Home » COVID 19 Update: Business Interruption Insurance Policy

COVID 19 Update: Business Interruption Insurance Policy

Posted by Ben Robertson | 30 June 2021 | Civil Contractors and Construction

As we reported last year, business interruption policy insurers lost a significant test case in the NSW Court of Appeal when the court found that many exclusion clauses, which insurers sought to rely upon to deny claims for business interruption due to COVID 19, were invalid. (HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296).

 

On 25 June 2021, the High Court denied the insurers’ special leave application to appeal the Court of Appeal’s judgement and dismissed the application with costs.

Court of Appeal Decision

The test case that came before the Court of Appeal concerned a number of business interruption policies which contained exclusion clauses which stated that the policies would not cover diseases which were declare to be quarantinable diseases under the Quarantine Act 1908 (Cth).

The central problem with those clauses was that the Quarantine Act 1908 was repealed in 2016 and in its place the Biosecurity Act 2015 (Cth) was enacted. The Quarantine Act 1908 had a mechanism for declaring certain diseases to be quarantinable diseases, and the impact of such diseases on business was not insured under the Business Interruption Insurance Policies.

The Biosecurity Act 2015 had a different procedure and contained a mechanism for certain diseases to be determined as listed human diseases under the Biosecurity Act 2015.

The primary issues for the Court of Appeal to decide were:

  1. Whether the references to “diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments” should be constructed as extending or referring to “diseases determined to be listed human diseases under the Biosecurity Act 2015” on the basis:
    a) That the Biosecurity Act constituted a “subsequent amendment”; or

    b) That the references to the Quarantine Act were obvious mistakes which should be construed as if they were or included references to the Biosecurity Act.Given that the Court of Appeal answered the first primary issues with an emphatic – no, the secondary issue did not need to be determined by the Court of Appeal. That secondary issue was:

  2. If the answer to the first issue is yes, whether the clause should be construed as referring only to diseases that had been subject to a determination under the Biosecurity Act at the time of entering into the policy or to diseases so determined during the life of the policy.

In relation to the primary issues for determination the Court of Appeal found:

  1. The Biosecurity Act 2015 was a separate act that replaced the Quarantine Act 1908 and the words “and subsequent amendments” did not describe the Biosecurity Act 2015.
  2. The phrase “declared to be a quarantinable disease under the Quarantine Act” could not be read as “determined to be a listed human disease under the Biosecurity Act”. That required a degree of flexible construction which the Court of Appeal could not employ.
  3. Meagher JA and Bell J, when considering whether the policy should be corrected for a “mistake” inferred that none of the parties were aware at the time that the policies were issued that the Quarantine Act had been repealed and the Biosecurity Act enacted. The parties assumption in this regard was incorrect and their Honours found that it was not possible to correct an agreement merely because an intention was formed and expressed on an incorrect assumption.
  4. Hammerschlag J found that when looking at the exclusion clause the natural and ordinary meaning of the words did not result in an absurdity which was sufficient to justify a conclusion that the language should not be given effect. While the exclusion clause was uncommercial, because it referred only to a very restricted number of diseases, being those listed diseases under the repealed Quarantine Act, there was however a limited number of diseases which the exclusion clause applied to and the clause was not absurd.

This was a significant blow to the insurers, particularly now that the High Court has determined that there are no reasons why special leave should be afforded for the High Court to hear an appeal.

As a result, there are a large number of insurance policies where insurers will be unable to decline claims based upon exclusion clauses that refer to the Quarantine Act, instead of the Biosecurity Act.

There is a second test case by insurers that was filed in the Federal Court on 24 February 2021.  The insurers represented in that case are Allianz, IAG, Chubb, Guild and SwissRe Corporate Solutions. The Insurance Council of Australia have indicated that the issues for the court to determine in that case concern the meaning of policy wordings in relation to the definition of a disease, proximity of an outbreak to a business and prevention of access to premises due to a government mandate.

It is expected that the hearing of the second test case will occur in late August 2021.

Any business that is impacted upon by COVID-19 lockdowns should review the wording of its business interruption policies and it is important that any claims are made in accordance with and within the times required under their insurance policies.

 

Should you have any queries in relation to business interruption policies, please contact us on construction@nexuslayers.com.au

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