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Australian Test Case: COVID-19 Business Interruption Insurance 

Covid 19 test caseThe New South Wales Court of Appeal recently handed down its decision in HDI Global Speciality SE Wonkana No. 3 Pty Ltd trading as Austin Tourist Park [2020] NSWCA 296. The Insurance Council of Australia, in collaboration with the financial regulator the Australian Financial Complaints Authority, used this as a test case as to the proper construction of exclusion provisions in insurance policies issued by the plaintiffs who provided business interruption insurance.

BACKGROUND 

  • The first, second, and third defendants conducted a business known as Austin Tourist Park in Tamworth (Austin), NSW, and the fourth defendant conducted a business known as Thrive Health and Nutrition in Maribyrnong (Thrive), Victoria.
  • HDI Global, under contract of insurance styled “Tourist Parl & Lifestyle Villages Insurance Policy” (the HDI Policy), insured Austin for business interruption in the period 28 February 2020 to 28 February 2021.
  • Hollard, under a contract of insurance styled “Business Insurance Policy (the Hollard Policy), inured Thrive for business interruption in the period 11 May 2019 to 11 May 2020 (the policies).
  • The HDI Policy and Hollard Policy respectively appointed specific definitions to business interruption, as follows:

The HDI Disease Benefit

Murder, suicide or disease – The occurrence of any of the circumstances set out below will be deemed to be damage to property used by you at the location:

  • The outbreak of a notifiable human infectious or contagious disease occurring within a 20-kilometre radius of the location;
  • The cover does not apply to any circumstances involving ‘Highly Pathogenic Avian Influenza in Humans’ or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments.

The Hollard Disease Cover

Infectious disease, etc.

We will cover you for interruption to or interference with your business due to:

  1. b)an outbreak of an infectious or contagious human disease occurring within a 20-kilometre radius of the premises, however, there is no cover for highly pathogenic Avian Influenza or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 (Cth) and subsequent amendments irrespective of whether discovered at the premises, or out-breaking elsewhere.
  • On 16 June 2016, the Quarantine Act 1908 (Cth) (the Quarantine Act) was repealed, and the Biosecurity Act 2015 (Cth) (the Biosecurity Act) came into force.
  • In effect, the policies provide for the exclusion from cover of particular diseases referrable to a repealed Act.
  • Relevantly, the Biosecurity Act uses the terms “listed human disease” to have the meaning given by section 42 which provides listed human diseases as determined by the Director of Human Biosecurity.
  • On 21 January 2021, the Director of Human Biosecurity, by the Biosecurity (Listed Human Diseases) Amendment Determination 2020, determined “human coronavirus with pandemic potential” to be a listed human disease (the COVID-19 determination). In other words, human diseases, which can be communicable and cause significant harm to human health, may be determined to be a “listed human disease”. The Court recognised that it was not in dispute that the determination was made in respect of COVID-19.
  • On 7 May 2020 and 10 July 2020 respectively, the insurers, HDI and Hollard, declined indemnity to Austin and Thrive. HDI and Hollard maintained that their respective policies of insurance did not extend cover to loss caused by COVID-19 as the contractual words “declared to be a quarantinable disease under the Quarantine Act 1908 (Cth) and subsequent amendments” is to be properly read as “determined to be listed human diseases under the Biosecurity Act 2015 (Cth).”

JUDGMENT

The primary issue that went before the Court was whether the clauses should be so constructed. The insurers sought declarations to that effect while Austin and Thrive cross-claimed seeking declarations that COVID-19 is not a disease declared to be a quarantinable disease under the Quarantine Act and that the exclusion clause in the policies is not enlivened.

The secondary issue before the Court, which would be relevant if the clauses were to be interpreted as stated by HDI and Hollard, and then only in respect of the Hollard Policy, whether only listed human diseases determined to be such as at the date of policy inception are excluded, or whether the exclusion applied to listed human diseases determined to be such by the Director of Human Biosecurity at any time during the cover period.

Human Coronavirus with pandemic potential was made after the inception of the Hollard Policy and during its cover period, and before the inception of the HDI Policy.

The Court of Appeal rejected the insurer’s argument and held that the words “and subsequent amendments” should be referrable only to the amendments of the Quarantine Act 1908 and not a new enactment which replaced it.

The decision of the Court of Appeal, for the insurers, meant they could not reject a claim for business interruption that resulted from the COVID-19 determination.

While this decision is an interesting exercise in contractual construction, given these novel times, it is also a timely reminder that, as the Court puts it, “any question of construction would turn on the selection of the words which the parties would hypothetically be found to have intended.”

How can I claim for losses caused by COVID-19 under policies of business interruption insurance?

 While we understand that the insurers are considering an appeal to the High Court, this was nonetheless a unanimous decision of the New South Wales Court of Appeal that could have far-reaching implications for the insurance sector.

Insurers who have had a claim refused or delayed because of this decision, or on the grounds of a Quarantine Act 1908 exclusion, should take some comfort in the judgment and call for their claims to be completed or reviewed.

This decision purifies the position that the Quarantine Act 1908 exclusion does not apply to loss caused by COVID-19.   If you believe that your business interruption insurance policy contains a Quarantine Act 1908 exclusion, it is important that you seek expert legal advice as to the construction and implications of your policy of insurance.

To speak with one of our experienced commercial and litigation lawyers about your personal situation, please contact us on 07 5526 0157.

 

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