On 2 October 2020, a test case involving two insurance policies that excluded cover for loss arising from “quarantinable diseases” was brought before five justices of the NSW Court of Appeals. On 18 November 2020, a unanimous decision was made in favour of the insureds. If you are unfamiliar with the background of the case, please see our first article here.
Recently, on 25 June 2021, the High Court of Australia refused special leave to appeal the NSW Court of Appeals’ decision on the basis it was not attended by sufficient doubt.
Submissions were brought regarding whether the decision of the Court of Appeals involved an orthodox, uncontroversial application of construction principles. In the end, the Court and the insureds both agreed the matter was a vanilla application of construction principles.
The issues brought before the Court still concerned the applicability of the Biosecurity Act 2015 (Cth), and the interpretation and extent of the exclusion clause: “diseases declared to be quarantinable diseases under the Quarantine Act 1908 (Cth) and subsequent amendments”.
The Insurers Arguments
The insurers argued there was no dichotomy between the meanings of “subsequent amendments” and ‘repeal and replacement’. The terms overlapped, particularly given the Quarantine Act and the Biosecurity Act had strikingly similar objectives and purposes. However, the Court argued the terms were very different as the Quarantine Act, which had been in force for over 105 years was finally substituted by a completely different regime and regulatory framework. Justice Edelman also noted the second reading speech for the Biosecurity Act supported this conclusion.
The insurers argued that the parties intended the operational mechanism for listing or declaring diseases be one enforced during the life of the policy, so “subsequent amendments” had to refer to legislative changes in general terms. However, the insureds and the Court argued it would be hard to read the words of the exclusion clause instead as “any declaration under any regime adopted by the Commonwealth parliament from time to time”. Since some level of ambulatory effect was intended to be given by the parties on the applicable operational mechanism, a maximum level of ambulatory effect was also intended.
The High Court agreed with the Court of Appeals’ decision that “subsequent amendments” did not extend to legislation replacing the Quarantine Act. The phrase “subsequent amendments” is unambiguous, so should be given its ordinary meaning.
The insurers further argued there was inconsistency between the objectively discerned intention of the parties and the ordinary meaning of the language employed in the policy, suggesting there was a clear mistake. However, the Court rarely finds error in a contract’s language. According to ordinary construction principles, the objective intention of the parties is revealed by reading the explicate terms of the contract alongside the surrounding facts and circumstances of the case.
The crucial piece of contextual evidence here was that neither of the parties had knowledge of the repeal of the Quarantine Act. Therefore, there could be no objective conclusion that there was a mistake with the language of the policy. Since the parties intended for the operational mechanism to be the Quarantine Act at the time, the exclusion clause could not be ‘rectified’ or construed as “human diseases determined under the Biosecurity Act”, even though this meant the clause had limited operation.
The Effect of the High Court’s Decision
Since no new decision was made by the High Court of Australia, the decision made by the NSW Court of Appeals still stands. Please see our first article on the implications of this decision on insureds businesses.
The first test case only dealt with one of the many issues arising from COVID-19 and its effect on business interruption insurance. This means many major claims will not be finalised until the conclusion of the second test case which is projected to go to trial in late August 2021 and to appeal in early November 2021. This second test case will determine various issues including policy wording definitions and the effect of government directives on insurance claims.
Rest assured; insurers have committed to following the rulings in both test cases when assessing business interruption claims, and the decisions made in both test cases will apply to all Australian claims, regardless of location. Even though the second test case is still actively running, you may still lodge a claim with your insurer, however, note that any outcome may vary or not be finalised until the conclusion of the second test case.