Since the outset of the COVID-19 pandemic, businesses across all industries have been severely impacted for a number of (obvious) reasons including lockdown measures and a decline in consumer spending. Businesses looking to recover those loses are turning to their insurance policies and submitting claims however insurers are relying upon on pandemic exclusion clauses to deny claims.
On 18 November 2020, the NSW Supreme Court of Appeal handed down its decision in the case of HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296, a test case that determined the extent of cover for COVID-19 related business interruption losses.
Background
The test case involved two insured businesses that had business interruption policies with HDI Global Speciality SE and The Hollard Insurance Company Pty Ltd (Insurers). The insured made claims seeking to recover losses caused by COVID-19. Each policy provided cover for interruption or interference caused by outbreaks of certain infectious diseases within a 20-kilometre radius of the insured’s premises (Disease Benefit Clauses). However, there was an exclusion clause in relevantly indistinguishable terms, with the HDI policy reading as follows:
“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)
On 16 June 2016, well before the period of cover for either policy commenced, the Quarantine Act 1908 (Cth) (Quarantine Act) was repealed and replaced by the Biosecurity Act 2015 (Cth) (Biosecurity Act). The mechanism for the ‘declaration’ of a quarantinable diseases under the Quarantine Act by the Governor General was replaced upon the commencement of the Biosecurity Act, with the new procedure allowing the Director of Human Biosecurity in certain circumstances to determine a disease to be a ‘listed human disease under the Biosecurity Act.
Importantly, prior to the repeal of the Quarantine Act, COVID-19 was not declared to be a quarantinable disease, however, on 21 January 2020, COVID-19 was determined to be a ‘listed human disease’ under the Biosecurity Act.
The insureds claimed indemnity from HDI and Hollard under their Disease Benefits Clauses of their respective policies for business interruption caused by COVID-19, however, their claims were declined.
Issues for determination
The insurers commenced proceedings seeking declarations that on the proper construction of the exclusion clauses, the words “declared to be a quarantinable disease under the Quarantine Act” are to be read as or as including “determined to be listed human diseases under the Biosecurity Act.”
Accordingly, the test case centred on a determination as to whether the exclusion clauses (which required a declaration under the repealed Quarantine Act, noting that mechanism was now redundant) would also apply to claims arising from COVID-19 under the new Biosecurity Act.
The principal issues for determination were:
1. Whether references to “disease declared to be quarantinable diseases under the Quarantine Act and subsequent amendments” should be construed as extending or referring to “diseases determined to be listed human diseases under the Biosecurity Act” on the basis:
(a) That the Biosecurity Act constituted a “subsequent amendment”; or
(b) That the references to the Quarantine Act were obvious mistakes which should be construed as if they were or included references to the Biosecurity Act; and
2. If the answer to the first issue is yes, whether the clause should be construed as referring only to diseases that had been subject to a determination under the Biosecurity Act at the time of entering into the policy or to diseases so determined during the life of the policy.
Decision
The Court unanimously held that the exclusion clauses did not apply for the insured in this instance and dismissed the insurers application. Particularly, the Court held that COVID-19 is not a disease “declared to be a quarantinable disease under the Quarantine Act and subsequent amendments” and accordingly did not allow the insurers to substitute the repealed Quarantine Act with the new Biosecurity Act when interpreting the policy of insurance.
What does this mean for your business?
The test case has provided clarity for businesses who were denied claims or were advised that their claims would not be accepted. It is important to note that in this particular case the policy included specific wording and reference to legislation (which was repealed) that was relevant to the Courts and their determination however not all insurance policies are the same!
The key takeaway points are:
1. If your business held business interruption insurance during the relevant coverage period; and
2. If there is a Quarantine Act style exclusion in the terms considered by the Court; and
3. If your business suffered a business interruption loss due to COVID-19;
Your business may be eligible to be covered for its business interruption losses and therefore you ought to consider either submitting a claim to your insurer, or alternatively challenge your insurer’s decision in the event that a claim has already been made and declined.
Each matter will be determined on their own facts, so it is essential that businesses get the right advice.
It remains to be seen whether insurers will continue to challenge claims through the Courts however in the meantime the outcome of this case is clear.
If you have any queries on how the test case may potentially impact your business or if you would like some advice on making a claim, please feel free to contact us.
Article prepared by: Sarah Cappello – Partner, Sydney & Joey Tass – Associate, Sydney
