BI court case delivers win for Lloyd's underwriters

Lloyd’s underwriters have won a business interruption court case affirming that a policy issued to a fitness centre excluded cover for covid disruptions despite wordings citing the repealed Quarantine Act.

The Full Court has upheld an earlier Federal Court judgment that found that the policy’s Quarantine Act wording could be read as excluding “other listed human diseases under the Biosecurity Act 2015”.

The Insurance Council of Australia’s first business interruption test case was unsuccessful in having exclusions citing the Quarantine Act “and subsequent amendments” read as including the Biosecurity Act. The issue also arose in the second test case, where it was concluded that the Biosecurity Act was not a re-enactment of the Quarantine Act.

But a different policy wording was considered in the case between Certain Underwriters at Lloyd’s of London and Dural 24/7 Pty Ltd, which was operating a Snap Fitness gym franchise in the Sydney suburb of Dural.

The gym lodged a claim in December 2020 seeking indemnity for business interruption losses in connection with Covid-19, with the claim then declined.

The policy cites an exclusion for “highly pathogenic avian influenza in humans or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908”.

But, in addition, an information part of the policy has a “conformity” clause that includes a sentence reading “references to a statute law also includes all its amendments or replacements”.

Federal Court Justice Jayne Jagot, in the initial hearing, accepted that the Biosecurity Act was a replacement for the Quarantine Act, with both addressing the identification of human diseases so public officials can act to have them controlled or eradicated, although the laws deal with them in different ways.

“The reference to ‘all’ and the use of the word ‘replacement’ at large without any qualification indicate that the broad meaning of ‘replacement’ was intended to have effect,” she said. “The evident object or purpose of the clause is to ensure that references to statute laws in the policy remain current.”

Policyholder arguments put to the Full Court on appeal included that the Quarantine Act, though repealed, continued to be relevant, that a narrower view should be taken on replacement, and that the clause was not referring to historical replacements, but prospective ones.

Chief Justice James Allsop and Justices Michael Lee and Angus Stewart dismissed the appeal.

“We do not consider the matter to be determined by asking whether there is a wide or narrow construction of the word ‘replacements’,” they said. “The statute law replaced has a particular context in the policy: certain diseases that attract Commonwealth power do not fall within the extension.”

They also determined that there was no ground to conclude that replacements should be limited to the repeal of statutes in force at the date of inception of the policy.

“The words are general and are in aid of a general purpose: the maintenance of currency of the policy wording,” they said.

The original decision and the appeal judgment are available here and here.