Whilst the decision turns on specific policy wording, it is important as it gives some guidance on the interpretation of business interruption claims, and how some of the issues being considered in the upcoming second business interruption test case listed for hearing before Jagot J this September might be considered. This subject is of interest to insureds and insurers alike, particularly as Australia faces on ongoing business interruption issues linked to COVID-19. The considerations being measured throughout these cases are also expected to shape how we review business interruption in the future.

Summary

On August 5, 2021, the Federal Court dismissed a claim by the Star Entertainment Group for indemnity under its Industrial Special Risks (ISR) policy (the Policy) for losses arising from the COVID-19 pandemic: The Star Entertainment Group Limited v Chubb Insurance Australia Ltd & Ors [2020] FCA 907 (Star Entertainment).

Allsop CJ determined that:

1. “catastrophe” is to be understood within the meaning of the Policy as apt to cause physical loss (not loss of custom or financial loss);
2. COVID-19 is not a catastrophe within the meaning of the Policy; and
3. COVID-19 is not an insured peril under the Policy.

On August 30, 2021, Star Entertainment filed a notice of appeal.

Decision in Star Entertainment

In 2020, Star closed casinos in Sydney, Brisbane and the Gold Coast due to government restrictions in response to the COVID-19 pandemic, and sought indemnity for business interruption under the Policy for the ensuing loss incurred (these were significant as its policy had an AU$4 billion limit).

The circumstances enlivening indemnity were defined in the Policy as being an event where property “used by the Insured at the Premises for the purpose of the Business [is] physically lost, destroyed or damaged by any cause or event… and the Business carried on by the Insured being in consequence thereof interrupted or interfered with”.

The definition of loss and damage in the Policy was extended by a Civil Authority Extension clause to include loss resulting from measures implemented by civil authorities, relating to or for the purposes of retarding any “conflagration or other catastrophe”.

Star unsuccessfully argued that the Civil Authority Extension clause applied to include “damage” from loss of use arising from COVID-19 related government restrictions.

Allsop CJ considered in detail the wording of the various extension memorandums in the policy and found, from the repeated references across the policy wording, that the policy was “overwhelmingly founded upon the causing or physical loss, destruction or damage”.

Allsop CJ rejected Star’s argument noting two essential reasons:

1. that the better construction which conforms with the whole Policy is to construe “conflagration or other catastrophe” as referring to events or occurrences capable of or apt to cause an insured peril – namely physical loss, destruction of, or damage to the Insured’s property at the business premises; and
2. the loss under the Civil Authority Extension relates to the physical loss of property, not the loss or use of the property, or loss of custom or financial loss.

This finding will again be revisited on appeal and in the second business interruption test case.

Impact

To understand the impact of the case, it is helpful to consider its application to the second business interruption test case that will be heard in September.

In the second business interruption test case, the Federal Court will be asked to make declarations on, among other issues, the meaning of outbreak, closure or evacuation, orders of legal authority, and radius to business premises in different policies. The Federal Court will also be revisiting whether COVID-19 related government action was, on the proper construction of the relevant policy, for the purpose of retarding a “conflagration or other catastrophe” and, if that was an insured peril.

The Federal Court will consider arguments relying on Star Entertainment in relation to the intended scope of cover under some business interruption policies, including whether the policies intended for a general cover for pandemic disease regardless of whether the intended exclusions for pandemic cover were not upheld in the first business interruption test case.

The Star Entertainment decision is one of a growing body of judgments that will not only provide crucial guidance on navigating COVID-19 claims, but also shape the Australian business interruption insurance landscape in the years to come.

Dentons Australia partner, Louise Massey, and senior associate, Finbarr O’Connell are currently advising on the current business interruption test case relating to coverage for COVID-19, and are in the Dentons Australia Litigation and Dispute Resolution practice group. Please contact us if you wish to receive updates on developments about the business interruption test case or any other matters.