Background

On February 21, 2022, the Full Court of the Federal Court comprising Moshinsky, Derrington and Colvin JJ, handed down judgment in LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17 on five appeals in the second business interruption test case (Second Test Case), and the appeal of The Star Entertainment Group Limited v Chubb Insurance Australia Ltd & Ors [2022] FCAFC 17 (Star Entertainment). The six appeals were heard together over a period of five days from 8 to 12 November 2021.

In the Second Test Case, the Full Court substantially agreed with the conclusions of Jagot J and in each case made minor amendments to the answers to questions set out in the orders of the Federal Court at first instance. With respect to Star Entertainment’s appeal, the Full Court agreed with the reasoning and conclusions of Allsop CJ in dismissing the appeal.

Decisions at first instance

In an earlier article, we highlighted ten significant issues arising from the judgment of the Federal Court on the Second Test Case. A link to this article can be accessed here. Of the ten significant issues, the Full Federal Court’s only substantial divergence is in respect of the issue of interest pursuant to section 57 of the Insurance Contracts Act 1984 (Cth) (issue 9). The Full Federal Court also did not uphold findings in relation to JobKeeper.

In another earlier article, we provided commentary on the decision in Star Entertainment. A link to this article can be accessed here. This judgment also continues to be relevant given the Full Federal Court’s support of the judgment at first instance.

Distinguished issues on appeal in Second Test Case

Interest

At first instance, Jagot J found that it would not be unreasonable for insurers to withhold payment of interest under section 57 of the Insurance Contracts Act 1984 (Cth) unless and until it is finally determined to be liable to make payment in the Second Test Case.

On appeal, the Full Federal Court disagreed. Derrington and Colvin JJ (Moshinsky J concurring) found that what is ordinarily required is a determination of the day on which a reasonable insurer would have paid out the claim, assuming the insurer reached the factual conclusions ultimately found by the court and otherwise adopted the correct view as to its legal position. Derrington and Colvin JJ (Moshinsky J concurring) also highlighted that the issue of reasonableness is dependent on the facts of each particular case to some extent and that there may be exceptional circumstances.

JobKeeper

At first instance, Jagot J found that payments received under the JobKeeper scheme should be deducted from any liability of an insurer to indemnify and that the general indemnity principle applies. Her Honour also rejected submissions of insureds that while the purpose of JobKeeper is linked to the effect of COVID-19 it is not linked to an insured peril.

The Full Federal Court overturned both conclusions instead finding that:

1. payments received under the JobKeeper scheme ought to be resolved by reference to the construction and application of the policy terms rather than any general law principle of indemnity; and
2. there was not a sufficient causal link between the cover in the policy and payments under the JobKeeper scheme.

In preferring the construction of policy terms over a general principle of indemnity, Derrington and Colvin JJ (Moshinsky J concurring) cite and apply extracts from Meaghar JA in Mobis Parts Australia Pty Ltd v XL Insurance Company SE (2018) 363 ALR 730, where it is noted that the indemnity provided under the relevant policy is not simply against “actual loss” but rather contained in a formula for the assessment of the insured loss of gross profit which qualifies the application of the principle of indemnity.

In rejecting that, there is a causal link between cover for business interruption and JobKeeper, their Honours refer to the eligibility for JobKeeper payments being financial, and not depending on whether there was an outbreak within a radius of the premises.

Way forward

The parties to the Second Test Case and Star Entertainment have until 21 March 2022 to seek leave to appeal to the High Court. It remains to be seen as to whether any parties will seek to appeal.

Further information

Litigation and Dispute Resolution Partner, Louise Massey, and Senior Associate, Finbarr O’Connell are currently acting in the Second Test Case. Please contact us if you wish to receive updates on developments about the Second Test Case or any other matters.