NSW Supreme Court Ruling Shakes Up Insurance Sector

The general insurance sector has been dealt a major blow with a NSW Court of Appeal decision that, if not overturned in the High Court, will see a surge in losses caused by payouts to policyholders who made claims due to the impact of the pandemic under business interruption policies held with insurers.

Suncorp reckons its maximum claims total was $195 million, QBE says it has liabilities and Insurance Australian Group had its shares suspended and hinted that it might need a capital raising to handle the impact.

IAG shares didn’t trade yesterday after closing at $5.46 on Wednesday.

IAG is expected to update its statement sometime today. The suspension lasts to Monday.

QBE shares fell nearly 4% to $10 and Suncorp shares lost 3% at $9.43.

Public-facing businesses forced to close due to coronavirus related lockdown restrictions, including restaurants, bars, and gyms, are among those likely to have Business Interruption (BI) policies.

The NSW Court of Appeal court found pandemic exclusions in business interruption policies were not valid, due to the botched policy wording used by major insurers.

The court found business policies that reference an outdated Act of Parliament must be compensated.

Major insurers all use the outdated Act in their BI policies which could mean the insurers are on the hook for hundreds of millions in payments.

Insurance giant QBE yesterday acknowledged its loss in the NSW Supreme Court of Appeals, after the shock judgement was handed down on Wednesday night.

QBE said in its statement that each business interruption claim would likely be limited to $5 million.

“Notwithstanding the ruling, QBE notes that the particular wording of QBE business interruption policies require a number of policy triggers to be met in order for policyholders to be entitled to indemnity for business interruption,” QBE said in a statement to the ASX on Thursday morning.

The Insurance Council of Australia ran the test case with confidence the court would rule in the insurance industry’s favour.

QBE says the ICA was now looking at launching another case.

The second test case would seek to “provide clarity on whether policy coverage triggers in certain business interruption policies, including QBE business interruption policies, are satisfied in the unprecedented circumstances of COVID-19″, QBE said.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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