Business interruption: back into the breach

Business interruption: back into the breach

A second BI test case is examining more COVID-19 issues related to disputes over policies that insurers say don’t cover the pandemic

By Wendy Pugh

A Federal Court business interruption test case will examine nine previously rejected claims as insurers and policyholders contest wordings and the extent of cover for COVID-19 impacts in another round of legal action.

The Insurance Council of Australia (ICA) launched the more complex second proceedings while awaiting an appeal decision on a first test case that went against insurers in finding wordings citing the repealed Quarantine Act don’t exclude cover for COVID-19.

Whatever the appeal result, ICA says other hurdles for claimants exist, with the second case set to look at issues around the definition of a disease, the proximity of an outbreak to a business, physical damage requirements and the application of government mandates under prevention of access clauses.

The court will also receive submissions on reducing payments to take into account wider pandemic impacts, if it’s found policies do respond.

Initial documents filed with the court include the following details:

Allianz Australia Insurance Ltd v The Stage Shop Pty Ltd (formerly Visintin Pty Ltd)

The stage clothing and costume business closed its Adelaide shop and stood down employees on March 21 as theatres shut their doors in response to South Australian measures introduced after the state declared a public health emergency.

Confirmed COVID-19 cases in the state totalled 134 when the measures were announced, with the number rising to 612 by late February this year, according to the documents.

Visintin lodged a claim under its Steadfast Business Pack policy which included infectious disease and prevention of access extensions.

The shop says the government measures required its customers to cease operating and resulted in a drop in trade and profit, while a COVID-19 outbreak first occurred in the state at Adelaide Airport, 6.8km from its premises, and within a radius specified in the policy.

Allianz says the disease extension doesn’t respond as the premises were not closed or evacuated in whole or in part by any of the measures, or alternatively it was not as a result of the outbreak of a notifiable infectious or contagious disease occurring within a 20km radius.

Nor did the measures prevent or restrict access, or result from threat of damage to property or persons within a 50km radius, the insurer says.

Allianz Australia Insurance Ltd v Mayberg Pty Ltd

Dry-cleaning business Mayberg says restrictions on non-essential travel and business and social distancing rules reduced trading and profit at its Brisbane region locations.

A claim was made under an Advisernet Business Pack policy which included a murder, suicide or infectious disease extension and a prevention of access by a public authority extension.

Confirmed COVID-19 cases in Queensland totalled 319 when the state measures were introduced. Numbers had risen to 1323 cases including 503 in the Brisbane Local Government Area and 29 in nearby Redland, as of February 23 this year, the court documents say.

The Allianz policy says there’s no cover irrespective of where COVID-19 was discovered due to an exclusion citing diseases under the Quarantine Act 1908 (as amended).

But if the first test case knocks out that exclusion, Allianz says the policy still doesn’t respond due to other wordings similar to those in The Stage Shop case.

Chubb Insurance Australia Ltd v Market Foods Pty Ltd

Market Foods businesses include the Blackmarket Bar and Grill in central Brisbane, and Marketcart stores at the Herston health precinct and at the University of Queensland in Saint Lucia.

On March 23 the Queensland Chief Health Officer said non-essential businesses must not operate, including restaurants, cafes and fast-food outlets, except for takeaway. On March 20, the University of Queensland said teaching would go online for the first semester.

Market Foods lodged a claim under the disease extension part of its Chubb Business Pack policy around March 20, then on April 8 lodged a claim under extension B.

Chubb says extension B requires physical property damage, notifiable diseases are only covered under the disease extension, while there was no damage to property within 50km that hindered access, or damage to commercial complexes within which the business operated.

Further, government restrictions were “on the basis of a general and state-wide threat to the health of persons” and not related to physical damage issues within 50km, while university actions were not those of a legal authority within the policy meaning.

On the disease extension, Chubb says there was no occurrence or outbreak of COVID-19 at the insured locations, and even if there was, government and university actions were in response to a general threat of a notifiable disease across Queensland.

Chubb Insurance Australia Ltd v Phillip Waldeck

Mr Waldeck lodged a claim under the Chubb Business Pack disease extension, attributing a 40% drop in rent from a tenant in the Melbourne suburb of Camberwell to COVID-19 regulation impacts.

Chubb says there was no occurrence or outbreak of COVID-19 at the location, meaning there was no occurrence or outbreak of a notifiable disease at the premises, within the meaning of the extension.

In addition, the Victorian regulation imposed no physical restriction on the use of, or access to, the location, so did not meet extension requirements.

Chubb’s exclusion references the Quarantine Act, which it notes is a separate issue to be decided in the first test case. But it also flags that section 61A of the Property Law Act 1958 (Vic) applies to the policy and has the effect that the reference to the repealed Quarantine Act is to be construed as a reference to the Biosecurity Act.

The insurer says it’s not pursuing that issue in the second test case, as it is subject to a complaint to the Australian Financial Complaints Authority, which hasn’t consented to raising it in the current matter.

Guild Insurance Ltd v Jason Michael t/a Illawarra Paediatric Dentistry

Dr Michael lodged a claim under a Dentists Business Insurance Policy after restrictions announced by the federal and state governments and professional bodies affected the Wollongong practice.

The Federal Government on March 25 announced a non-elective surgery suspension and NSW introduced other responses. Between March and May, the Australian Dental Association and Australian Health Protection Principal Committee recommended restrictions to manage potential COVID-19 exposure at practices.

Guild said a prevention of access extension did not respond, noting Dr Michael was able to conduct business in whole or part and the practice was not closed or evacuated.

The insurer says “none of the government and industry measures constituted the intervention of any lawful authority resulting from threat of damage to property in the immediate vicinity of the business premises which prevented access to or hindered the use” of the premises, and the dental and health bodies are not relevant authorities under the policy.

If the measures were an order to close in whole or part, they weren’t in response to human infectious or contagious disease, or the discovery of any organism at the premises, while COVID-19 is not caused by such an organism, it says.

Guild Insurance Ltd v Gym Franchises Australia Pty Ltd & Anor

Gym Franchises Australia, which has a premises in Upper Coomera on the Gold Coast, claimed under the prevention of access extension in its Fitness Centres Business Insurance Policy.

The claim was lodged after Queensland Government measures included a March 23 Non-Essential Business Closure Direction, which included prohibiting gyms from operating.

Guild declined the claim with some of the wordings similar to the Wollongong case, including that none of the measures resulted from threat of damage to property in the vicinity which prevented access or hindered use of the premises, and none of the measures was an order for the closure or evacuation of the whole or any part of the premises, as required to engage the extension.

It notes there was no discovery at the gym of a disease or organism likely to result in human infectious or contagious disease, and additionally COVID-19 is not caused by such an organism.

The policy’s infectious and/or transmissible diseases exclusion cites the Quarantine Act and subsequent amendments.

Insurance Australia Ltd v The Taphouse Townsville Pty Ltd

The Taphouse bar and restaurant in Townsville lodged a claim after it was restricted to providing takeaway and home deliveries as a result of Queensland Government measures.

The Government introduced social distancing rules for venues such as pubs on March 19, followed by the non-essential closure direction a few days later, which included restaurant dining.

The documents say the stated aim of the measures was to “assist in containing, or to respond to the spread of COVID-19 within the community”. At the time Queensland had 319 confirmed cases, with one attributed to the Townsville area. The numbers had risen to 1300 state-wide and 31 in the Townsville area by the time court documents were filed.

The Taphouse was insured with CGU and held a Business Insurance Policy with prevention of access and disease extensions.

CGU says disease is not covered under the prevention of access extension and the government measures did not constitute a legal authority preventing or restricting access to the Taphouse’s premises and were “not a result of damage to or threat of damage to property or persons” within a 50km radius.

The disease clause references the Quarantine Act exclusion, while the document also notes that the measures were not a result of a COVID-19 outbreak occurring within a 20km radius.

Insurance Australia Ltd v Meridian Travel (Vic) Pty Ltd

Meridian Travel & the Cruise Gallery says it suffered a significant loss in revenue as it had to cancel all of its business and refund clients as a result of an international travel ban.

The travel agency, in the Melbourne suburb of Heidelberg, lodged a claim on July 15 under a CGU Steadfast Office Pack that included a disease and a closure or evacuation extension.

The Federal Government initially advised against travelling overseas, then closed the borders to non-citizens and non-residents and on March 25 said citizens and permanent residents would be prevented from leaving.

At that time there were 2415 confirmed cases of COVID-19 in Australia, 518 confirmed cases attributed to Victoria, and 406 attributed to the Melbourne metropolitan area.

CGU, putting aside the Quarantine Act issue, says that in terms of the disease extension, Meridian’s loss was not a result of an outbreak of COVID-19 occurring within 20km.

There was also no closure or evacuation of the premises by order of a government, public or statutory authority and “further or alternatively, any closure of Meridian’s premises was not consequent upon the discovery of an organism likely to result in a human infectious or contagious disease” at the premises.

Swiss Re International SE v LCA Marrickville Pty Ltd

LCA, which provides cosmetic treatment services at the Marrickville Metro Shopping Centre in Sydney, held insurance under an industrial special risks policy. NSW March 30 orders included that people not leave their homes without a reasonable excuse and that beauty salons close to the public. Salons were allowed to open from May 15 to sell retail goods and gift vouchers, while from June 1 they could operate with capacity limits, under measures referred to as Orders 2 and 3.

LCA lodged a business interruption claim in July under a prevention of access extension, saying it had closed the business from March 26 to May 31 due to the government measures.

Swiss Re ruled out cover under disease, extension, catastrophe and prevention of access clauses, noting there was no outbreak at the premises and cover is excluded due to a Biosecurity Act listing for COVID-19. Orders 2 and 3 also did not require the “closure or evacuation of the whole or part of the situation”.

The insurer says government orders had a focus on public health in NSW and Australia generally and were not actions taken “to avoid or diminish risk to life” within 5km of the premises.

Documents for all nine of the claim disputes also request court declarations on how any business interruption payments should be reduced if it’s ruled a policy does respond.

In an example, CGU seeks a declaration the claims loss was not caused by, or not wholly caused by insured events, but was caused or partly caused by uninsured events relating to the COVID-19 pandemic and that “further or alternatively” it’s entitled to adjust any payment by reference to those uninsured events.

The Federal Court will hold a second preliminary case management hearing after June 18, by which time both sides must have provided more information and have finalised agreed facts and issues for determination.