In 2020, following the rejection of multiple Business Interruption claims brought by policyholders as a result of COVID-19, the Supreme Court of NSW delivered its judgment on the First Test Case on the issue of whether Business Interruption insurance policies extend cover relating to the COVID-19 outbreak. This test case concerned a specific point, namely whether the expression “other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments” extended to ‘listed human diseases’ under the Biosecurity Act 2015 (Cth). Many insurers had not updated their policies which referred to the repealed Quarantine Act 1908. This point is significant because most policies intending to provide business interruption insurance cover excluded such diseases. Insurers argued that the words “subsequent amendments” in the exclusion should be read as extending to the Biosecurity Act, and a reference to the Quarantine Act was a mistake that could be corrected when interpreting the contract. The Court of Appeal unanimously rejected both arguments, as outlined in our briefing from July 2021. The High Court refused leave to appeal and so that decision stands in NSW.
Crucially, however, the First Test Case did not deal with significant policy wording issues.
A Second Test Case with ten claimants including a dry cleaner, travel agency, stage clothing and costing store, gym, dental practice, property landlord, beauty salon, and bar and restaurant businesses was heard in September 2021 to determine various issues, including:
- disease extensions where premises were not closed or evacuated as a result of an outbreak of a notifiable infectious or contagious disease occurring within a 20km radius;
- prevention of access clauses including where the clause requires a threat of damage to be within a 50km radius
- listed human diseases exclusion within a 5km limit; and
- the proximity of an outbreak to a business.
Insurers also argued that Section 61A of the Victorian Property Law Act 1958 has the effect of substituting in the Biosecurity Act for the repealed Quarantine Act. The relevant section says that where an Act is “repealed and re-enacted”, references in contracts will be taken as referring to the new Act, meaning the former Quarantine Act was replaced by the Biosecurity Act. This argument enlivened the Quarantine Act issue but only for claims in Victoria.
FINDINGS OF THE SECOND TEST CASE
On 8 October 2021, Justice Jagot of The Federal Court (NSW Registry) found in favour of insurers in nine out of ten cases presented (on the issues outlined above). The remaining case, case number NSD133/2021 - Insurance Australia Limited and Meridian Travel (Vic) Pty Ltd was determined in favour of the insured/s because of the unique way the relevant clause was worded in the policy document.
Specifically, Justice Jagot found the Victorian Property Law Act, being a State Act, did not apply to Commonwealth Acts, (the Quarantine Act and Biosecurity Act was/are Commonwealth Acts), and therefore insurers are not able to rely on that Victorian Act to argue the Biosecurity Act replaced the repealed Quarantine Act in relation to those claims where Insureds were affected in Victoria.
MORE TO COME
This second test case is not the final word from the Courts on BI cover for COVID-19 losses.
An appeal date has already been set for the second week of November 2021 and we will be closely monitoring the appeal so we can provide an update to our clients when that judgment is handed down.