Insurance News: COVID-19 Business Interruption Insurance Decision in the HCA

On 14 October 2022 the High Court (Gageler, Edelman and Gleeson JJ) refused three applications for special leave to appeal respectively in the Taphouse, LCA Marrickville and Meridian Travel matters that formed part of the Full Court of the Federal Court decision of LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17.

The High Court ‘s decision will now act as a guide to policyholders in determining whether their insurance policy will cover losses arising from COVID-19.

High Court Decision: Insurance Australia Limited v Meridian Travel (Vic) Pty Ltd [2022] HCATrans 172

The decision of the Full Federal Court was an appeal to joint proceedings heard by Jagot J in what have been labelled the “Second Covid-19 Insurance Test Cases”. Each of the test cases in the proceedings related to the applicability of certain insurance policies which were said to indemnify the respective insureds against business interruption losses incurred in the context of Covid-19. While each of the matters turned on their unique factual scenarios and the relevant policy wording in place, the Full Federal Court (and Jagot J at first instance) made a number of general findings applicable to such business interruption claims.

Before the High Court, the applications for special leave in the Taphouse and LCA Marrickville matters centred the assertion that insurance instruments should be interpreted from the perspective of what a reasonable insured would understand the terms of to mean; as opposed to the approach of the Full Court which was said to be focused on both parties and to have resulted in an overly lawyerly reading of the policy terms such that considerations of coherence trumped the ordinary meaning of certain policy terms. Justices Gageler, Edelman and Gleeson were not convinced that the conclusions of the Full Federal Court were affected by any error of interpretative principle, rather suggesting that the Full Court had approached the interpretative exercise based on ordinary and settled principles.

In the Meridian Travel matter, the insured sought special leave on the assertion that, to the extent that the relevant policy applied, the insured’s loss should be reduced by the amount it received in government “Jobkeeper” payments, despite the insured accepting that such Jobkeeper payments did not fall within the “sum saved” wording of the “Gross Revenue” item of the relevant policy. The insured argued, in line with the findings of Jagot J at first instance which were overturned on appeal, that the doctrine of subrogation required that Jobkeeper payments must be brought into account for the benefit of the insurer.  Justices Gageler, Edelman and Gleeson were not satisfied that the matter presented as a suitable vehicle for the consideration of the question of principle sought to be raised by the grounds as formulated in the notice of appeal.

The result is that the decision of the Full Court of the Federal Court stands.

Key Message

In summary, the High Court ‘s decision means that policy holders with certain clauses in their policy may have cover for business interruption losses caused as a result of COVID-19.  In particular, policyholders with diseases clauses involving an outbreak within a particular radius distance and where the policyholders losses are directly caused by the outbreak may be covered subject to the wording of the policy. Also, the High Court has determined on a final basis that JobKeeper payments are not to be deducted from business interruption insurance claims.

Notwithstanding that the recent High Court decision will act as a guide to policyholders, it is important to note that all policyholders should obtain independent advice on extent of their cover because each claim has its own factual circumstances and particular insurance wording and should be considered on a case by case basis.

Should you require advice on insurance issues, please contact Danielle Snell and Robert McGirr of Elit Lawyers on (03) 9098 8646.

You can access a full copy of the High Court decision Insurance Australia Limited v Meridian Travel (Vic) Pty Ltd [2022] HCATrans 172, by clicking this link: Insurance Australia Limited v Meridian Travel (Vic) Pty Ltd; Taphouse Townsville Pty Ltd v Insurance Australia Limited; LCA Marrickville Pty Limited v Swiss Re International Se – BarNet Jade – BarNet Jade

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