The Quarantine Act exclusion is no longer available to insurers to decline cover for COVID-19 losses
Many current business interruption policy wordings seek to exclude cover for pandemics by an exclusion which refers to ‘diseases declared to be quarantinable diseases under the Quarantine Act and subsequent amendments’ (or ‘as amended’). But the Quarantine Act was repealed in 2015 and replaced by the Biosecurity Act. Whilst COVID-19 is a listed disease under the Biosecurity Act, it did not come into existence until after the Quarantine Act was repealed. Insurers across the industry have declined claims by businesses for COVID-19 losses on the basis that the reference in the exclusion to the ‘Quarantine Act and subsequent amendments’ extends to the Biosecurity Act.
The question of whether the Quarantine Act exclusion applies to COVID-19 was raised as test case by the Insurance Council of Australia and was leapfrogged to the NSW Court of Appeal for determination. The 5 Court of Appeal judges unanimously rejected the insurers’ arguments and held in favour of the policy holders that, despite of the intent of underwriters for cover to not extend to pandemics and the obvious mistake of failing to update the policy wordings to refer to the Biosecurity Act, to suggest the words ‘and subsequent amendments’ (or ‘as amended’) include the enactment of the Biosecurity Act is ‘many steps too far’.
In December 2020, the insurers applied for special leave to appeal to the Hight Court. On Friday 25 June 2021, the High Court of Australia dismissed the insurers’ application for special leave to appeal thereby upholding the NSW Court of Appeal decision. There is no further avenue of appeal. It is now the case that, for all jurisdictions across Australia, insurers cannot rely upon the Quarantine Act exclusion to refuse to cover COVID-19 losses.
Insurers are now bracing for wave of claims
It is estimated that 250,000 current business interruption policies in Australia have the Quarantine Act exclusion and were not updated to include the Biosecurity Act before the COVID-19 pandemic started, with a total potential liability of $10 billion. The exclusion has been found in current policies issued by each and every major insurer in the market, and not updated.
If yours is one of the many claims made to insurers which was denied on the basis of the Quarantine Act exclusion, that denial can no longer be maintained and is null and void. But the expectation is that most insurers will not advise their customers that their previous denial was made wrongly, and it will be for you – the policyholder – to raise this to your insurer to resume pursuing your claim.
Other coverage issues
However, the High Court’s refusal to allow the insurers leave to appeal the NSW Court of Appeal decision about the Quarantine Act exclusion does not mean that insurers will now agree to payout claims made on business interruption policies for COVID-19 losses. Whilst insurers can no longer rely upon the Quarantine Act exclusion, there are other coverage issues which may be questioned, including:
Second test case
The Insurance Council of Australia has started a second test case in the Federal Court of Australia seeking determinations on such issues for 9 separate businesses in a range of different locations – a bar in Townsville, a beauty clinic in Sydney, a gym on the Gold Coast, a dentist in Wollongong, a landlord in Melbourne, a travel agent in Melbourne, a dry cleaner in Brisbane, a costume shop in Adelaide and a café in Brisbane. The relevant businesses involved in the first test case were a caravan park in Tamworth and a health and supplement store in Melbourne.
The second test case will address the above listed issues and also other issues including how JobKeeper and other subsidies are to be taken into account when calculating loss.
It has been listed for trial on 30 August to 3 September 2021. It is envisaged that judgment will be delivered in October, and the Full Court will hear the appeal in November and deliver judgment by December 2021, such that any special leave application to appeal to be High Court will be filed January 2022.
It is expected that the second test case will give clarity and guidance to the insurance industry at large as to the correct operation of various commonly used policy wordings with specific reference to allow for a comprehensive review of many of the outstanding policy issues for COVID-19 business interruption losses.
Insurers are now bracing for a wave of claims. With the Quarantine Act issue exclusion now finally determined, there will be many claims that were wrongly declined which will now be resumed. Further, many business owners with policies with this exclusion have been watching to see the outcome of the insurers’ special leave application to appeal to the High Court, and will now be lodging their claims that until now they had been sitting on. You should get your claim on quickly so you are not at the back of the queue.
The insurance industry’s focus will now turn to closely watching developments with the second test case. Whilst the trial of the second test case has yet to be heard and will be shortly, if you have a claim to be made or to be resumed, you should not continue to wait. We can advise you as to whether your matter may be one which has the same issues being addressed by the second test case or whether it should be summarily assessed and paid out. We can help you through the claim process and to achieve the best outcome for you.
 HDI Global Specialty SE & Anor v Wonkana No 3 Pty Limited trading as Austin Tourist Park & Ors  NSWCA 296. The insurers involved were HDI Global and Hollard.
 The nine claims in the second test case are – Allianz Australia Insurance Ltd. v The Stage Shop Pty Ltd (Formerly Visintin Pty Ltd); Allianz Australia Insurance Ltd v Mayberg Pty Ltd; Chubb Insurance Australia Ltd v Market Foods Pty Ltd; Chubb Insurance Australia Ltd v Phillip Waldeck; Guild Insurance Ltd v Dr Jason Michael t/a Illawarra Paediatric Dentistry; Guild Insurance Ltd v Gym Franchises Australia Pty Ltd; Insurance Australia Ltd v The Taphouse Townsville Pty Ltd; Insurance Australia Ltd v Meridian Travel (Vic) Pty Ltd; Swiss Re International SE v LCA Marrickville Pty Ltd.
Berren Hamilton is a Special Counsel (Litigation) at Stone Group Lawyers. He is an Accredited Specialist in Commercial Litigation with the Queensland Law Society. He was admitted to practise in Queensland in 2001.