COVID -19 Business Interruption Test Cases – The Final Decisions

In October 2022 the High Court of Australia refused special leave to appeal in both LCA Marrickville Pty Limited v Swiss Re International¹ (the Second Test Case) and Star Entertainment Group Limited v Chubb Australia Ltd² (the Star Appeal) meaning that Insurers can now consider and assess COVID-19 business interruption claims in accordance with a policy holders policy terms and conditions and with the guidance provided by the Federal Court of Australia.

The Second Test Case and Star Appeal

These cases focused on a number of primary issues - namely, separate insuring clauses (disease clause, prevention of access clause, hybrid clauses and catastrophe clauses) and whether claim deductions were to be made on account of Government JobSeeker payments. It was argued that prevention of access and catastrophe clauses should not apply to diseases where there is a clause which specifically deals with disease – being an express disease clause.

In summary the outcome is as follows:

1. Disease clause: Policyholders will be entitled to recover COVID-19 losses under disease clauses if they can establish that an outbreak within the specified radius from their business premises has caused those losses. We expect the ability to establish this type of loss will be complex and assessed by the insurer on a case-by-case basis.
    
2. Prevention of access clauses: These clauses will not apply to losses caused by prevention of access due to the outbreak of disease, where there is a disease clause or hybrid clause in the policy, as those clauses are intended to operate in relation to claims for disease.
    
3. Hybrid clauses: Policyholders will generally not be able to recover COVID-19 related losses under hybrid clauses. This is because the relevant State Government orders, for example, closing premises or restricting movement, were made in response to the threat of COVID-19 in the state, as opposed to any particular outbreak within the specified radius of the premises.
    
4. Catastrophe clauses: Policyholders will generally not be able to recover COVID19 related losses under catastrophe clauses as COVID-19 is not a “catastrophe” (as considered by the Court in the Second Test Case) as this is intended to be more a physical event of other conflagration, and not a disease.
    
5. JobKeeper: Payments made by the Government in respect of JobKeeper do not operate as claim deductions.
    

Next Steps for Policy Holders

For insureds who have already made claims on the business insurance policies, we expect that the relevant insurers will be, if they have not already, in direct contact in relation to the assessment of any COVID-19 business interruption claim. If Aon clients require any additional support in relation to these claims, we encourage direct contact with your insurance broker.