The consideration by the courts of exclusion clauses in insurance policies relating to pandemics is continuing.
In this most recent decision, business losses caused by a state lockdown were held not to be excluded by a clause that related specifically to Commonwealth legislation. It seems that insurers did not properly anticipate the vast implications of a pandemic, and their exclusions are often not broad enough to avoid claims.
In Rockment Pty Ltd t/a Vanilla Lounge v AAI Limited t/a Vero Insurance  FCAFC 228, Rockment sought indemnity from Vero for business interruption losses which it suffered from COVID-19 lockdowns.
The Full Court of the Federal Court of Australia considered whether the coverage would be excluded under the policy because COVID-19 was a human disease specified in a declaration of human biosecurity under the Biosecurity Act 2015 (Cth) (BA).
Rockment operated a café in Victoria and was insured by Vero. The insurance policy provided cover for business interruption resulting from infectious diseases. However, the policy excluded coverage for claims that were directly or indirectly caused by or arose from, or was in consequence of any biosecurity emergency or human biosecurity emergency declared under the BA, its subsequent amendments or successor. COVID-19 was declared to be such a disease under the BA.
Although COVID-19 was listed as a disease under the BA, Rockment was subject to business interruption as a result of the Victorian Chief Health Officer’s directions issued under the Public Health and Wellbeing Act (PHWA). Rockment sought to make a claim under the policy relying on this because the claim was made for loss incurred flowing from directions made under the PHWA. It argued that the loss was not caused by the declaration made under the BA and that therefore the exclusion clause did not apply. Vero on the other hand, declined to cover, contending that the declared emergency under the BA was the catalyst for the Australian State lockdowns that followed, which it argued the exclusion clause provided for.
The Court had to consider whether the exclusion clause was enlivened by determining whether the orders made under the PHWA resulting in claims for loss were directly or indirectly caused by, arising from or in consequence of a declaration under the BA.
The Court took into consideration two main legal principles:
- The interpretation of an insurance policy should start and end with the ordinary meaning of the words used in the policy; and
- Because insurance policies are commercial documents, they should be given a businesslike interpretation and have regard to the context in which the policy is entered into to ascertain its purpose, thereby aiming to provide a commercial outcome.
The Court considered the provisions of the BA and noted that the Health Minister could enforce requirements or directions to prevent or control the spread of COVID-19. The Court considered that the triggering causal factor for the exclusion to apply was an emergency declared under the BA. However, that did not mean that the exclusion would apply to a claim caused by a State (i.e. PHWA) declaration, rather than a Commonwealth (i.e. BA) declaration.
Having regard to the legal principles, the Court held that the purpose of the exclusion clause was to remove certain claims of loss from the scope of cover. The question that then needed to be answered was whether the lockdown imposed by the PHWA was included within that purpose.
Vero asserted that a claim for loss arising from a government ordered closure of Rockment’s premises caused by the Commonwealth declared emergency would be within the scope of the exclusion. However, the question posed concerned whether a connection between the claim and the existence of the listed human disease (which was specified in the Commonwealth declaration) was sufficient. The Court noted that the limitations on Rockment’s trading were imposed by the State of Victoria. Therefore, the Court considered that Vero’s preferred construction – that the essence of the exclusion clause’s causal factor is the listed human disease under the BA, would facilitate the establishment of the connection required for its triggering – was a significant departure from the ordinary meaning of the words used.
Accordingly, the Court held that because the claim was founded through a State declaration, and the exclusion clause only excluded claims ‘directly or indirectly caused by or aris[ing] from’ the human biosecurity emergency declared under the BA, the operation of the exclusion clause did not extend to State statutes and their operation in pandemics. Therefore, Rockment succeeded in its claim for loss as a result of the State imposed lockdown.
This is a welcome decision for businesses with insurance that have incurred loss as a result of the COVID-19 pandemic – particularly those affected in Melbourne with the lockdown instigated from the second-wave. As considered in another recent blog post, the decision confirms that where there is an ambiguity in the insurance policy, the Court will interpret it in a manner that is favourable to the insured.
If you hold a policy that has the same or similar wording to that discussed in this article, please feel free to contact us about your position if your insurer declines a claim.