Newsletter: August 2021 Case Notes
While my ‘Insurable Interest’ newsletter is still new, I am playing around with the ways in which I include it on this site.
If you head over to my Newsletter page, you will see a place to sign up for my monthly email that includes case notes like the ones below. That newsletter comes out on the first Monday of each month. You will also see there, links to the archive, so you can see what you can expect if you sign up. To maintain some exclusivity, each month’s email is added to the archive at least two weeks after it is sent.
Each month, I try to include some commentary or updates on happenings and issues affecting Australian insurance law. That only appears in the newsletter itself. The case notes are here though. Again, I won’t put them up until a couple of weeks after the email.
August's cases of note
Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2021] FCA 907
Just as I had finished writing about Covid-19 business interruption insurance cases for the last newsletter, Allsop CJ delivered judgment in a case on the issue. It is not the test cases I mentioned previously though. They start before Jagot J on 6 September 2021 (today, if you are keen and are reading this immediately). As you will see, I do not think that this decision gives us much guidance as to the likely outcome in those test cases. However, it does indicate that there is not much room for claims drawn to get around disease clauses.
Star Entertainment Group operates casinos and related businesses (they are the casino operator not currently described as 'embattled'). Star claimed Covid-19-related business interruption losses from its various sites under an industrial special risks policy underwritten by eleven insurers, of which Chubb was the lead insurer, holding 20% of the risk. Star claimed under a 'Civil Authority Extension'.
Star did not claim under the policy's 'Infectious and Contagious Disease Clause' for two reasons:
The clause only responded to occurrence(s) of a Notifiable Disease at the insured premises; and
The insurers had paid attention and updated the pandemic exclusion to reflect the change from the Quarantine Act 1908 to the Biosecurity Act 2015 (though it retained some drafting errors in doing so).
The Civil Authority Extension deemed extended the definition of 'Damage' in the relevant insuring clause to include "loss resulting from or caused by any lawfully constituted authority in connection with or for the purposes of retarding any conflagration or other catastrophe.' Star argued the result was that losses caused by governments' restrictions to retard Covid-19's spread were covered by the Civil Authority Extension. Allsop CJ did not agree, holding that the Civil Authority Extension's use of 'loss' meant physical loss of property, not economic loss.
There was some debate over whether Covid-19 could be considered an 'other catastrophe' but Allsop CJ held that while it was a catastrophe, as that word is ordinarily used, it was not for the purposes of the policy as the context, both in the policy as a whole and when viewed alongside its use of 'conflagration' to establish the type of catastrophes to which it was aimed.
The result of this judgment is that there is, as there was before it, a lot hanging on the outcome of the upcoming test cases.
Corestaff NT Pty Ltd v Insurance Australia Limited [2021] QSC 195
The next judgment concerned the application of an employment practices exclusion to claims made against a labour hire firm relating to its pre-contractual promises to employees.
Corestaff is a labour hire firm. It had been sued in the Federal Court alleging breach of contract and contraventions of the Australian Consumer Law allegedly committed during its attempts to procure contract staff. The allegations against Corestaff included misleading and deceptive conduct (s18) and/or misleading conduct relating to employment (s31) committed when attempting to induce potential employees to contract with it.
Corestaff claimed indemnity for the FCA under a professional indemnity policy issued by IAL. In particular, it sought its costs of defending the FCA claims. IAL denied indemnity, primarily relying on an exclusion for claims "based upon, directly or indirectly arising from or attributable to the Policyholder's liability as an employer." The parties agreed that the exclusion ruled out cover for the breach of contract claims.
Williams J held that Corestaff's claim was excluded. Her Honour noted the exclusion's broad scope encompassing a broad spectrum of causation. As each of the ACL contraventions had as a key material fact the employment relationship between Corestaff and the various plaintiffs, that nexus was sufficient to trigger the exclusion. In reaching this conclusion, Williams J noted that the policy provided for 'Employment practices liability cover', which Corestaff did not take out. That provision supported the conclusion that claims connected to Corestaff's employment practices would otherwise be excluded.
Read alongside the decision in Star Entertainment Group v Chubb, this decision demonstrates the limits of being able to draw a claim to avoid the effect of contractual promises.
Worth v HDI Global Specialty SE [2021] NSWCA 185
This month's final case is of interest for its consideration of the availability of damages for an insurer's wrongful non-payment. Here, the issue arose in the context of a property and business interruption claim.
Ms Worth was the insured under a property insurance policy issued by HDI. In 2015, Ms Worth's home and business premises was destroyed by fire. She claimed under the policy for property damage and losses from the interruption to her business. The insurer entered into a deed under which it conditionally accepted indemnity subject to police investigation of the fire's cause. It subsequently denied indemnity on the basis that it alleged that the fire was deliberately lit.
Ms Worth commenced proceedings in the NSW Supreme Court. The Court dismissed Ms Worth's claim at first instance, holding that the circumstantial evidence supported an inference that she had started the fire. Ms Worth appealed. She was successful in the Court of Appeal, with McCallum JA (with whom Macfarlan JA agreed) holding that trial judge had erred in finding that there was no plausible explanation of the fire other than it had been deliberately lit.
While this appeal mostly turned on its particular facts (including rather confusing references to a 'Tahiti screen' - which I think is just a digital picture frame), Meagher JA's judgment includes important discussion of legal principle concerning damages. While Megher JA was in dissent on liability, both Mcfarlan and McCallum JJA agreed with His Honour on damages.
On the quantum available to Ms Worth, Meagher JA held that she was entitled to a lesser amount than full 'reinstatement' costs because of a proviso to the promise to reinstate that required the work to be "commenced and carried out with reasonable dispatch'. This proviso operated despite Ms Worth's failure to reinstate the property following the insurer's failure to grant indemnity. In doing so, His Honour referred to CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 403-404.
Despite this, and despite Mcfarlan and McCallum JJA agreeing with Meagher JA, the orders made by the Court were for Ms Worth to recover $495,000 plus interest. That is, the order was for the agreed 'reinstatement value' not the 'indemnity value' of $400,000. It remains to be seen whether the judgment or the orders will be amended to address this.
The issue to which I referred at the start of this note - the availability of damages for the insurer's non-payment - arose in relation to Ms Worth's business interruption claim. Ms Worth claimed for losses over the full period following the fire (ie more than the policy limit), Meagher JA construed that claim to be a claim for damages consequent on the insurer's failure to pay.
In Globe Church Incorporated v Allianz Australia Insurance Ltd (2019) 99 NSWLR 470 (in which Meagher JA was in dissent), the NSW Court of Appeal held that an insurer's promise under an insurance contract was essentially a promise to pay unliquidated damages that accrues on the happening of the insured event, not a promise to pay a determined amount upon that event occurring. That is, the claim to damages arises when the insured event happens, not on the insurer's refusal to pay the policyholder's claim. As there is no right to claim for damages for the late payment of damages, Ms Worth's claim fro business interruption loss was not sustained. Similarly, she was not entitled to damages for inconvenience and distress.
Meagher JA noted that this result on damages for consequential losses was not be consistent with a number of previous cases. However, his Honour held that he was bound to apply Globe Church, which led to this conclusion. Given this inconsistency, this may be an issue the High Court will end up considering.
Reading list
Usually, there will be cases that I just did not get to, despite best intentions. This month, though, there were not many directly relevant to insurance. Perhaps next month there will be some extras here.