Early on Friday evening, appeals in the second COVID-19 Business Interruption (BI) test case ended. Judgement is reserved. Three Federal Court justices spent the week listening to arguments concerning six cases. The court proceedings were publicly livestreamed.
“Today (Friday) was similar to the rest of the week in terms of legal arguments around interpretation of policy wordings including disease definition, COVID-19 outbreak proximity, the impact of government mandates, and other policy construction matters and whether a section of Victorian property legislation could exclude liability,” said Louise Massey (pictured), litigation and dispute resolution partner for the global law firm Dentons. Massey represents a major insurance company in the case. Her legal team attended the proceedings virtually.
“There was no particular sticking point – just questions around contract construction and the Victorian property legislation,” said Massey.
Late on Friday afternoon, the legal argument also concerned the Quarantine Act and the Biosecurity Act. A lawyer on the livestream discussed the issue of restrictions versus risks in both acts. He then detailed Justice Jagot’s observations on these acts, including that the newer, Biosecurity Act, contained radical alterations compared to the earlier Quarantine Act.
Jagot’s judgement in early October was the subject of the appeals. Industry experts regarded that judgement as a win for insurance companies that could mean insurers avoid paying out billions of dollars for BI insurance claims.
“I have really enjoyed the week. It is a privilege to be involved in a matter of such importance,” said Massey.
“The case is running smoothly, the technology works well and the document management has been brilliant. The cases are interesting, there is good legal argument on both sides and the legal concepts are complex and engaging.”
She said nothing surprising happened during the week but that’s expected during an appeal.
“However, the test cases in themselves are quite novel as they deal with many issues that have not previously been dealt with in Australia,” she said.
According to the Insurance Council of Australia (ICA), this second test case will decide matters including the meaning of policy wordings around disease definition, COVID outbreak proximity and the impact of government mandates
“It has been very interesting listening to the questions of their Honours during the appeal which sometimes highlight the sticking points in each of the cases. There are lots of questions around construction of certain clauses in the policies and the impacts of government orders,” said Massey.
She said it’s possible there could be a final judgement this year. The ICA has also said that this case’s expedited timetable will see proceedings in the Federal Court concluded by the end of 2021 or soon afterwards.
“It is not possible to predict at this stage [the next steps in this case after the final judgement] but the issues are of such importance to both insurers and insureds that it could not be ruled out that a party may seek leave to appeal to the High Court,” said Massey.
In an article on Dentons’ website, Massey and her colleague, senior associate Finbarr O’Connell, detailed Ten significant issues decided by the Federal Court in the second business interruption test case.
The article said the significance of the decision in this case lies in its applicability to Australian businesses and insurers generally.
Gareth Horne, a partner with Clyde & Co, also said the judgement has relevance beyond its COVID-19 business interruption context.
“That is particularly so when looking at issues such as section 54 of the Insurance Contracts Act, good faith and principles of causation and policy construction. We can expect to see plenty more commentary about that over the coming weeks and months as this judgement and the appeal are more fully analysed,” he said. Horne is closely monitoring the case after acting for one of the insurers in the test case before the appeals process.
The Dentons’ article also said the issues decided by Justice Jagot and considered again during the week’s appeals included: what constitutes an outbreak, the interpretation of radius provisions, what constitutes the closure of a premises and causal sequence.
The final verdict, when it comes, will have enormous ramifications for the insurance industry and their customers.
However, the issue of whether BI insurance covers pandemic losses has placed many brokers in a difficult position. Some of their clients are very upset that their BI insurance is looking unlikely to offer coverage.
In this tricky situation, some brokers say the keys to navigating the test case issue with clients is through communication and transparency.
The ICA has said that insurers, including those not directly involved in the court proceedings, have committed to applying the reasoning of the final judgements of the test cases in an efficient, transparent, and consistent way when assessing claims.
