Skip to main content
Marsh logo

COVID-19 Business Interruption Claims Update: Judgement announced in second BI test case

Restaurant, cafe, bar closed due to COVID-19 or Coronavirus outbreak lockdown, stressed owner of small business, depression. Businessman exhausted, upset. Business, economy, finance crisis.

Insurers prevail in this round

On Friday 8th October 2021, shortly after 4.30pm, Justice Jayne Jagot of the Federal Court handed down her much awaited judgement in the second test case of business interruption and COVID-19.

The proceedings concerned the application and operation of policies of insurance for business interruption in the context of the effects of COVID-19, including government actions, which were taken to control the spread of COVID-19.

The decision was streamed over the internet, with Justice Jagot reading a summary of her judgement live. The actual judgement can be read at the Federal Court of Australia's online file.

In summary, the court found in favour of insurers in 8 of the 10 cases, stating insurers are “…not liable to indemnify the insured in respect of the insured’s claim.”

The judgement summary provided by the court identified the insuring clauses at issue:

  1.         hybrid clauses: these provide cover for loss from orders/actions of a competent authority closing or restricting access to premises, but only where those orders/actions are made or taken as a result of infectious disease or the outbreak of infectious disease within a specified radius of the insured premises;
  2.          infectious disease clauses: these provide cover for loss that arises from either infectious diseases or the outbreak of an infectious disease at the insured premises or within a specified radius of the insured premises;
  3.          prevention of access clauses: these provide cover for loss from orders/actions of a competent authority preventing or restricting access to insured premises because of damage or a threat of damage to property or persons (often within a specified radius of the insured premises); and
  4.          a catastrophe clause: this provides cover for loss resulting from the action of a civil authority during a catastrophe for the purpose of retarding the catastrophe.

Justice Jagot concluded that the insuring clauses did not apply in the circumstances of each case with the exception of NSD 133/2021 Insurance Australia and Meridian Travel, where the court found that the infectious disease clause, which covered losses due to an outbreak of a human infectious or contagious disease occurring within a 20km radius of the Situation, applies. 

However, Justice Jagot flagged substantial unresolved issues as to whether Meridian Travel can prove that its business was interrupted as a result of the outbreak of a human infectious or contagious disease. Justice Jagot ruled the actions of the Commonwealth Government to close borders and restrict international travel to and from Australia would be viewed as a different cause to that of the outbreak of COVID-19 within the 20km radius.  The parties to this case will be given an opportunity to consider their respective positions.

Insurers sought to rely on the Property Law Act 1958 (VIC), particularly section 61A to substitute provisions in the previously repealed Quarantine Act 1908 (Cth); by reference to the current Biosecurity Act 2015 (Cth). Justice Jagot ruled this to be inapplicable, and accordingly insurers cannot rely on this provision.

Finally, in reference to payments received by insured’s e.g. Commonwealth JobKeeper payments, relief on franchise fees granted by a franchisor, and rental reductions or abatements granted by a lessor,  Justice Jagot ruled that if indemnity was granted, these payments would reduce an insured’s loss claimable under the policy. With respect to so-called mercy payments, including Commonwealth and a number of State grants, Justice Jagot ruled that these payments were not made to reduce the insureds’ losses claimable under the policies.

What happens next?

As part of the orders, Justice Jagot granted all of the parties leave to appeal. The appeal is scheduled to be heard in the second week of November 2021. The Star Entertainment COVID-19 case appeal will also be included given multiple wordings overlap.

 

What does the COVID-19 business interruption second test case judgement mean for insureds?

This second test case is not the final word on COVID-19 business interruption losses from the courts. Even with the judgment landing in favour of insurers in this round, we continue to recommend that insureds who are yet to notify a claim, review their position and consider lodging a claim notification pending the final resolution of this matter through the court process.

We look forward to the outcome of the appeal process when we will deliver a further update. In the meantime, if you have any questions regarding the developments of the business interruption test cases in Australia, please contact your Marsh Client Executive or contact our claims team here.

This article is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy.  Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage.

LCPA 21/371

“Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions. This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from JLT Risk Solutions on request. Full information can be found in the JLT Risk Solutions Financial Services Guide.”