On October 14th, 2022, the High Court heard an application for special leave to appeal to the High Court. The High Court rejected that application and in doing so, settled various issues concerning whether insurance policies can respond to loss arising from COVID-19-mandated shutdowns and restrictions.

How did we get here?

Two separate test cases over the past two years have led to the outcomes summarised below:

• The first test case considered whether the reference in numerous insurers’ disease
  extension clause to the repealed Quarantine Act 1908 (Quarantine Act) could be relied upon. The full court of the NSW Court of Appeal decided that an exclusion in insurer wordings relying on the Quarantine Act was unenforceable.
• The second test case considered various clauses which might trigger cover under the diseases extension clause, including peripheral issues such as whether JobKeeper payments or rent abatement should be accounted for in any claim adjustment. The second test case concerned ten related cases brought by insurers and insureds. That case was decided by the full court of the Federal Court when five of the ten first instance decisions were appealed. Three of those cases went on to file an application for special leave to appeal to the High Court, which was decided on Friday, October 14.

The final word

The only case found in favour of the insured was Meridian Travel. It was decided that the relevant insuring clause did respond. In that case, the policy provided cover for an outbreak of infectious disease within a 20-kilometre radius of Meridan Travel’s business premises. The difference here was that other insurers’ clauses required an outbreak of COVID-19 at the premises rather than within the vicinity.

Key takeaways for assessing losses

Based on the outcomes of the test cases, the following points apply:

1. elements of a covered claim include: any financial loss must arise from the orders/actions of a competent authority, resulting in the closure of or restricting access to the insured business, where the orders/actions are made as a direct consequence of the presence or outbreak of an infectious disease within a specified radius of the insured business

2. a premise will be deemed closed or evacuated where persons who are otherwise entitled to enter and remain on the property ordinarily are prohibited (in whole or part) from doing so

3. neither closure nor prevention, restriction, or hindrance of access, requires a physical impossibility to access the whole or part of the premises

4. a restriction on the number of people who can enter and stay inside the premises is not closure or prevention, restriction or hindrance of access

5. closure does not require that each and every person is prohibited from entering the whole or part of the premises. It requires that those who are usually allowed to do so are no longer permitted

6. JobKeeper payments are not to be accounted for when assessing claims

7. Federal COVID-19 Consumer Travel Support Program Payments are not to be accounted for when assessing claims

8. Victorian Government support fund payments are not to be accounted for when assessing claims
9. rental waivers from landlords are to be accounted for when assessing claims.

Next Steps

If your business interruption policy does appear to respond, you will need to start gathering financial records to establish the extent of loss to your business. This will be the first step.

You will also need to collect evidence to establish that there was a presence or outbreak of COVID-19 in the vicinity of your business and that the business was closed and/or restricted by order of a competent authority.

If you are a Honan client, please reach out at any time. Our professional advocates will provide guidance on the next steps.

Faramarz Ostowari

Head of CIRS Claims

faramarz.ostowari@honan.com.au

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