How much? Test cases could leave industry with $10 million bill, or more

The Insurance Council of Australia (ICA) has covered the bill for the Covid-19 business interruption test cases – but says it can’t reveal what the final total is.

Following last week’s High Court decision that closed off the last avenue of appeal, industry insiders have speculated that costs could be as high as $50 million, but others have suggested a more conservative amount of about $10 million.

“The funding arrangements in relation to the BI test cases are the subject of a confidential agreement between AFCA, the ICA and the policyholders and insurers who participated in the test cases,” an ICA spokesperson told insuranceNEWS.com.au.

ICA confirmed at the start of the process that it would meet the costs of policyholders in both test cases.

The first case, launched in 2020, dealt with the issue of many policies containing exclusions referring to an outdated piece of legislation.

It went straight to the NSW Court of Appeal, which ruled insurers couldn’t rely on exclusion wordings citing the Quarantine Act and subsequent amendments to deny claims for Covid-19 related disruptions.

ICA sought leave to appeal at the High Court, but this was denied after a hearing in June last year.

The second test case, which dealt with a much broader range of issues, was heard in the Federal Court in October last year.

An appeal was heard, but in February this year the Full Court largely upheld the earlier findings, which were mostly in favour of insurers.

Both sides sought leave to appeal aspects of the ruling to the High Court, but last week they were denied.

“These cases went all the way to the High Court and the ICA was paying both sides,” one industry source said.

“The cost would be tens of millions of dollars. $50 million maybe, if not more.”

But the source says the industry had a duty to seek clarity in the courts, and that the test case process was still cheaper than fighting a large number of separate actions.

Berrill & Watson Principal John Berrill says the test case process was worthwhile as it sets out a “roadmap” for dealing with claims – but he believes the costs will have added up.

“I’d say there would be no change out of $10 million, maybe more,” he said.

“You’ve got some barristers on $10,000 or $20,000 a day – and multiples of them.”

Mr Berrill believes there are many valid claims out there despite the industry’s success in the second test case.

“Each claim will have to be assessed,” he said. “Now the fun starts.”