Final decision on COVID-19 business interruption insurance test cases

7 minute read  17.10.2022 James Stanton, Hannah Beaven, Kemsley Brennan

The High Court of Australia has concluded the ongoing COVID-19 business interruption second test case, refusing special leave to appeal from the Full Federal Court's decision.


Key takeouts


  • Special leave to appeal refused in second test case

    On 14 October 2022, the High Court of Australia refused special leave to appeal the findings of the Full Court of the Federal Court of Australia relating to the operation of certain clauses in business interruption insurance policies in the context of the COVID-19 pandemic.
  • The Full Federal Court decision (of 21 February 2022) is now the standing authority

    The findings were in relation to the operation of specific clauses contained in Australian business insurance policies. That decision is the standing authority. It will guide policyholders, insurers, regulators and industry stakeholders in determining whether insurance will or will not cover losses arising from COVID-19
  • Will my policy respond? It depends on the policy in question

    While the second test case provides authoritative guidance on applicable principles, insurance claims will ultimately be determined on the particular facts and wording of the specific policy. Although most insurance policies in the market were not intended to provide pandemic cover, each policy and factual scenario is different.

The High Court of Australia has refused special leave applications to appeal from two of the leading business interruption insurance cases relating to COVID-19:

  • LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17 (the second test case); and
  • Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2022] FCAFC 16 (Star Appeal).

Given the High Court's decision, the Federal Court of Australia Full Court decisions cited above remain the last word on those cases. We have previously reported on the Full Court of the Federal Court of Australia's decision in Business Interruption Insurance for COVID-19: The Law Two Years On.

Looking back at COVID-19 business interruption industry test cases

The High Court's hearing of special leave applications was the final step in the COVID-19 business interruption industry test cases, which had commenced in mid-2020.

The first test case

The case of HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296 (the first test case) concerned the interpretation of business interruption cover for COVID-19 related claims. This looked specifically at the application of an exclusion, which contained an outdated reference to ‘quarantinable diseases’ under the Quarantine Act 1908 (Cth). In late June 2021, the High Court dismissed a special leave application made by insurers to appeal the Court of Appeal's finding that references in business interruption policies of insurance to 'quarantinable diseases' under the Quarantine Act cannot be read as 'listed human diseases' under the Biosecurity Act 2015 (Cth). (By extension, it cannot be read as including COVID-19, which is a 'listed human disease' and not a 'quarantinable disease').

The second test case

This suite of proceedings was commenced in the Federal Court of Australia in February 2021. The second case involved nine separate policyholders, each with a commercial insurance policy containing a business interruption coverage section. The policyholders operated across sectors most affected financially by the presence of the COVID-19 pandemic in Australia including gyms, cafes, restaurants and travel agencies. On 21 February 2022, after an appeal to the Full Court, the first instance judgment of Justice Jagot (in the Federal Court as her Honour then was) was largely upheld.

The key determinations in the second test case were that:

  • Prevention of Access Clause — these clauses would provide cover where the order or action of a competent authority prevented or restricted access to insured premises because of damage or a threat of damage to property or persons (often within a specified radius of the insured premises);
  • Disease Clause — these clauses would cover loss that arises from the presence or outbreak of infectious disease at the insured premises or within a specified radius of the insured premises;
  • Hybrid Clause — these were a hybrid of the first two, providing cover for loss where the orders/actions of a competent authority have closed or restricted access to premises, and the orders/actions are made or taken as a result of the presence or outbreak of infectious disease within a specified radius of the insured premises; and
  • Catastrophe Clause — these clauses would provide cover to a policyholder where they suffer loss resulting from the action of a civil authority during a catastrophe for the purpose of retarding the catastrophe.

Ongoing interpretation questions

Although special leave to appeal has now been refused by the High Court of Australia, it is worthwhile noting some of the arguments made in support of that application. The policyholders sought to challenge certain findings of the Full Court, arguing along the following lines:

'Reading down' of the Prevention of Access and Catastrophe Clauses

Policyholders argued that the Full Court had wrongly found that the Prevention of Access and Catastrophe Clauses do not apply to diseases where there is a clause which specifically deals with diseases (e.g. a Hybrid Disease Clause). The policyholders submitted that the two types of clauses have different fields of operation and the Full Court had erroneously equated overlap with incongruence and incoherence.

The meaning of 'Catastrophe'

One policyholder (The Star) argued that the term 'catastrophe' in a business insurance policy should not be artificially pulled apart. That is, the physical aspects of a catastrophe (such as disease, flames, earthquake) should not be distinguished from its consequences, because the defining feature of a catastrophe is magnitude of harm. The Star, along with other policyholders, have submitted that the ordinary meaning of 'catastrophe' is wide enough to encompass COVID-19.

Causation in the Hybrid Clause

Another policyholder argued that the Full Court's conclusion on the Hybrid Clause was "anomalous" on the basis that they found that there was an "outbreak" within Townsville (i.e. within 20km of the Policyholder's premises) prior to 23 March 2020. Yet it also found that the Chief Health Officer's restrictions were not caused by the "outbreak" (i.e. they were to prevent the risk of spread of COVID-19 throughout Queensland).

Those arguments were not considered suitable to enable a grant of special leave to appeal.
Another argument, which was not allowed to proceed, was brought by an Insurer in respect of how the Government's JobKeeper payments should be discounted from an insurance payment.

Essentially, the insurer argued that the Full Court erred in concluding that JobKeeper payments were not to be taken into account in calculating the amount of any payment under a business interruption policy. The argument, which has not been tested in the High Court of Australia before, was that a "basis of settlement" or "settlement of claims" clause should not be seen to be exhaustive. That is, it should not exclude the application of general indemnity principles regarding the recovery of third-party payments received by the insured in relation to the insured loss.

While the argument raised a question which has not been given a specific and definitive answer, the High Court did not see it fit to disturb the Full Court's assessment that the JobKeeper payments were not to be taken into consideration for that particular policy. As to whether they can or cannot be taken into consideration for other policies in the market will also depend upon the particular policy wording.

What happens next?

The High Court's determination signals the end of more than two years of COVID-19 insurance industry test cases. It means the standing authority for assessing COVID-19 business interruption claims is set out (but not codified per se) in the Full Court's decision.

The industry has been monitoring the second test case along its long and complex journey. The COVID-19 related cases that have been on hold pending the outcome of the High Court process may now be further considered by policyholders, their brokers and insurers. While the market works towards concluding those pending matters, policyholders and insurers should carefully familiarise themselves with the Full Court's decision.

There are also similar, but not identical, proceedings which continue in other Australian jurisdictions in relation to some of the additional 'mop-up' policy construction issues which were not the subject of the second test case. While these 'ancillary' cases will benefit from the second test case (and the first test case), they may present new considerations for policyholders and insurers to be aware of as they work through the pending claims.

In each instance, it is important to bear in mind that each claim will have its own particular factual circumstances, and its own particular insurance policy wording. Policyholders, brokers and insurers should always consider those matters on a case by case basis.

For more information about your own policy or whether cover applies, please contact our team.

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