Business Interruption Insurance – Have the Insurers made a Mistake?

In these bizarre times when everyone is scratching around for relief from the financial consequences of COVID-19, insurance policies offer a superficial attraction.

Even so they may be worth a closer look. That look might be a fleeting one because, on any view, the policy clearly does not respond. It might concern a different type of risk or it might expressly say that there is no cover. But there are cases emerging where the policy’s response is less than clear.

A common feature of these policies which is clouding the debate about whether a policy responds or not, is some insurers’ failure to extend their reliance upon the repealed Quarantine Act 1908 (Cth) to any superceding legislation.

This failure was probably nothing more than a mistake by the insurers. Even so, it is a weakness in the wording which exposes the policy to responding to claims arising out of Covid-19. But will the Courts punish the insurers for their mistake? This is a question which has drawn varying views from highly regarded experts in the insurance law field with visions of the High Court ultimately becoming involved.

Mistake is not an issue unknown to the Law. One of the great challenges which the Courts must confront in addressing mistake is the competing principles surrounding the sanctity of the contract. Courts are reluctant to interfere with the notion that whatever the contract says, the parties agreed to its terms at their own free will. Interfering with the terms of a contract every time there is a mistake would undermine the sanctity of the contract. So, the Courts tread carefully. Even so they do from time to time interfere to fix the mistake.

There are a lot of factors in play here. What do the words of the policy mean? How do the mechanics of the policy operate? Not every policy will be the same and minds might differ about how these questions should be answered. What cannot be forgotten is that whatever the correct answers to those questions might be, if the insurers have just made a mistake, the Courts have ways of fixing it.