Client update - Australian COVID-19 related business interruption losses: Update on Test Case 1 and Star Casino litigation

 

As we have reported in previous client updates, 2021 will be a busy year for the courts in determining whether business interruption losses relating to COVID-19 are covered under Australian business interruption insurance policies.  Please see below for an update on the recent outcomes and status of relevant Australian Insurance Council/Australian Financial Complaints Authority (AFCA) Test Cases and the very recent Star Casino Judgment. 

Test Case 1 – now resolved

Test Case 1 considered a narrow issue, being the application of a specific policy exclusion found in some policies which referred to the “Quarantine Act 1908 and subsequent amendments”.  Both the NSW Supreme Court and the NSW Court of Appeal found in favour of the policyholders.  

In June 2021, the High Court denied the insurers’ application for special leave to appeal. The High Court’s decision means that insurers cannot rely on references to the Quarantine Act in policy exclusions as meaning the Biosecurity Act to exclude claims in policies written in the same terms as the policies in Test Case 1. 

Star Casino Judgment 

In August 2021 the Federal Court of Australia delivered a judgment which dismissed Star Casino’s claim against insurers for business interruption losses due to COVID-19.  Star Casino had relied on a ‘civil authority extension’ found in its ISR Policy which provided cover for ‘loss resulting from or caused by any lawfully constituted authority in connection with or for the purpose of retarding any conflagration or other catastrophe’.  Star Casino argued that COVID-19 was a ‘catastrophe’ for the purpose of this extension. 

In dismissing Star Casino’s claim, the Court held that the words ’other catastrophe’ in Star Casino’s Policy referred to events or occurrences capable of causing physical loss or destruction to property.  The decision is very likely to be appealed. 

Test Case 2 – Hearing in August 2021

Test Case 2 was commenced in the Federal Court in February 2021.  It relates to nine separate small business claims from a range of business sectors and locations, involving five insurers and various policy wordings. 

Test Case 2 will determine the meaning of the various non-damage business interruption sections of the nine property damage and business interruption policies, and other important issues such as causation and calculation of damages.  The issues for determination in Test Case 2 include considering a civil authority extension containing the words ‘or other catastrophe’, but written in different terms to the Star Casino Policy. 
  
Test Case 2 has been set down for hearing in late August 2021.  Any hearing of an appeal of the decision has been scheduled for November 2021.  Following that appeal, if an application for special leave to the High Court is made by either party, there is unlikely to be any final outcome of the proceedings until at least 2022. 

Current position for policyholders  

Most if not all insurers are awaiting the outcome of Test Case 2 before finalising any COVID-19 related business interruption claims.  This includes policies with exclusions in similar terms to that considered in Test Case 1.  AFCA has also stated that it is awaiting the outcome of Test Case 2 before proceeding to determine disputes relating to these business interruption claims. 

This means Australian policyholders are likely to be waiting beyond 2021 for any final policy coverage decision to be made in response to their claims. 

Given this anticipated delay, Aon strongly recommends that any insured who has lodged or intends to lodge a claim, should begin collecting relevant financial records and other relevant documents and evidence in support of their claim as soon as possible, so this information is preserved and readily available.  AFCA has produced an Information Sheet ‘Establishing business interruption loss due to COVID-19’ which sets out a list of the financial information that will assist in establishing business loss. 

Further information

Aon is able to assist any client who held business interruption cover and wishes to lodge or notify an insurer of their business interruption claim. Insureds should also seek independent legal advice if they require legal advice on policy coverage. 

Please contact your assigned Aon claims contact person or member of your Aon account team for any questions or to discuss your potential business interruption claim.

We will continue to provide updates on relevant developments on this evolving issue in the Aon Newsroom.
 

Disclaimer: This Alert is not intended to be taken as personal advice and should not be relied upon as such. It is not intended to be comprehensive, nor does it, or should it be construed as constituting legal advice. You should seek independent legal or other professional advice before acting or relying on any of the content of this information. Aon will not be responsible for any loss, damage, cost or expense you or anyone else incurs in reliance on or use of any information contained in this Alert. 

© 2021 Aon Risk Services Australia Limited ABN 17 000 434 720 AFSL No. 241141 (Aon)