COVID-19 and business interruption insurance: Can an outdated exclusion clause still exclude?

Most insurance policies that provide business interruption insurance will specify circumstances in which an insured is not covered. Unfortunately for insured businesses, it is usual for a policy to exclude claims which are caused by an event that the World Health Organisation has declared a pandemic, such as COVID-19.

However, could there be an exception? A number of policies contain pandemic exclusions that exclude "diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments". However, in 2015, the Australian Quarantine Act was repealed and was replaced by the Biosecurity Act 2015.

Does this then mean that the exclusion clause and other similar clauses are invalid? Opinions are divided on whether the exclusion should or should not apply.

Insurers, we assume, will argue that the intention under the two acts is the same and that the Biosecurity Act merely replaces the Quarantine Act, or at the very least, is a "subsequent amendment" to it.

It could conversely be argued that the Quarantine Act has not been amended - but has actually been repealed altogether. Because the legislation has been repealed, exclusion clauses which only refer to "quarantinable diseases under the Quarantine Act 1908", without more, may be unenforceable. Particularly given COVID-19 was not declared as a "quarantinable disease" under the Quarantine Act and diseases are no longer declared "quarantinable" under the current legislation.

As can be seen above, there is no obvious winner. Whether these problematic exclusion clauses, which only refer to the Quarantine Act, are enforceable remains to be seen. What is clear is that insurers are certainly at risk of having these exclusion clauses challenged by insureds. In this COVID-19 environment, we think the likelihood of claims is very high given the adverse financial situation insureds are already in, or maybe in shortly.