October 16, 2021

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Small businesses dealt blow in battle for COVID-19 insurance payouts

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Tens of thousands of small businesses’ chances of getting an insurance payout for financial damage caused by COVID-19 and associated lockdowns will hinge on a legal appeal, after the Federal Court delivered big insurers a win.

In a legal battle that could affect more than $1 billion in potential payouts, the Federal Court last month heard nine cases from small businesses seeking claims for pandemic-induced losses under “business interruption” insurance policies.

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COVID-19 and associated lockdowns have sparked legal fights over business interruption insurance. Credit:Jessica Hromas

The insurance companies say these policies never intended to cover against pandemics but the businesses had a win earlier this year, after a blunder in which the insurers named the wrong federal legislation in their policy documents.

However, in the second round of the legal dispute dealing with various specific matters in the policies, which will be crucial in determining any payouts, the insurers have gained the upper hand.

On Friday, Justice Jayne Jagot found in favour of the insurers in eight of the nine test cases and backed some of the key arguments made by insurance companies.

Insurance Council of Australia chief executive Andrew Hall welcomed the ruling, saying it would provide an important step towards finalising the issue. “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,” Mr Hall said.

Justice Jagot’s ruling is not end of the matter, however, as lawyers acting for business owners are set to challenge the ruling through an appeal, with the Federal Court setting aside time for the matter next month.

Law firms Gordon Legal and Berrill & Watson, which have launched business interruption class actions against insurers QBE and Lloyds, said the fight had further to run. They said the question of whether some policyholders had a claim for losses caused by government policies to contain COVID-19 remained unresolved.

Principal at Berrill & Watson, John Berrill, said a final decision remained a long way off, as he highlighted the length of time it was taking to settle the issue.

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