On 18 November 2020, the New South Wales Court of Appeal delivered the landmark decision for the COVID-19 business interruption insurance test case. The Court of Appeal found in favour of a group of businesses claiming insurance for business interruption as a result of the COVID-19 pandemic. This decision, along with its wide-reaching implications, should be considered by all Australian businesses claiming coverage from insurers for damages or loss as a result of business interruption.
Insurance policies are contracts. As with most contracts, insurance policies are not immune to interpretations made without proper consideration of parties’ intentions at the time of their agreement. However, this intention is derived principally from the explicit text of the terms within a contract. Only on a finding of some kind of an ambiguity of the language within the text will the courts then account for the context within which the agreement was made.
Whilst this case represents a win for businesses against insurers, it is important for any business to keep in mind the implications of this case when agreeing to terms now and in the future. There is no doubt the insurance industry will tighten their approach to policy drafting following the judgment of this case – businesses in turn should be aware of how such future policy amendment affects their insurance coverage.
BACKGROUND AND FACTS
The first three defendants were insured against interruption to their business for the period 28 February 2020 to 28 February 2021. These defendants were insured by the first plaintiff whose policy provided as follows (“the HDI Policy”):
The occurrence of any of the following circumstances set out below will be deemed to be damage to property used by you at the location:
3. 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. [emphasis added]
The fourth defendant was insured by the second plaintiff for the period 11 May 2019 to 11 May 2020 whose policy, almost identical to the HDI Policy, provided (“the Hollard Policy”):
We will cover You for interruption to or interference with Your Business due to:
b) an outbreak of an infectious or contagious 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. [emphasis added]
DECISION OF THE NSWCA
The wording of both the HDI Policy and Hollard Policy are crucial in ascertaining the plantiffs’ liability to cover the defendants’ business interruption. The Court focused heavily on such wording and how terms within either policy could be given their proper meaning. The key contention, which was submitted by the insurers and formed the best parts of the Court’s respective judgments, formulates as follows:
- Whether the term “and subsequent amendments” could be extended to account for the repeal and replacement of the Quarantine Act 1908 (Cth) (“the Quarantine Act”) for future legislation such as the Biosecurity Act 2016 (Cth) (“the Biosecurity Act”) on the basis that either:
a) The superseding legislation had the same substantive purpose and function as its predecessor; or
b) A mistake of construction was made so that the policy drafters failed to correctly express the insurers’ proper intention.
The Court gave consideration to relevant legal principles and case law to conclude that the submissions made by the insurers could not be upheld. The term “and subsequent amendments” should be given its ordinary meaning, which is unambiguous, and does not extend to a new enactment replacing the Quarantine Act. Further, no “mistake of construction” was made for separate reasons given by the respective judges.
The summons was ultimately dismissed by the Court; COVID-19 was not excluded by either business interruption policies.
IMPLICATIONS ON INSURED BUSINESSES
This case is a big win for businesses across Australia claiming coverage for business interruption.
However, if claims are to be made for business interruption insurance, it is essential that businesses review the policies provided by their insurers. When reviewing policies, businesses should give thought to:
- Whether “business interruption” insurance is included in their business insurance policy. This is usually outlined in the terms and conditions of an insurer’s Product Disclosure Statement (PDS). COVID-19-related events may be covered under such events as “infectious or contagious disease” or “government-ordered closures”.
- The exclusion of diseases using terms similar to those in the above case, for example, diseases “declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments”. Remember, given the decision of the above case, a clause like this could likely mean that COVID-19 would not be excluded from being a disease which causes damage or loss.
- The timeframe for which cover for business interruption will apply.
The Court of Appeal has now implied that legislation, when referred to in a contract, might have a ‘mechanism’ for determining a list of exclusions or limitation clauses7. For example, the ‘mechanism’ utilised by the HDI Policy and Hollard Policy respectively is to determine which infectious or contagious human diseases should be excluded. Other policies might include further legislative mechanisms which could affect, by extension, any list of exclusive diseases or other events which would not enliven an insurer’s contractual obligation to indemnify those they insure.
One of the orthodox principles of contractual construction of insurance policies is that the contra proferentem rule may apply in the instance of a finding of ambiguity in an insurance policy. This principle, as outlined in Halford v Price8 states that any ambiguity in an insurance policy should be resolved in favour of the insured, as it is the insurer that is ‘proffering’ the policy. This means that insurers ordinarily strive to express their intention clearly and without any ambiguity. Whether this results in an unfair or unamicable contractual agreement is for the insured to therefore ultimately decide.
910There is no doubt the insurance industry will “patch up” future policies to allow for a clearer, more commercially favourable provision of terms and conditions. As for current policies, given the gravity of this decision, relief may be sought by businesses covered by business interruption insurance where it can be shown that COVID-19 was a disease that contributed to this interruption.
The Insurance Council of Australia, which is the representative body for the general insurance industry in Australia and the body that funded the case, is now urgently reviewing the Court of Appeal’s decision to explore its options to appeal the decision in the High Court of Australia.
Does your business interruption require covid-19 insurance?
Contact our experienced claimant lawyers for current advice in seeking an insurance claim for your COVID-19-affected business today. Call us on (07) 3252 0011 or email: firstname.lastname@example.org