Thousands of Aussie SMEs in class actions against insurers over lost COVID-19 payouts

Source: Unsplash/Louis Hansel.

Thousands of Australian small businesses are taking two insurance giants to court in class action lawsuits, after being denied payouts for COVID-19 related losses under their business interruption insurance (BII) policies.

Law firm Gordon Legal is lodging two class action suits, in partnership with Berrill Watson — one against Aussie insurer QBE and another against global giant Lloyd’s of London.

The former is seeking to recover money for businesses that hold BII policies with QBE, suffered financial losses during the pandemic and have had claims denied on the basis their policies do not cover pandemics.

The case against Lloyd’s relates to BII policies held by jewellers and gem merchants, who have also had their claims denied.

Gordon Legal alleges the BII policies in question cover losses arising from ‘human infectious or contagious disease’. Therefore, the refusal to pay out for losses arising from the COVID-19 pandemic constitutes a breach of contract.

The law firm is also accepting expressions of interest from business owners that are facing similar challenges with other insurers.

Speaking to SmartCompany, Andrew Grech, partner at Gordon Legal, says the cases will take into account consequential losses arising from the failure to pay out to insurance customers.

“The longer they delay, the greater the loss becomes,” he explains.

“And the more likely it is that these people will suffer losses that are consequential.”

A business that doesn’t receive a payout may not be able to re-hire the staff they need to start trading again, for example.

“Not only are they denying their claims and not paying it out as we believe they should, they’re making their lives even worse by not giving them the financial support they thought they were insured for, and therefore causing further losses,” Grech says.

As class actions, these cases differ to the two test cases currently playing out in the courts.

Class action cases are able to cover a more comprehensive set of issues, Grech explains, and any findings made by the court will have “a determinative effect on the rights of all group members”.

Essentially, this means a class action is the most appropriate and most efficient vehicle for resolving all of those issues for as many businesses affected as possible, in one fell swoop.

Equally, proceedings such as this in Australia are issued on an opt-out basis, meaning eligible businesses are members of the group automatically, until the court issues an ‘opt-out’ date, when they can choose to remove themselves.

The QBE class action group currently consists of “thousands” of policy holders.

The Lloyd’s group covers a more niche category of businesses, and Grech estimates the group to be between 50 and 100 businesses. But, given the sector, the payouts they’re entitled to could amount to millions of dollars.

“So far [insurers] have shown a great determination to put every possible legal hurdle in front of people,” Grech says.

While the best result would be for them to start paying out claims “as they should”, Grech doesn’t foresee that happening any time soon.

“In lieu of insurers doing the right thing, the only thing business owners can do is seek redress from the courts,” he explains.

“The class action is the most efficient and effective way of them doing that.”

In a statement issued to the ASX, QBE acknowledged the lawsuit and said “the allegations will be defended”.

The statement suggested the issues raised “appear to be substantially similar” to those in the second test case currently before the courts, and said the insurer is committed to applying the findings of industry test cases.

“QBE is satisfied that its reserving in respect of business interruptiuon claims remains robust,” the statement added.

QBE declined to comment further, and at the time of publication, Lloyd’s has not responded ot a request for comment.