Under the AFCA Rules, a member financial firm must seek AFCA’s consent to bring a test case over a matter that would otherwise be handled by AFCA as a complaint.
AFCA cannot initiate its own test case and, once it provides approval to the member firm, it is not involved in the filing or running of a test case or any appeals. AFCA does not provide any financial, legal or other support.
One of the factors considered before agreeing to allow a member firm to treat a complaint as a test case is whether there are important issues of law to be decided.
In addition, the financial firm must meet AFCA requirements such as agreeing to pay the complainants’ legal fees incurred in the test case.
Test Case 2 – Other exclusions
The Full Court of the Federal Court of Australia has concluded hearing appeals in a second test case involving business interruption insurance and the COVID-19 pandemic.
The Full Court has reserved its judgment, with a ruling anticipated by the end of the year or early next year.
The second test case seeks judicial guidance on the application of policy wordings found in many business interruption policies.
AFCA welcomes further progress in this second test case, as legal clarity is important for insurers, their customers and those who have filed complaints with AFCA.
AFCA is not a party to the test case but stands ready to resolve business interruption insurance disputes arising from the COVID-19 pandemic once the outcome of the Federal Court appeal is known.
Even while awaiting a final outcome of the test case, any small business with a business interruption policy that is dissatisfied with an insurer’s decision can lodge a complaint with their insurer. If they do not agree with the outcome of that internal process they can then lodge a complaint with AFCA, at no cost. AFCA can make decisions on complaints up to $1.085 million in value.
Small businesses should gather relevant financial records now to establish the extent of their business loss. Having them readily to hand will help insurers address claims or internal complaints about claim outcomes and assist AFCA in handling any dispute that may arise.
Further information can be accessed on the Federal Court’s web page for this matter.
Test Case 1 – Quarantine Act
A test case considering the application of a common insurance policy exclusion relating to the repealed Quarantine Act 1908 was heard by the NSW Court of Appeals on 2 October 2020.
The main purpose of the test case was to seek a decision from the court on whether, in policies issued to small businesses containing business interruption cover, references to a quarantinable disease under the Quarantine Act 1908 should be construed as a reference to a listed human disease under the Biosecurity Act 2015.
On 18 November 2020, the NSW Supreme Court of Appeals ruled that Quarantine Act references in policies did not exclude the two claims in the test case. You can read the full judgment here.
The Board of the Insurance Council of Australia applied for special leave from the High Court of Australia to appeal the NSW Court of Appeal decision. On 25 June 2021, the High Court denied this special leave to appeal. You can read the Insurance Council of Australia's statement here.
AFCA continues to work with regulators, industry and small businesses to resolve financial disputes fairly.
AFCA thanks those involved, notably the insurers and small businesses that took part in the test case.
Complaints with AFCA
AFCA is in direct communication with the relevant complainants and insurers who have complaints with us about business interruption insurance. AFCA will continue to consider business interruption complaints about claims which are unrelated to the test cases.
More information about how we are required to make decisions is available here.
Any questions about the details of the test cases or any appeals are best directed to the named parties to the case.