Shares in QBE Insurance Group Ltd (ASX: QBE) have spent all day in the red, closing 2.37% lower at $11.94 apiece.
The QBE share price was down today amid news that relates to a second business interruption test case heard in the Federal Court of Australia last Friday.
Here are the crucial details.
What went down to get us here?
To set the scene, we need to revisit the onset of the COVID-19 pandemic, when business and industry were forced to close due to government lockdown mandates.
The insurance industry has long distanced itself from paying up on its liabilities when it comes to pandemics. According to the Insurance Council of Australia, the industry believes "pandemics are not intended to be covered under most business interruption policies".
But it came as a big surprise last year when policyholders found out they were ineligible for cover under their business interruption policies, as the insurers sought to exclude cover for pandemics.
The insurers' group refused to act on its liabilities through a reference to the Quarantine Act. However, this legislature was repealed in 2016 and replaced by the Biosecurity Act.
Due to the discrepancies, a test case was held in 2020 to establish key definitions and criteria on how the new legislature would be applied in its first real-world case.
Back then, the NSW Court of Appeal heard the case and ruled in favour of policyholders, a decision upheld again in June 2021 by the High Court. Both agreed there were grounds to claim on business interruption.
As such, insurers can no longer rely on references to the Quarantine Act to deny liabilities as in the first test case, as it is an outdated piece of legislature.
QBE share price sinks after Federal Court judgement
Due to some confusion remaining from the first test case, a second test case was established to provide further clarification around the matter.
It seems as if the insurers' wanted more clarity around what terms a business could claim under during a pandemic, particularly if a lockdown-based claim was substantiated.
From the Court's rulings on Friday, it is now clear that businesses essentially cannot be compensated for losses that were sustained from the government lockdown only.
The Court ruled in favour of 8 out of 9 of the matters submitted by the insurers', and upheld only 1 of the arguments put forward by the policyholders.
QBE has yet to formally comment on the matter. However, fellow insurance giant Insurance Australia Group Ltd (ASX: IAG) released a statement earlier today, stating it would review the judgement to determine whether an appeal was necessary.
Time has been set aside in November to hear any appeal in the Full Court to reach a final decision before the end of this year.
The QBE share price has been trading flat this past month, after gaining 40% this year to date and 30% in the past year.
