The High Court of Australia has denied special leave to appeal the decision of the New South Wales Supreme Court of Appeal in HDI Global Speciality SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296, bringing to an end at least one element of confusion which has gripped policyholders and insurers since last year. This was the first business interruption test case launched in Australia. It considered whether an exclusion referring to the now repealed Quarantine Act 1908 (Cth) (Quarantine Act) could be enforced by insurers.
Looking at the point in isolation
This case concerned a specific point, whether the expression “other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments” extended to ‘listed human diseases’ under the Biosecurity Act 2015 (Cth) (Biosecurity Act). This point was significant because a number of policies purporting to provide business interruption insurance cover excluded such diseases. The Quarantine Act was repealed in June 2016 and COVID-19 measures have been implemented under the Biosecurity Act.
The position of the High Court not to grant special leave means the position of the New South Wales Supreme Court of Appeal is immune from challenge. In that decision, the New South Wales Supreme Court of Appeal decided that on the construction of the particular insurance policy COVID-19 was not a disease declared to be a quarantinable disease under the Quarantine Act 1908 and the exclusion in the policy was not enlivened.
What were the arguments in NSW Supreme Court of Appeal?
Insurers essentially ran two arguments. The first was that the words “subsequent amendments” in the exclusion should be read as extending to the Biosecurity Act. The second argument was that a reference to the Quarantine Act was a mistake which could be corrected when construing the contract. The Court of Appeal rejected both arguments.
The Court held that the expression “and subsequent amendments” was not ambiguous and that a repeal and replacement of legislation was “not within the ordinary meaning of those words”. Secondly, the Court noted that the declaration of a “quarantinable disease” under the Quarantine Act is different to the mechanism used by the Biosecurity Act which was “determined to be a listed human disease”. Although the two laws regulated the same subject matter, they did so by different standards and procedures. The Court was not satisfied there was a good reason to depart from the ordinary meaning of the words.
In relation to the second argument, the Court was not convinced there was a mistake which could be corrected when construing the contract. Hammerschlag J noted that by not referring to the current Biosecurity Act, one may suspect that a mistake was involved. However, suspicion is not sufficient, there must be a real basis for rectifying the policies and in any event no such application was made in this case. The insured pointed out that, had the Quarantine Act been repealed before policy inception, the words could still be given their literal meaning; diseases earlier declared to be quarantinable diseases under the Quarantine Act would have been excluded.
What does this mean for business interruption cases in Australia? Is there a second test case?
The position of the High Court of Australia to deny special leave to appeal provides some clarity as to the operation of exclusions referring to the Quarantine Act and subsequent amendments. These exclusions are used in a number of policy wordings in the market place that have not been updated to refer to the Biosecurity Act. However the test case did not deal with the substantive issues of policy wordings in relation to the definition of a disease, proximity of an outbreak to a business, prevention of access to premises and causation issues. A second test case has been launched with nine claimants including a dry cleaner, travel agency, stage clothing and costing store, gym, dental practice, property landlord, beauty salon and bar and restaurant businesses.
The second test case is anticipated to deal with these substantive issues including:
- disease extensions where premises were not closed or evacuated as a result of an outbreak of a notifiable infectious or contagious disease occurring with a 20km radius;
- prevention of access clauses including where the clause requires threat of damage within a 50km radius;
- listed human diseases exclusion within a 5km limit; and
- proximity of an outbreak to a business.
What are the side effects of this decision for business interruption claims?
The first business interruption test case has finally come to an end and provides some clarity to insurers and insureds alike on the operation of exclusions referring to the Quarantine Act 1908 (Cth). However the substantive matters relating to policy response were not covered by that case and will hopefully be covered by the second business interruption test case. In the meantime, it is likely that some claims will be able to be assessed to finalisation by insurers on a case by case basis. Claims requiring a more detailed causation analysis may need to await the decision of the second business interruption test case which is due to be heard in August 2021.
