In the latest judicial guidance in Australia around whether certain business interruption insurance policies provide cover to businesses for losses arising from COVID-19 , Justice Jagot from the Federal Court of Australia provided guidance around some of the key words used in insurance policies.

Although the primary reasoning of the Court was concerned with the particular availability or unavailability of insurance coverage, Jagot J provided a list of specific words that arose for discussion in the insurance policies. Jagot J identified how those should, or likely will, be determined in the context of COVID-19 insurance claims.

The key words that arose in the policies, and her Honour's guidance for them, were:

Closure of premises/situation

Closure of premises/a situation in the context of 'closure or evacuation of' the premises/a situation (in the ordinary course and not compared, would extend to closure of a part of the premises or situation.

Closure in that context is different when compared to the words prevention, restriction or hindrance of access to the premises/situation. Closure then requires that the whole or part of the premises/situation be closed off from entry by persons who otherwise would ordinarily be entitled to enter and remain on the whole or that part of the premises/situation.

Closure in that context does not require physical impossibility of access to the whole or part of the premises/situation.

Closure in that context does not require that each and every person is prohibited from entering and remaining upon the whole or part of the premises/situation. It requires that persons who would otherwise be entitled to do so, not be able to do so. This is to be applied in a common-sense way.

As such, if a premises/situation involves a business catering to the public and the public is not able to enter and remain upon the whole of the premises/situation or a part of the premises/situation, the premises/situation may well be closed in whole or part.

Whether the closure must be voluntary or compelled will be shown in the policy. Where the required closure is 'by order' of an authority the closure must be compelled or required by the order. 'By' in this context ordinarily means 'required by' and 'caused by' and not just 'caused by'.

Closure of business or premises?

Closure of premises/a situation is different from closure of a business. However, it is not possible to apply any pre-conceived concept that a 'mere' restriction on the operation of a business does not require a closure of the premises/situation. Whether the action of the authority does require closure of the premises/situation or not will depend on the facts.

Restrict/prevent/hinder

In the ordinary course, a restriction on the number of people who may enter and remain on premises at any one time does not involve closure of premises/a situation.

An order of an authority which 'prevents', 'restricts' or 'hinders' access to premises/a situation ordinarily would not require a physical (as opposed to a legal) prevention, restriction or hindrance of access to the premises/situation.

In the ordinary course, a restriction on the number of people who may enter and remain on premises at any one time does involve prevention, restriction or hindrance of access to the premises/situation.

Competent authority or body / public authority

A competent authority or body means an authority or body competent to take the action contemplated by the insuring clause.

A 'public authority', 'statutory authority', 'government authority', 'civil authority', 'lawful authority' or the like, in the context of the insuring provisions, means an authority, body or person authorised or empowered to take the action by reason of an Act, regulation or instrument of any kind under an Act, regulation or instrument, the action having some essentially public as opposed to private character. It does not mean an authority, body or person authorised or empowered to take the action by reason of a private arrangement such as a contract or by-laws of a body corporate.

Outbreak

An 'outbreak' of a disease takes its meaning from the nature of the disease.

'Outbreak' and 'occurrence' can differ. In the case of COVID-19, there can be an 'outbreak' of COVID-19 within a specified area if there are active (in the sense of contagious) cases of COVID-19 within the community in that area who are not in a controlled setting (such as a hospital or isolation or quarantine). This is the case whether or not it can be proved that such a person transmitted COVID-19 to another person within the area. This is because of the highly contagious nature of COVID-19 (as evidenced by its rapid progress to worldwide pandemic status).

Discovery of organism

An organism is 'discovered' if it is found or ascertained.

Whether the discovery of an organism must be at the premises/situation or not depends on the wording of the particular provision. No generalisation is possible.

Damage to persons or property

The concept of 'damage' to a person in the sense of 'damage' used in the policy (accidental physical damage, destruction or loss) is not particularly apt to describe any form of harm to humans be it from physical injury or disease.

The harm which diseases cause to a person, while physical, does not fall readily and naturally within the concept of damage as it used in this policy.

Contrast this with the harm caused by physical injury to a person, which does more readily and naturally accord with the concept of damage as it used in this policy.

The presence of the SARS-CoV-2 virus on the surface of property is generally not capable of constituting damage to property.

Find out more about the case in COVID-19 Business Interruption Insurance: Second Test Case

For more information about the decision or how coverage may be determined, please contact our team.