims will start being accepted and dealt with accordingly.
The best advice for insurer clients who have had their business interruption claim previously denied is to start the process again as soon as possible. Insurance brokers are there to help, they represent the best interest of their clients and take delight in delivering good news. The stonewalling of brokers by insurers in the early days of COVID-19 with flat denials and refusal to even look at claims submissions has fallen away. There is now a collegiate approach being adopted in anticipation of assisting clients in the long run.
As previously reported, all insurer’s wordings vary so some may find themselves firmly ‘in the gun’, others may not. That is not to say that all insurers, regardless of their fine print, will not step-up. We all hear about the disappointment of clients when it comes to dealing with insurers, but in reality,these are exceptions to the rule. The Australian insurance industry has a long history of stepping-up in times of crisis and; providing appropriate clarity is determined by the Courts, we say (with a degree of confidence) that they will again step-up.
For those who have never had to claim on their business interruption insurance, others who have will tell you that it is a very complicated process. The reality, should the second test case end favourably, is that insurers will be flooded with claims and waiting times will be extended – we anticipate that some claims settlements may take up to two or three years to resolve. Our advice to clients is to not only engage their broker as soon as possible, but to also engage their accountant as they are the ones who will need to provide the bulk of the information to support the passage of the claim. The key message here is to be prepared and get into the line early.
We have seen a gradual swing in favour of the client. We know that some major insurers have already significantly increased their claims reserves in anticipation of an ‘event’, we know that the ICA (in its role as the industry body representing most insurers) is being positive about the industry’s approach and we know that the Courts are sympathetic to the client cause and are fairly and reasonably handing down judgements.
We anticipate a busy time ahead for insurers, brokers, accountants and clients. It is good to see that some semblance of common sense seems to be prevailing and that long awaited relief is likely to be only a few months away.