The Full Federal Court of Australia delivered judgment in the Second ICA Test Case appeal[i] on 21 February 2022 finding, largely in favour of the insurers. The Court found that the insuring clauses did not cover COVID-19 business interruption (BI) losses in four of the five claims brought by the insureds.
The Full Court stressed the importance of:
A summary of the Appeal Judgment together with the full reasons can be found on the Federal Court Website. There is a helpful index to the reasons starting on page 18. (Our earlier article on the Judgment of Jagot J of the Federal Court of 8 October 2021 which was the subject of this appeal can be found here.)
We summarise the main findings of the Full Federal Court’s judgment below:
If a policy contains a specific clause providing cover for diseases, then it would be ‘incongruent’ or ‘incoherent’ to interpret cover provided by a more general clause as providing cover for a disease which was addressed in a more specific clause.
Hybrid clauses which provide cover when a government or competent authority orders that premises be closed, will not provide cover if the order or closure was made before an outbreak within the specified radius of the premises had occurred.
Unlike the UK where there were significant case numbers and widespread outbreaks, in Australia, local outbreaks were not the cause of the government’s actions. The Government’s actions were preventative.
In relation to the appeal on the 5th claim involving Meridian Travel, the Full Court agreed with Jagot J that the infectious diseases insuring clause was triggered as there had been an outbreak within the radius of the premises but that Meridian Travel would have to prove causation. That is, evidence would be needed to show that the BI loss was caused by the outbreak as distinct from being caused by the Government’s closure of borders which was not an insured peril. As 90% of the business was international travel, this causal link may be difficult to establish.
Insureds need to identify the cause of BI losses. For cover to exist, that cause needs to be a stated trigger for cover in the insuring clause.
Policies which contain prevention of access cover and do not contain specific disease cover may provide cover, depending upon the wording and the circumstances.
Third Party Payments such as JobKeeper payments do not reduce the amount an insured can recover if the insured has a valid claim. Strict principles of indemnity do not apply. Certain government grants, including job-keeper, do not constitute a saving and were not payments in consequence of an insured peril.
Interest on unpaid claims runs from the time it was unreasonable for the insurer to have withheld the payment. This is so even if the insurer had formed the view that there was no entitlement to indemnity and that view was later found to be incorrect.
Quarantine Act exclusions/Victorian Property Law Act – The Full Court agreed with Jagot J and the First ICA Test Case that the Quarantine Act (Cth) exclusions do not apply:
(See note below on Certain Underwriters at Lloyd’s of London v Dural 24/7 Pty Ltd  FCA 206 which considered a different but related issue.)
The contra proferentem rule, which provides that ambiguities in insurance contracts are determined against the party who offered or drafted the policy wording, still applies. It is a rule of last resort.
The Full Federal Court heard Star’s appeal from the Judgment of Allsop J of 5 August 2021 at the same time as the Second ICA Test Case Appeal (above). On 21 February 2022, the Full Court:
By judgement dated 10 March 2022, Jagot J held that the words “or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908” appearing in clause 7 of the policy ought to be read as “or other listed human diseases under the Biosecurity Act 2015 (Cth)”.
The insured gym franchise had made a claim under a Lloyd’s Sportspack Combined Wording for COVID-19 BI losses on 16 December 2020. Underwriters denied indemnity relying on the exclusion under the Extension of Cover provided in clause 7 Murder Disease and Suicide. Clause 7 provided that certain listed circumstances would be deemed to be Damage to Property including:
“… b. the outbreak of human infectious or contagious disease occurring within a 20 kilometre radius of Your Situation; or
c. closure or evacuation of Your Business by order of a government, public or Statutory Authority consequent upon:
d. the discovery of an organism likely to result in a human infectious or contagious disease at the Situation,
e. vermin or pests at the Situation, or
f. defects in the drains or other sanitary arrangements at the Situation; or…”
Clause 7 then continued:
“Cover under b. and c. under this extension of cover does not apply in respect of Highly Pathogenic Avian Influenza in Humans or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908.”
Jagot J held that subclauses d), e) and f) of Clause 7 were intended to be subclauses of Clause 7. Her Honour found that the Biosecurity Act replaced the Quarantine Act and relied on the words in the conformity clause in Clause 4 under the heading “Information” namely: “References to a statute law also includes all its amendments or replacements”.
Her Honour found that:
We do not know whether there will be an application for special leave to appeal to the High Court from the Appeal from the Second ICA Test Case.
Assuming there is no appeal, the opportunity for insureds to recover COVID-19 BI from insurers in the Australian jurisdiction is limited. The Full Court’s findings were made on the specific wordings and circumstances in question. Whether you are able to make a claim for COVID-19 related BI losses will depend upon the wording of your policy and the facts and circumstances surrounding your losses.
You should follow the steps we have previously outlined here to confirm the extent of your BI losses and to establish whether you are able to make a claim.
Subject to the wording in question, policies with a conformity clause will allow insurers to rely on exclusions which refer to the Quarantine Act 1908.
If you have suffered COVID-19 related BI losses you should contact your broker to review your position and consider whether to make a claim. You may also consider taking advice from a lawyer who specialises in the area.
[i] LCA Marrickville Pty Limited v Swiss Re International SE  FCAFC 17
[ii] Star Entertainment Group Limited v Chubb Insurance Australia Ltd  FCAFC 16
This publication 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.