Covid-19 test case take two - Context matters

Swiss Re International SE v LCA Marrickville Pty Limited (Second COVID-19 insurance test cases) [2021] FCA 1206

By any measure, the judgment in the Second COVID-19 insurance test cases was the biggest insurance law judgment of October. On the eve of the appeal - due to start hearings on 8 November 2021 - here are some of my thoughts.

By now, you will have probably seen the headline: insurers were successful in all but one of the proceedings. On its face, this may seem like quite a departure from the equivalent cases in the UK. However, on many of the issues, Jagot J followed essentially the same approach as in the English High Court and UK Supreme Court. The points of difference were largely contextual. This was particularly relevant when the risk insured was business interruption caused by government measures restricting businesses’ ability to trade as a result of outbreaks of disease. Essentially, her Honour found that Australia’s differences in government structures, our size and our relative success meant that it was not appropriate to take the same approach to causation as in the UK.

In the UK, cases of Covid-19 were more prevalent early in the pandemic. At the same time, the relatively small geographic area covered by the UK meant that it was likely that when its government began to implement restrictions, it was likely that any single occurrence of Covid-19 near an insured business before those restrictions were implemented could be said to have caused those restrictions.

That was not true in Australia. Given the small number of cases, spread over a wide geographical area and that restrictions covered a wider geographical area, Jagot J found that restrictions were established because of the threat of an outbreak, not the occurrence of an outbreak within the relevant policy radius. The policies covering business interruption arising from government actions preventing access or otherwise inhibiting business, covered circumstances where those restrictions were established as the result of an occurrence of a disease, not the threat of such.

The majority of policies considered by the test case concerned similar clauses. In the one win for policyholders, that in Insurance Australia (CGU) and Meridian Travel, the relevant clause only required the occurrence of an outbreak of a notifiable disease within 20km of the insured business. Jagot J found that there was such an outbreak. However, the sting in the tail is that Jagot J was not satisfied that there was sufficient evidence before the Court to determine whether that outbreak caused interference with Meridian’s business. As a result, her Honour gave Meridian the opportunity to consider how it may attempt to prove its loss.

There were other issues on which policyholders were also successful. Quite importantly, Jagot J held that s61A of the Property Law Act 1958 (Vic) did not help insurers get over the problem caused by pandemic exclusions that continued to refer to the Quarantine Act 1908 (Cth) instead of the Biosecurity Act 2015 (Cth). The Property Law Act only applied to Victorian Acts. In any case, the Biosecurity Act did not merely replace the Quarantine Act but was substantively different.

I think the main thing to take from this decision is that while there is much to be gained from the approach taken to interpreting common clauses in insurance contracts, it is essential to look at each individual case to determine whether the policy provides cover. In short, context, circumstances and, as always, the scope of the indemnity offered are crucial. If Jagot J’s finding on the cause of government restrictions survives appeal, however, it will prevent claims by a very large number of policyholders.

As I mentioned above, the Full Court of the Federal Court will begin hearing the appeal from this decision on 8 November. We can expect a similarly speedy decision. From there, it is almost certain that at least some matters will be appealed further. In the meantime, I want to dig a bit deeper into individual issues, which I will publish on this update page, so keep an eye out.

Finally, this is a lightly edited version of a piece I included with my monthly newsletter. If you would like to subscribe, hit this link and it will take you to the sign up form.