Another COVID-19 insurance case comes to a close, at least for now, with the Full Federal Court handing down its decision in Star Entertainment Group Limited v Chubb Insurance Australia Ltd  FCAFC 16. The Full Federal Court also handed down its decision in the second business interruption test case appeal.
For our related articles:
- For our summary of the decision at first instance, see our article on the Star litigation.
- For our summary of the second business interruption test case appeal, see our article here.
The appeal decision largely upholds the judgment of Chief Justice Allsop at first instance although the Full Federal Court arrived via a slightly different route. It highlights the difficulty of seeking COVID-19 cover in an ISR policy even if there is potential for claiming non-physical loss.
What was The Star’s deal?
Star Entertainment Group (Star), operator of casinos and other hospitality and retail venues, held an ISR policy (Policy) underwritten by eleven insurers. The Policy provided cover for physical loss, destruction or damage to the insured’s property (Section 1) and business interruption loss caused by physical loss, destruction or damage (Section 2). Section 2 cover was unlimited.
The Policy extended the Section 2 Cover by way of a civil authority extension (Memorandum 7). The provision stated:
CIVIL AUTHORITY EXTENSION
The word “Damage” under Section 2 of this Policy is extended to include loss resulting from or caused by any lawfully constituted authority in connection with or for the purpose of retarding any conflagration or other catastrophe.
Before applying the extension, the word ‘Damage’ under section 2 of the policy referred to any building or other property ‘being physically lost, destroyed or damaged by any cause or event not hereinafter excluded’.
The Policy also provided $1 million in cover under a ‘Diseases Extension’. However, a ‘quarantinable disease listed in the Biosecurity Act 2015 (Cth)’ was excluded under that extension.
No dice for The Star
Star was unsuccessful at first instance in seeking cover under the Civil Authority Extension and. At first instance, Chief Justice Allsop held the ISR policy only responded to physical loss or damage. As the losses claimed by Star were not physical losses, but had stemmed from a disease, being COVID‑19, it was unsuccessful. On appeal, the Star argued that:
- the policy responded to non‑physical loss; and
- the requirement for an “other catastrophe” was satisfied in the manifestation of COVID‑19; and
- insurers were obliged to provide cover under section 2 of the policy.
On appeal, the Full Federal Court arrived at the same conclusion holding that the Star City Casino was not entitled to cover. However, it did so through a slightly different route. In relation to whether the policy provided cover for losses other than physical loss or damage, the Full Court held that it could.
Looking at the deck of cards as a whole
Looking at the insurance policy as a whole and its commercial purpose, the Court had specific regard to section 2 (insuring clause), the civil authority extension (Memorandum 7), and a specific provision that dealt with notifiable diseases (Memorandum 9). It observed that Memorandum 9 comprehensively described specific procedures, exclusions and indemnity limits for disease related claims. However, Memorandum 9 specifically excluded diseases listed under the Biosecurity Act 2015 (Cth).
The Full Court held that as Memorandum 9, the more specific provision, dealt with notifiable diseases there was not any cover under Memorandum 7 otherwise it would circumvent the specific policy procedures, limits and exclusions set out in Memorandum 9. In other words, only Memorandum 9 could potentially deal with diseases such as COVID-19, and on its terms, COVID-19 was excluded because it was a listed human disease under the Biosecurity Act 2014 (Cth).
The Full Court also considered in detail the language used in the Civil Authority Extension and, while it could potentially cover non-physical loss (a different view to Chief Justice Allsop’s view), it was not engaged due to the existence of Memorandum 9.
Is COVID‑19 a catastrophe?
At first instance, Chief Justice Allsop considered expert evidence from medical and economic experts as to whether COVID‑19 can be considered a “catastrophe”. Chief Justice Allsop considered there could be 4 possible outcomes:
- a global catastrophe;
- domestic catastrophe;
- an incipient domestic catastrophe; or
- no catastrophe at all.
Chief Justice Allsop considered that the evidence showed that COVID‑19 was, at the relevant time, a global catastrophe with at least an incipient existence in Australia and remarked that the pandemic and the response thereto could not be disentangled.
Notwithstanding this finding, both the primary judge and the Full Court considered that COVID‑19 was not a catastrophe within the meaning of the insurance policy. This was because the policy wording referred to “conflagration or other catastrophe”. Looking at this particular wording, the Full Court held that the word “conflagration” in the policy wording was significant, as was the word “retarding”.
The word “retarding” suggested that the conflagration or other catastrophe must follow a particular course requiring physical intervention, such as a fire. It did not encompass the giving of advice such as public health advice or orders. Accordingly, the provision could not extend to COVID‑19. The words “other catastrophe” in the context of the clause could only relate to catastrophes which were of a physical nature similar to a conflagration.
The Star could appeal to the High Court although special leave to appeal will need to be granted. It is possible the case could end here. The Star case illustrates the difficulties insureds face in seeking COVID-19 business interruption cover in ISR policies. However, the case leaves the door open for other claims, potentially in wordings which simply refer to ‘catastrophe’ without reference to ‘conflagration’. The finding that the ISR policy could potentially cover non-physical loss such as that caused by COVID-19 is also significant and leaves more room for interpretation compared to the decision at first instance. No doubt insurers will be reviewing their policy endorsements and wordings after this case.