QBE plans to appeal a judgment in a UK test case on whether business interruption policies should cover losses related to the coronavirus pandemic as local insurers brace for an Australian ruling next month.
The test case was launched in June by the UK's corporate regulator, the Financial Conduct Authority, after confusion over whether an infectious disease clause meant certain policyholders could claim for lost revenue resulting from the pandemic-induced lockdowns.
The court's 150-page judgment ruled policies with clauses that reference infectious or notifiable diseases should be paid by insurers, which could have ramifications for Australians hoping to be compensated for the impact of the lockdowns.
Most business interruption policies only cover property damage, but the FCA argued infectious diseases caused proximity issues similar to natural disasters meaning shock events that restrict trade should trigger a payout.
QBE plans to appeal the judgment that would expose the company to about $170 million in additional claims but the FCA's interim chief executive, Christopher Woolard, said the ruling was a "significant step" for policyholders.
"We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market," Mr Woolard said.
"Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat."
QBE is a global insurance giant headquartered in Sydney, but its international operations expand to the UK where it offers insurance products mostly in commercial and domestic property.
The Insurance Council of Australia launched a test case in August to determine if pandemic exclusions in business interruption policies are valid after it was revealed many policies relied on an outdated definition of "quarantinable disease".
ICA spokesman Campbell Fuller said the two test cases were "chalk and cheese" but the industry body for insurers would review the complex decision. The Australian case is due to appear before the NSW Court of Appeal in early October and the ICA is confident the courts will rule in the insurance industry's favour.
However, the British case could have implications for other disputes over business interruption cover including the Star Casino's lawsuit with its main insurer, Chubb. The casino group will argue mandatory closures should trigger compensation under its business interruption policy as the abrupt change in trading conditions was out of its control.
Insurance Australia Group chief executive Peter Harmer said in August there was not enough capital in the insurance industry globally to cover the financial fallout from COVID-19 and it was the government's responsibility to foot the bill for the pandemic.
A research note by Goldman Sachs said it was difficult to determine the impact of the UK test case on the local industry, but predicted QBE's exposure to potential business interruption claims was manageable.