FEDERAL COURT OF AUSTRALIA

LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17

Appeal from:

Swiss Re International Se v LCA Marrickville Pty Limited (Second COVID‑19 insurance test cases) [2021] FCA 1206

File numbers:

NSD 1076 of 2021

NSD 1079 of 2021

NSD 1080 of 2021

NSD 1081 of 2021

NSD 1082 of 2021

Judgment of:

MOSHINSKY, DERRINGTON AND COLVIN JJ

Date of judgment:

21 February 2022

Catchwords:

INSURANCE – construction of policies – principles of construction – requirement to read policy “as a whole” – requirement to read policy provisions in context – giving effect to specific or important clauses which might otherwise be rendered redundant by a broad reading of other clauses – whether incongruence or incoherence as opposed to mere overlap

INSURANCE – construction of policies – principles of construction – requirement to read policy from the position of an objective third party taking into account the circumstances of the contracting parties – whether different to the position of the reasonable policyholder

INSURANCE – business interruption insurance – COVID-19 – cause of loss – causes of loss from government imposed restrictions – whether restrictions imposed as a result of risk of disease, outbreak or threat of disease from overseas

INSURANCE – business interruption insurance – COVID-19 – hybrid clauses – composite insured perils with consecutive sequential elements – causal nexus between elements – proximate cause not necessarily required – ordinary construction of connecting words

INSURANCE – business interruption insurance – COVID-19 – test cases – concurrent causes of loss – application of the “underlying fortuity principle” – whether general effects of COVID-19 arose from the same underlying fortuity as insured perils – whether concurrent cause of loss a matter which the parties would naturally expect to occur concurrently with the insured peril

INSURANCE – business interruption insurance – scope of indemnity – “trends clauses” – whether insured required to bring into account amounts received from third parties – government assistance payments provided without reference to loss incurred

INSURANCE – business interruption insurance – hybrid clauses – authority acting in response to outbreak of disease – insured obliged to establish authority acted in response to outbreak but not the actual outbreak

INSURANCE – business interruption insurance – construction of particular insuring clauses – disease clause – hybrid clause – prevention of access clause

INSURANCE – interest on claims – s 57 of the Insurance Contracts Act 1984 (Cth) – from when is it unreasonable for insurer to withhold payment of an amount – significance as to bona fide dispute as to reasonableness – whether present appeals are exceptional cases permitting insurers to withhold payment without obligation to pay interest

CONTRACTS – construction – the contra proferentem rule – rule of last resort – application of rule to policies of insurance – application of ejusdem generis and nocitur a sociis rule

CONTRACTS – meaning of words – “outbreak” – “occurrence” – “conflagration” – “catastrophe” – “premises” – “closure” – “evacuation” – “hindrance” – “physical damage”

STATUTORY INTERPRETATION – s 61A Property Law Act 1958 (Vic) – application to Acts of the Commonwealth – whether Biosecurity Act 2015 (Cth) a re-enactment with modifications of Quarantine Act 1908 (Cth) – s 61A applies to Victorian Acts only – Biosecurity Act 2015 (Cth) not a re-enactment with modifications of Quarantine Act 1908 (Cth)

STATUTORY INTERPRETATION – s 57 of the Insurance Contracts Act 1984 (Cth) – when unreasonable for insurer to withhold payment of the amount – significance as to bona fide dispute as to reasonableness

Legislation:

Biosecurity Act 2015 (Cth), ss 2, 3, 42, 44, 45, 46, 51, 52, 477

Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth)

Coronavirus Economic Response Package Omnibus (Measures No 2) Act 2020 (Cth)

Corporations Act 2001 (Cth)

Insurance Contracts Act 1984 (Cth), ss 13, 14, 37, 54, 57

National Health Security Act 2007 (Cth)

Quarantine Act 1908 (Cth), ss 2, 4, 18

Trade Marks Act 1955 (Cth)

Trade Marks Act 1995 (Cth)

Acts Interpretation Act 1890 (Vic), ss 3, 4, 5, 6, 22, 27

Acts Interpretation Act 1915 (Vic), s 6

Acts Interpretation Act 1928 (Vic), s 6

Acts Interpretation Act 1958 (Vic), s 7

Interpretation Act 1987 (NSW), ss 5, 12

Interpretation of Legislation Act 1984 (Vic), ss 38, 16, 17

Interpretation of Legislation (Amendment) Act 1993 (Vic)

Property Law Act 1958 (Vic), ss 4, 61A

Public Health Act 2010 (NSW), s 7

Public Health Act 2005 (Qld), ss 68, 70, 362B

Public Health and Wellbeing Act 2008 (Vic), s 200

Cases cited:

Adelaide (SA) Pools & Spa Manufacturing and Installation Pty Ltd v Westcourt General Insurance Brokers Pty Ltd (No 2) [2021] SASC 123

Arbory Group Ltd v West Craven Insurance Services (A Firm) [2007] Lloyd’s Rep IR 491

Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99

Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Ltd (No 2) [2018] FCA 1450

Arnold v Britton [2015] AC 1619

Australian Casualty Co Ltd v Federico (1986) 160 CLR 513

Axa Reinsurance (UK) plc v Field [1996] 1 WLR 1026

Bankstown Football Club Ltd v CIC Insurance Ltd (unreported, Sup Ct, NSW, 17 December 1993)

Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334

Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266

BMW Australia Ltd v Brewster (2019) 269 CLR 574

Board of Trade v Hain Steamship Co Ltd [1929] AC 534

Byrnes v Kendall (2011) 243 CLR 253

Cat Media Pty Ltd v Allianz Australia Insurance Ltd (2006) 14 ANZ Ins Cas 61-700

CE Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535

CGU Insurance Ltd v Porthouse (2008) 235 CLR 103

Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402

Cherry v Steele-Park (2017) 96 NSWLR 548

Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd (2012) 87 ATR 880

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384

CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 8 ANZ Ins Cas 61-232

Commonwealth v Aurora Energy Pty Ltd (2006) 235 ALR 644

Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453

Dalby v Bio-Refinery Ltd v Allianz Australia Insurance Ltd [2019] FCAFC 85

Day v Adam; Ex parte Day [1989] 2 Qd R 9

Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113

Director-General of Social Services v Hales (1983) 47 ALR 281

DRJ v Commissioner of Victims Rights (No 2) (2020) 103 NSWLR 692

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544

Elders Ltd v Swinbank (2000) 96 FCR 303

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

F & D Normoyle Pty Ltd v Transfield Pty Ltd (2005) 63 NSWLR 502

Fenton v Thorley & Co Ltd [1903] AC 443

Financial Conduct Authority v Arch Insurance (UK) Ltd [2020] EWHC 2448

Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] AC 649

Fitness First Australia Pty Ltd v Fenshaw Pty Ltd (2016) 92 NSWLR 128

Fitzgerald v CBL Insurance Ltd [2014] VSC 493

Fitzgerald v CBL Insurance Ltd (No 2) [2015] VSC 176

Fox v Percy (2003) 214 CLR 118

Globe Church Incorporated v Allianz Australia Insurance Ltd (2019) 99 NSWLR 470

Greencapital Aust Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd [2019] NSWCA 53

Halford v Price (1960) 105 CLR 23

Hams v CGU Insurance Ltd (2002) 12 ANZ Ins Cas 61-542

HDI Global Speciality SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634

HIH Casualty & General Insurance v Insurance Australia Ltd (No 2) (2006) 14 ANZ Ins Cas 61-685

Hill v Villawood Sheet Metal Pty Ltd [1970] 2 NSWR 434

Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368

HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342

Hu v Kim [2019] NSWSC 448

Hume Steel Ltd v Attorney-General (Vic) (1927) 39 CLR 455

Hyper Trust Ltd t/as The Leopardstown Inn v FBD Insurance plc [2021] IEHC 78

Hyper Trust Ltd t/as The Leopardstown Inn & Ors v FBD Insurance plc (No 2) [2021] IEHC 279

Insurance Australia Ltd v HIH Casualty & General Insurance Ltd (in liq) (2007) 18 VR 528

Insurance Commission of Western Australia v Container Handles Pty Ltd (2003) 218 CLR 89

Jan de Nul (UK) Ltd v Axa Royale Belge SA [2002] 1 Lloyd’s Rep 583

JJ Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The ‘Miss Jay Jay’) [1987] 1 Lloyd’s Rep 32

Johnson v American Home Assurance Co (1998) 192 CLR 266

Karlsson v Griffith University (2020) 103 NSWLR 131

Kernaghan v Corrections Corp of Australia Staff Superannuation Pty Ltd (No 3) [2007] FCA 2018

Kuru v State of New South Wales (2008) 236 CLR 1

Lange v Queensland Building Services Authority [2012] 2 Qd R 457

Lasermax Engineering Pty Ltd v QBE Insurance (Aust) Ltd (2005) 13 ANZ Ins Cas 61-643

Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390

Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207

Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350

Liberty Mutual Insurance Co Australia Branch v Icon Co (NSW) Pty Ltd (2021) 154 ACSR 126

Losinjska Plovidba v Transco Overseas Ltd (The “Orjula”) [1995] 2 Lloyds Rep 395

Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633

McAuliffe v Secretary, Department of Social Security (1991) 23 ALD 284

McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579

McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402

McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc (No 2) [2009] VSC 49

McIntosh v Federal Commissioner of Taxation (1979) 25 ALR 557

Mobis Parts Australia Pty Ltd v XL Insurance Company SE (2018) 363 ALR 730

Mutual Community General Insurance Pty Ltd v Khatchmanian (2013) 17 ANZ Ins Cas 61-974

Midland Mainline Ltd v Eagle Star Insurance Co Ltd [2004] 2 Lloyd’s Rep 604

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

North v Marina [2003] NSWSC 64

O’Neill v FSS Trustee Corp [2015] NSWSC 1248

Orient-Express Hotels Ltd v Assicurazioni Generali SA [2010] Lloyd’s Rep IR 531

Park v Murray Irrigation Ltd [2018] NSWCA 166

Preston v AIA Australia Ltd [2013] NSWSC 282

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355

R v Khazaal (2012) 246 CLR 601

R&B Directional Drilling Pty Ltd (in liq) v CGU Insurance Ltd (No 2) (2019) 369 ALR 137

Ranicar v Frigmobile Pty Ltd [1983] Tas R 113

Ransley v Chubb Insurance Company of Australia Ltd [2015] NSWSC 1350

Reseck v Federal Commissioner of Taxation (1975) 133 CLR 45

Re Sigma Finance Corp [2009] UKSC 2

Sayseng v Kellogg Superannuation Pty Ltd (2007) 213 FLR 174

Secretary, Department of Family and Community Services v Hayward (a pseudonym) (2018) 98 NSWLR 599

Sheehan v Lloyds Names Munich Re Syndicate Ltd [2017] FCA 1340

Siemens Ltd v Schenker International (Aust) Pty Ltd (2004) 216 CLR 418

Stag Line Ltd v Foscolo, Mango & Co Ltd [1932] AC 328

Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2021] FCA 907

Star Entertainment Group Ltd v Chubb Insurance Australia Ltd [2022] FCAFC 16

Teele v Federal Commissioner of Taxation (1940) 63 CLR 201

Telstra Corp Ltd v Australasian Performing Right Association Ltd (1997) 191 CLR 140

The Trust Company (Nominees) Ltd v Banksia Securities Ltd (recs and mgrs apptd) (in liq) [2016] VSCA 324

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Triffitt v Australiansuper Pty Ltd (2007) 214 FLR 407

VL Credits Pty Ltd v Switzerland General Insurance Co Ltd (No 2) [1991] 2 VR 311

Walker v FAI Insurance Ltd (1991) 6 ANZ Ins Cas 61-081

Warren v Coombes (1979) 142 CLR 531

Wayne Tank and Pump Co Ltd v Employers’ Liability Assurance Corp Ltd [1974] QB 57

Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533

Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522

Wood v Capita Insurance Services Ltd [2017] AC 1173

Woolworths Ltd v Lister [2004] NSWCA 292

Worth v HDI Global Specialty SE (2021) 393 ALR 93

XL Insurance Co SE v BNY Trust Company of Australia Ltd (2019) 20 ANZ Ins Cas 62-211

Yanner v Eaton (1999) 201 CLR 351

Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561

Division:

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Commercial Contracts, Banking, Finance and Insurance

Number of paragraphs:

812

Date of hearing:

8, 9, 10, 11 and 12 November 2021

Counsel for the Appellant NSD1076/2021:

Mr JP Slattery QC with Mr DF McAloon

Solicitor for the Appellant NSD1076/2021:

KHQ Lawyers

Counsel for the Respondent NSD1076/2021:

Mr I Pike SC with Mr T Boyle

Solicitor for the Respondent NSD1076/2021:

Dentons Australia Limited

Counsel for the Appellant NSD1079/2021:

Mr SG Finch SC with Mr AM Pomerenke QC, Mr DTW Wong and Ms NA Wootton

Solicitor for the Appellant NSD1079/2021:

Clayton Utz

Counsel for the Respondent NSD1079/2021:

Mr DL Williams SC with Mr RD Glover and Mr ND Riordan

Solicitor for the Respondent NSD1079/2021:

DLA Piper Australia

Counsel for the Appellant NSD1080/2021:

Mr SG Finch SC with Mr AM Pomerenke QC, Mr DTW Wong and Ms NA Wootton

Solicitor for the Appellant NSD1080/2021:

Clayton Utz

Counsel for the Respondent NSD1080/2021:

Mr I Jackman SC with Mr P Herzfeld SC and Mr J Entwisle

Solicitor for the Respondent NSD1080/2021:

Allens

Counsel for the Appellant NSD1081/2021:

Mr Finch SC with Mr AM Pomerenke QC, Mr DTW Wong and Ms NA Wootton

Solicitor for the Appellant NSD1081/2021:

Clayton Utz

Counsel for the Respondent NSD1081/2021:

Mr I Jackman SC with Mr P Herzfeld SC and Mr J Entwisle

Solicitor for the Respondent NSD1081/2021:

Allens

Counsel for the Appellant NSD1082/2021:

Mr AJH Morris QC with Mr VG Brennan and Mr B McGlade

Solicitor for the Appellant NSD1082/2021:

Corney & Lind Lawyers

Counsel for the Respondent NSD1082/2021:

Mr B Walker SC with Mr TW Marskell and Mr HR Fielder

Solicitor for the Respondent NSD1082/2021:

Wotton & Kearney

ORDERS

NSD 1079 of 2021

BETWEEN:

LCA MARRICKVILLE PTY LIMITED (ACN 601 220 080)

Appellant

AND:

SWISS RE INTERNATIONAL SE

Respondent

AND BETWEEN:

SWISS RE INTERNATIONAL SE

Cross-Appellant

AND:

LCA MARRICKVILLE PTY LIMITED (ACN 601 220 080)

Cross-Respondent

order made by:

MOSHINSKY, DERRINGTON AND COLVIN JJ

DATE OF ORDER:

21 FEBRUARY 2022

THE COURT ORDERS THAT:

1.    The Appeal be allowed in part.

2.    The Cross-Appeal be allowed in part.

3.    The primary judge’s answers to the questions posed be amended as follows:

1. Disease Clause (9.1.2.1) (page 31):

On the proper construction of the Disease Clause:

(a)    Did the “Authority Response-LCA Marrickville” cause “closure … of the whole or part of the Situation”?

Answer: in respect of the order of 26 March 2020, yes. In respect of the orders of 1 and 13 June 2020, no.

(b)    Was there a closure or evacuation of the whole or part of the Situation?

See 1(a) above.

In assessing:

(i)    “closure”, must there be physical prevention of access to the Situation (or part of it), or is it sufficient there was a restriction of LCA Marrickville’s use of the Situation (or part of it) for its Business and if so, what restriction?

(ii)    “evacuation”, must there be a physical removal of persons from the Situation (or part of it), or is it sufficient if there was a restriction of LCA Marrickville’s use of the Situation (or part of it) for its Business and if so, what restriction?

As to (i), there must be physical prevention of access to the Situation (or part of it) to those who would otherwise be able to obtain access (for example, members of the public).

As to (ii), this does not arise, but the answer would be yes.

(c)    Was there an “outbreak” of COVID-19 at the Situation?

This cannot be answered on the evidence.

(i)    Does a single person infected with COVID-19 entering the Situation constitute an “outbreak”?

Not necessarily. If the person is able to communicate COVID-19 to other people and is within the community (in the sense of not being in a controlled environment such as quarantine, isolation or a hospital) then, given the nature of COVID-19 and the associated probability of transmission including to persons unknown, a single person infected with COVID-19 entering the Situation who is in a non-controlled setting would constitute an “outbreak” of COVID-19.

Unnecessary to answer.

(ii)    With what degree of prevalence do instances of COVID-19 have to occur at the Situation (or elsewhere) in order to constitute an “outbreak” at the Situation?

See (c)(i) above.

(iii)    Does the outbreak have to occur at the Situation or can it occur:

A.    at the Situation and elsewhere and, if so, where?

B.    elsewhere but not at the Situation and, if so, where?

This does not arise. The requirement of cl 9.1.2.1 is an order of a competent public authority as a result of an outbreak of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4) or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4). This depends not on objective facts but on the cause of the making of the order. The required cause must be an outbreak of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4) or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4).

If yes to (c), was the “Authority Response-LCA Marrickville” “a result of” that “outbreak”?

No.

(e)    Was there a “discovery of [SARS-CoV-2] likely to result in the occurrence of [COVID-19] … at the Situation”?

On the current evidence, no. However, this does not arise for the reasons set out at 1B above.

(i)    Does SARS-CoV-2 have to be discovered at the Situation or is it sufficient if it is discovered elsewhere and, if so, where?

No. If SARS-CoV-2 is discovered elsewhere but is likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation or within the 5 kilometre radius that requirement of cl 9.1.2.1/9.1.2.4 will be satisfied. To satisfy the requirement of likelihood, however, evidence of a person with COVID-19 who is capable of communicating the disease to another person within the radius will be required. However, this does not arise for the reasons set out at B above.

(ii)    Does SARS-CoV-2 have to be likely to result in the occurrence of COVID-19 at the Situation or is it sufficient if it is likely to result in the occurrence of COVID-19 elsewhere and, if so, where?

SARS-CoV-2 must be likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation or within the 5 kilometre radius.

(f)    Was the “Authority Response-LCA Marrickville” “a result of” a “discovery of [SARS-CoV-2] likely to result in the occurrence of [COVID-19] … at the Situation”?

No.

(g)    What if any “interruption” or “interference” occurred “in consequence of” any “closure … by order of a competent public authority”?

None.

(h)    What is required for there to be an “occurrence” of COVID-19?

A single case of COVID-19 is an occurrence of COVID-19.

2. Biosecurity Act exclusion (clause 9.1.2.1) (page 31)

(a)    Is COVID-19 a disease “declared to be a listed human disease pursuant to subsection 42(1) of the Biosecurity Act 2015”, in circumstances where it was determined to be a “listed human disease” after the Policy inception date and during the Policy Period?

Yes.

(b)    If yes to (a), does section 54 of the Insurance Contracts Act 1984 (Cth) (ICA) have the effect that the insurer cannot refuse to pay LCA Marrickville's claim by reason only of the determination and can only reduce its liability to the extent that its interests were prejudiced as a result of the determination?

No.

(c)    {Swiss Re version; LCA Marrickville does not agree}: If yes to (b), was LCA Marrickville’s loss caused or contributed to by the determination?

This does not arise.

(d)    {LCA Marrickville version; Swiss Re does not agree}: If yes to (b), could the determination reasonably be regarded as being capable of causing or contributing to LCA Marrickville’s loss?

This does not arise.

(e)    If yes to (c) and/or (d), to what extent is Swiss Re entitled to refuse to pay the claim?

This does not arise.

(f)    If yes to (b) but no to (c) and/or (d), what prejudice, if any, to Swiss Re resulted from the determination and to what extent (if any) should Swiss Re’s liability in respect of the claim be reduced?

This does not arise.

(g)    If the Biosecurity Act exclusion does apply to exclude LCA Marrickville’s loss from cover under the Disease Clause and the Expansion Clause, can such loss be considered for cover under the Catastrophe Clause and/or the Prevention of Access Clause?

No.

3. Expansion Clause (9.1.2.4) (page 31):

On the proper construction of the Expansion Clause:

(a)    Issues 1(a), (b), (g), (h) and (i) and 2, above also arise in the context of the Expansion Clause.

The same answers apply as set out above expanded to the 5 kilometre radius.

(b)    Was there an “outbreak” of COVID-19 within a five kilometre radius of the Situation?

This cannot be answered on the evidence.

In particular:

(i)    Does a person infected with COVID-19 entering, or residing in, the area within five kilometres of the Situation constitute an “outbreak”?

Not necessarily. If the person is able to communicate COVID-19 to other people and is within the community (in the sense of not being in a controlled environment such as quarantine, isolation or a hospital) then, given the nature of COVID-19 and the associated probability of transmission including to persons unknown, a single person infected with COVID-19 entering the Situation who is in a non-controlled setting would constitute an “outbreak” of COVID-19.

Unnecessary to answer.

(ii)    With what degree of prevalence do instances of COVID-19 have to occur within five kilometres of the Situation (or elsewhere), or what other characteristics must such instances have, in order to constitute an “outbreak” within a five kilometre radius of the Situation?

See (b)(i) above.

(iii)    Does the outbreak have to occur within a five kilometre radius of the Situation only or can the outbreak occur outside a five kilometre radius of the Situation as well and, if so, where?

This does not arise. The requirement of cl 9.1.2.1 is an order of a competent public authority as a result of an outbreak of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4) or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4). This depends not on objective facts but on the cause of the making of the order. The required cause must be an outbreak of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4) or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4).

(c)    Was the “Authority Response-LCA Marrickville” “a result of” an outbreak of COVID-19 within a five kilometre radius of the Situation?

No.

In particular, must the relevant order be made in direct response to the specific outbreak within a five kilometre radius of the Situation or is it sufficient if the relevant order is made in response to, or to prevent, the spread of COVID-19 more broadly (e.g. on a regional, state or nationwide scale)?

This depends on the terms of the order.

(d)    Was there a “discovery of [SARS-CoV-2] likely to result in the occurrence of [COVID-19]” within a five kilometre radius of the Situation?

On the current evidence, no. However, this does not arise for the reasons set out at 1B above.

(i)    Does SARS-CoV-2 have to be discovered within a five kilometre radius of the Situation or is it sufficient if it is discovered elsewhere and, if so, where?

No. If SARS-CoV-2 is discovered elsewhere but is likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation or within the 5 kilometre radius that requirement of cl 9.1.2.1/9.1.2.4 will be satisfied. To satisfy the requirement of likelihood, however, evidence of a person with COVID-19 who is capable of communicating the disease to another person within the radius will be required. However, this does not arise for the reasons set out at 1B above.

(ii)    Does SARS-CoV-2 have to be likely to result in the occurrence of COVID-19 within a five kilometre radius of the Situation, or is it sufficient if it is likely to result in the occurrence of COVID-19 elsewhere and, if so, where?

SARS-CoV-2 must be likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation or within the 5 kilometre radius.

(e)    Was the “Authority Response-LCA Marrickville” “a result of” a “discovery of [SARS-CoV-2] likely to result in the occurrence of [COVID-19]” within a five kilometre radius of the Situation?

No.

4. Catastrophe Clause (9.1.2.5) (page 31):

On the proper construction of the Catastrophe Clause:

(a)    {Swiss Re version; LCA Marrickville does not agree}: Was the outbreak of COVID-19 a “conflagration or other catastrophe”?

No.

(b)    {LCA Marrickville version; Swiss Re does not agree}: Was COVID-19 and its impact a “conflagration or other catastrophe”?

No.

(c)    When did any such “conflagration or other catastrophe” commence and end?

If COVID-19 is a catastrophe within cl 9.1.2.5 it commenced in NSW no later than 20 March 2020.

Unnecessary to answer.

(d)    Was the “Authority Response-LCA Marrickville” an “action of a civil authority” implemented “for the purpose of retarding” the “conflagration or other catastrophe”?

No.

(e)    What “interruption” or “interference” occurred “in consequence of” any “action of a civil authority”?

None within the meaning of cl 9.1.2.5.

5. Prevention of Access Clause (9.1.2.6) (page 31):

On the proper construction of the Prevention of Access Clause:

(a)    Was there a “risk to life … within five kilometres of [the] Situation”?

This does not arise. The requirement is action of a lawful authority attempting to avoid or diminish a risk to life within 5 kilometres of the Situation. There is no requirement to prove as an objective fact a risk to life within 5 kilometres of the Situation.

(i)    Does the “risk to life” have to exist within five kilometres of the Situation only or can the “risk to life” exist in areas further [than] five kilometres from the Situation as well and, if so, where?

See (a) above.

(ii)    Must the relevant order be made in direct response to the specific “risk to life” within five kilometres of the Situation, or is it sufficient if the relevant order is made as part of an attempt to “avoid or diminish risk to life” of a broader scope (e.g. on a regional, state or nationwide scale)?

There is no requirement in this regard other than action of a lawful authority attempting to avoid or diminish a risk to life within 5 kilometres of the Situation. It does not matter is the authority is also attempting to avoid or diminish a risk to life outside 5 kilometres of the Situation.

(b)    Was the “Authority Response-LCA Marrickville” taken in an attempt to avoid or diminish the identified “risk to life”?

No, because cl 9.1.2.6 does not apply to actions of an authority relating to a disease. If this is wrong, yes.

(c)     Was access to or use of the Situation prevented or hindered?

Yes. The 26 March 2020 order prevented access to and prevented the use of the Situation. The 1 and 13 June 2020 orders potentially hindered use of the Situation.

In particular, must the use of or access to the Situation for any purpose be prevented or hindered or is it sufficient for use of or access to the Situation for the purposes of LCA Marrickville’s Business, to be prevented or hindered?

It is sufficient if use of or access to the Situation for the purposes of LCA Marrickville’s Business, is prevented or hindered.

(d)    What, if any, “interruption or interference” occurred “in consequence of” any “action of any lawful authority”?

None because cl 9.1.2.6 does not apply to an authority’s action in response to a disease.

(e)    {LCA Marrickville presses for the underlined words in this paragraph} To what extent would LCA Marrickville’s access to or use of the Situation have been prevented or hindered, regardless of the lawful authority’s action, and to what extent (if any) does this affect indemnity?

This does not arise.

6. Clause 9.1.2 (page 31):

On the proper construction of clause 9.1.2:

(a)    Is Swiss Re’s obligation to indemnify an “Insured” in respect of loss resulting from the interruption of or interference with the “Business” in consequence of closure or evacuation of the whole or part of the “Situation” by order of a competent public authority as a result of:

(i)    an outbreak of a notifiable human infectious or contagious disease; or

(ii)    any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease,

confined to the terms of the Disease Clause and the Expansion Clause (as it applies to the circumstances of the Disease Clause)?

Clauses 9.1.2.5 and 9.1.2.6 do not apply to actions of an authority in response to a disease.

7. Causation, Adjustment and Basis of Settlement

If clause 9.1.2 of the Policy responds, on the proper construction of the adjustment clause (being the clause in the last sub-paragraph of Clause 8 on p. 29 of the Policy):

(a)    Was there any interruption of or interference with LCA [Marrickville]’s Business in consequence of the relevant insured perils in the Disease Clause, the Expansion Clause, the Catastrophe Clause or the Prevention of Access Clause?

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, it should follow that there was interruption of or interference with LCA Marrickville’s Business in consequence of the relevant insured perils in the applicable clause. The fact that LCA Marrickville may also have suffered loss generally from the existence and risk of COVID-19 in NSW would not mean that the action of the authority would not also be a proximate cause of LCA Marrickville’s on the facts.

(b)    What adjustment of the Rate of Gross Profit, Standard Turnover, Standard Gross Revenue, Standard Gross Rental and Rate of Payroll is necessary to provide for the “trend” of the Business, “variations” affecting the Business and/or “other circumstances” affecting the Business.

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, the adjustments clause does not require any adjustment to be made for the existence and risk of COVID-19 in NSW as it is an essential cause of the Damage.

(c)    How, if at all, does adjustment take into account the effect that COVID-19 had on the Business (other than the effect of the “Authority Response–LCA Marrickville”).

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, the adjustments clause does not require any adjustment to be made for the existence and risk of COVID-19 in NSW as it is an essential cause of the Damage.

(d)    To what extent should account be made for grants, subsidies, abatements or other benefits received by LCA Marrickville when assessing its entitlement to be indemnified for its loss (if any) including but not limited to JobKeeper, other payments made to it by a Commonwealth or State Government and rental relief or rebates?

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, LCA Marrickville, either under the general law or cl 10.1.3 would have to account for payments received under the JobKeeper scheme, by way of rental relief, and franchisor relief. It would not have to account for the act of grace payments received from the NSW Government.

Unnecessary to answer

If clause 9.1.2 of the Policy responds, on the proper construction of the Basis of Settlement clause (clause 10):

(e)    What is the date of the ‘Damage’?

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, the date of the Damage would be the date of the first action by an authority satisfying an insuring clause, which would be 26 March 2020.

(f)    {LCA Marrickville does not agree that issue (f) should be included in this test case because the factual premise for this issue will be the subject of a separate loss assessment process} To the extent interruption of, or interference with, LCA Marrickville’s business was caused by different matters comprising the “Authority Response-LCA Marrickville”, to what extent is the resulting loss (if any) to be aggregated for the purposes of applying a limit, deductible and any other conditions of cover?

Insufficient submissions were made to enable this issue to be answered.

8. Interest

(a)    Is interest payable by Swiss Re pursuant to section 57 of the ICA?

No.

(b)    If yes to paragraph (a), from what date is any such interest payable?

This does not arise. If it did arise, interest would be payable from the date of final determination of this proceeding is Swiss Re is liable to pay under the policy.

Unnecessary to answer.

4.    Otherwise the Appeal and the Cross-Appeal be dismissed.

5.    No order as to costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

NSD 1080 of 2021

BETWEEN:

MERIDIAN TRAVEL (VIC) PTY LTD (ACN 111 480 883)

Appellant

AND:

INSURANCE AUSTRALIA LIMITED (ACN 000 016 722)

Respondent

AND BETWEEN:

INSURANCE AUSTRALIA LIMITED (ACN 000 016 722)

Cross-Appellant

AND:

MERIDIAN TRAVEL (VIC) PTY LTD (ACN 111 480 883)

Cross-Respondent

order made by:

MOSHINSKY, DERRINGTON AND COLVIN JJ

DATE OF ORDER:

21 FEBRUARY 2022

THE COURT ORDERS THAT:

1.    The Appeal be allowed in part.

2.    The Cross-Appeal be allowed in part.

3.    The primary judge’s answers to the questions posed by the parties be amended as follows:

9. Disease extension (policy schedule, paragraph (c) of the “Murder, Suicide or Disease” clause (page 5)):

(a)    Did an occurrence of an outbreak of COVID-19 occur within a 20 kilometre radius of the Situation? If so, when?

Yes. The outbreak occurred by no later than 30 March 2020. Further evidence may prove that the outbreak occurred earlier, by 1 March 2020.

10. Evacuation and Closure extension (policy schedule, paragraph (d)(1) of the “Murder, Suicide or Disease” clause (page 5)):

(a)    Was Meridian’s Business closed or evacuated by order of a government, public or statutory authority by reason of the “Authority Response-Meridian”?

No

(b)    If yes to (a), were those orders consequent upon the discovery of an organism likely to result in a human infectious or contagious disease at the Situation?

This does not arise but, if it did, the answer would be no.

Unnecessary to answer.

(c)    {CGU disputes the inclusion of issues (c)-(f)} Did the discovery have to occur at the Situation or could it have occurred elsewhere and, if so, where?

Clause 8(d)(1) requires only that the order be consequent on discovery of an organism (anywhere) likely to result in a human infectious or contagious disease at the Situation.

Unnecessary to answer.

(d)    If the outbreak or discovery had to occur at the Situation, did it so occur at the Situation?

There is no requirement that the outbreak occur at the Situation - see cl 8(c). There is no requirement that the organism be discovered at the Situation - see cl 8(d)(1). It is agreed that there was no outbreak of COVID-19 or discovery of the SARS-CoV-2 organism at the Situation.

Unnecessary to answer.

(e)    What is required for there to be an “occurrence” of an outbreak [of] COVID-19?

The “occurrence” of an outbreak of COVID-19 means any event of that kind. An “outbreak” of COVID-19 is the occurrence of a single case of COVID-19 while a person is in the community (that is, not in a controlled environment such as quarantine, isolation or a hospital) and who is capable of communicating COVID-19 to another person.

Unnecessary to answer.

(f)    What is required for there to be the “discovery” of SARS-CoV-2?

A “discovery” means finding or ascertaining the existence of SARS-CoV-2. It can be inferred that SARS-CoV-2 has been “discovered” at a location if a person with SARS-CoV-2 is found or ascertained to have been at that location during an infectious period.

11. Causation, adjustments and loss (page 21):

If it is found that the Disease extension and/or the Evacuation and Closure extension responds to Meridian’s claim:

(a)    Was there any interruption of or interference with Meridian’s Business which was a direct result of the relevant insured perils?

There is no evidence as yet from which I would infer that the insured perils were a proximate cause of any interruption of or interference with Meridian’s business.

(b)    If yes to (a), what losses claimed by Meridian resulted from that interruption of or interference with its Business?

This question cannot be answered on the current evidence.

(c)    {CGU disputes the inclusion of this issue (c)} Is the term “Adjustment” in the Business Interruption section of the policy applicable to the calculation of Meridian’s claim, having regard to the definitions used in the “Settlement of Claims” clause in the Business Interruption section of the policy.

No.

(d)    {CGU version; Meridian does not agree}: Should any adjustment be made to Meridian’s business interruption loss by reference to uninsured events relating to the COVID-19 pandemic?

Adjustments should not be made to Meridian’s business interruption loss by reference to uninsured events caused by the same underlying fortuity as the insured peril. The fortuity underlying the insured peril is not “COVID-19 generally” but the presence and risk of COVID-19 in Victoria”. Adjustments should otherwise be made to Meridian’s loss.

(e)    {Meridian version; CGU does not agree}: Should any adjustment be made to Meridian’s business interruption loss by reference to events (other than the insured perils) relating to the COVID-19 pandemic?

Adjustments should not be made to Meridian’s business interruption loss by reference to uninsured events caused by the same underlying fortuity as the insured peril. The fortuity underlying the insured peril is not “COVID-19 generally” but the presence and risk of COVID-19 in Victoria”. Adjustments should otherwise be made to Meridian’s loss.

(f)    What loss is payable in accordance with the terms of the policy?

This question cannot be answered on the current evidence.

(i)    Are JobKeeper or other government subsidies to be taken into account in the assessment of any loss and, if so, in what way?

JobKeeper - yes.

JobKeeper - no.

Federal COVID-19 Consumer Travel Support Program - no.

Victorian Government Support Fund - no.

Meridian would have to account for the full amounts paid to it under these schemes as operating to reduce its loss.

(ii)    Should rental abatements be taken into account in assessing recoverable loss?

Yes.

(iii)    On what dates did the indemnity period/s start and end?

The indemnity period starts on the occurrence of the Damage (which must mean the insured peril) and ends when the results of Meridian’s business cease to be affected as a consequence of the damage, such period not exceeding 12 months.

(iv)    Further quantum issues may be raised when Meridian provides the information that has been requested by CGU.

Noted.

(g)    {Meridian disputes the inclusion of subparagraph (f), as those issues should not be included in this test case in circumstances where CGU has denied indemnity and because the factual premise for these issues will be the subject of a separate loss assessment process} Has Meridian:

(i)    provided sufficient information for CGU to determine any amount payable under the policy; and/or

Not to my knowledge.

(ii)    failed to respond to reasonable requests for information from CGU?

Not to my knowledge.

(h)    If it is found that the policy responds and CGU is liable to pay an amount to Meridian, from what date is interest under section 57 of the ICA payable?

The issue whether Meridian can establish that the insured peril in 8(c) was a proximate cause of any of its loss remains unanswerable on the current state of the evidence. On the current state of the evidence, Meridian has not proved that to be the case. As a result, s 57 has not yet been engaged. If Meridian is entitled to cover, further evidence and submissions would be required in relation to interest.

4.    Otherwise the Appeal and the Cross-Appeal be dismissed.

5.    No order as to costs.

[Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.]

ORDERS

NSD 1081 of 2021

BETWEEN:

THE TAPHOUSE TOWNSVILLE PTY LTD (ACN 603 252 482)

Appellant

AND:

INSURANCE AUSTRALIA LIMITED (ACN 000 016 722)

Respondent

order made by:

MOSHINSKY, DERRINGTON AND COLVIN JJ

DATE OF ORDER:

21 FEBRUARY 2022

THE COURT ORDERS THAT:

1.    The Appeal be allowed in part.

2.    The primary judge’s answers to the questions posed be amended as follows:

12. Disease clause (clause 8, page 23):

(a)    Was all or part of Taphouse’s premises closed or evacuated by any legal authority by reason of the “Authority Response-Taphouse”?

No.

(b)    If yes to (a), was that closure or evacuation as a result of the outbreak of COVID-19 occurring within a 20 kilometre radius of Taphouse's premises?

No.

13. Prevention of access (POA) clause (clause 7, page 23):

(a)    Does the POA clause apply to an outbreak of COVID-19 in light of the separate disease clause?

No.

(b)    If yes to (a), did the “Authority Response-Taphouse” involve any legal authority preventing or restricting access to Taphouse’s premises or ordering the evacuation of the public?

This does not arise. If it did, then yes, except for the 29 March 2020 order.

(c)    If yes to (a) and (b), were those orders as a result of damage to, or the threat of damage to, property or persons within a 50 kilometre radius of Taphouse’s premises?

This does not arise.

(d)    {CGU disputes the inclusion of this paragraph} Alternatively to (c), how are the words “as a result of … damage to or threat of damage to … persons” to be construed? In particular:

(i)    Does the “threat of damage” have to exist within 50 kilometres of the premises only or [can] it exist in areas further than 50 kilometres from the premises as well and, if so, where?

The threat of damage within the 50 kilometre radius must be a proximate cause of the action of the authority. It may be such a cause if the authority considers the threat exists anywhere provided it also considers it exists within the 50 kilometre radius.

The threat of damage within the 50 kilometre radius does not need to be a proximate cause of the action of the authority. It only needs to be more than a remote cause. If the authority considers the threat exists in all parts of the State and the prevention or restriction of access is caused by that threat, the clause will respond because the threat within the 50 kilometre radius is “a cause”.

(ii)    Must the relevant order be made in direct response to the specific “threat of damage” within 50 kilometres of the Situation, or is it sufficient if the relevant order is made as a result of “threat of damage” both within the radius and of a broader scope (e.g. on a regional, state or nationwide scale)?

See (i) above.

14. Causation, adjustments and loss (page 19)

If it is found that the Disease clause and/or the POA clause responds to Taphouse’s claim:

(a)    Does the interruption of or interference with Taphouse’s business have to be “a direct result” of or “result from” or be “caused by”, the relevant insured perils, and if not, what is the relevant test?

The insured peril has to be a proximate cause of the interruption of or interference with Taphouse’s business.

(b)    Was there any interruption of or interference with Taphouse’s business which satisfies the test of causation identified in the answer to (a)?

No. If, however, I am wrong about the application of cll 7 and 8 then Taphouse has proved some loss (reduced turnover evidence) which should be inferred to be result of the relevant proximate cause.

(c)    If yes to (b), what losses claimed by Taphouse resulted from that interruption or interference of Taphouse’s business?

This cannot be answered on the evidence but the loss would exclude savings from the JobKeeper payments, the Commonwealth Cash Flow Boost and rental waivers or abatement from Taphouse’s landlord, but not the Queensland Government’s COVID-19 Grant.

Unnecessary to answer.

(d)    {CGU disputes the inclusion of this issue (d)} Is the term “Adjustment” in the Business Interruption section of the policy applicable to the calculation of Meridian’s [sic, Taphouse’s] claim, having regard to the definitions used in the “Settlement of Claims” clause in the Business Interruption section of the policy.

No, but the loss must be in consequence of the damage.

(e)    {CGU version; Taphouse does not agree}: Should any adjustment be made to Meridian’s [sic, Taphouse’s] business interruption loss by reference to uninsured events relating to the COVID-19 pandemic?

Not if the uninsured events are a result of the same underlying cause as the insured peril, in this case being the presence and risk of COVID-19 in Queensland.

(f)    {Taphouse version; CGU does not agree}: Should any adjustment be made to Meridian’s [sic, Taphouse’s] business interruption loss by reference to events (other than the insured perils) relating to the COVID-19 pandemic?

See (e) above.

(g)    What loss is payable in accordance with the terms of the policy?

See (c) above.

(i)    Are JobKeeper or other government subsidies to be taken into account in the assessment of any loss and, if so, in what way?

See (c) above.

(ii)    Should rental abatements be taken into account in assessing recoverable loss?

Yes

(iii)    On what dates did the indemnity period/s start and end?

The indemnity period started on the date Taphouse suffered loss from the insured peril and ended 12 months later provided that Taphouse’s business continued to be affected as a consequence of the insured peril.

(iv)    Further quantum issues may be raised when Taphouse provides the information that has been requested by CGU.

Noted.

(h)    {Taphouse does not agree that this issue be included in this test case in circumstances where CGU has denied indemnity and because the factual premise for these issues will be the subject of a separate loss assessment process} Has Taphouse:

(i)    provided sufficient information for CGU to determine any amount payable under the policy; and / or

(ii)    failed to respond to reasonable requests for information from CGU?

These questions cannot be answered.

(i)    If it is found that the policy responds and CGU is liable to pay an amount to Taphouse, from what date is interest under section 57 of the ICA payable?

This does not arise, but it would not be unreasonable for Insurance Australia to withhold payment unless and until it is finally determined to be liable to make payment in this proceeding.

Unnecessary to answer.

3.    Otherwise the Appeal be dismissed.

4.    No order as to costs.

[Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.]

ORDERS

NSD 1082 of 2021

BETWEEN:

MARKET FOODS PTY LIMITED (ABN 48 604 308 581)

Appellant

AND:

CHUBB INSURANCE AUSTRALIA LIMITED (ABN 23 001 642 020)

Respondent

order made by:

MOSHINSKY, DERRINGTON AND COLVIN JJ

DATE OF ORDER:

21 FEBRUARY 2022

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    There is no order as to costs.

[Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.]

ORDERS

NSD 1076 of 2021

BETWEEN:

DAVID COYNE (IN HIS CAPACITY AS LIQUIDATOR OF EDUCATIONAL WORLD TRAVEL PTY LTD (ACN 006 888 179) (IN LIQUIDATION))

First Appellant

EDUCATIONAL WORLD TRAVEL PTY LTD (ACN 006 888 179) (IN LIQUIDATION)

Second Appellant

AND:

QBE INSURANCE (AUSTRALIA) LIMITED (ACN 003 191 035)

Respondent

AND BETWEEN:

QBE INSURANCE (AUSTRALIA) LIMITED (ACN 003 191 035)

Cross-Appellant

AND:

DAVID COYNE (IN HIS CAPACITY AS LIQUIDATOR OF EDUCATIONAL WORLD TRAVEL PTY LTD (ACN 006 888 179) (IN LIQUIDATION))

First Cross-Respondent

EDUCATIONAL WORLD TRAVEL PTY LTD (ACN 006 888 179) (IN LIQUIDATION)

Second Cross-Respondent

order made by:

MOSHINSKY, DERRINGTON AND COLVIN JJ

DATE OF ORDER:

21 FEBRUARY 2022

THE COURT ORDERS THAT:

1.    The appeal be allowed in part.

2.    The cross-appeal be dismissed.

3.    The primary judge’s answers to the questions posed by the parties be amended as follows:

Property Law Act

1. Does section 61A of the Property Law Act 1958 (Vic) apply to the policy, such that the reference to the repealed Quarantine Act 1908 (Cth) is to be construed as a reference to the Biosecurity Act 2015 (Cth), and such that a disease determined to be a “listed human disease” under the Biosecurity Act 2015 (Cth) falls within the scope of the exclusion from cover for business interruption?

No.

Prevention of access (POA) extension (page 12)

2. Was there “closure or evacuation of all or part of the [insured’s] premises” within the meaning of the policy?

No.

3. If the answer to 2 is ‘yes’, was it due to any one or more of the directions as set out in Annexures A and B of the Statement of Agreed Facts?

No.

4. If the answer to 3 is ‘yes’, was it an order by a competent government, public or statutory authority as a result of a human infectious or contagious disease?

This does not arise, but if it did arise all of the actions on which EWT relied were orders of a competent government, public or statutory authority as a result of a human infectious or contagious disease.

5. If the answer to 3 and 4 is yes, did the “closure or evacuation of all or part of the premises”:

(a)    prevent or hinder the use of the insured’s building or access thereto; or

No.

(b)    “result in” a cessation or diminution of trade “due to” the temporary falling away of potential customers?

No.

6. Was there “interruption or interference with” the insured’s business within the meaning of the policy?

No.

7. If the answer to 6 is yes, was the interruption or interference “in consequence of” closure or evacuation of all or part of the premises within the meaning of the policy?

No.

Loss

8. Whether, having regard to the answers to issues 1 – 7 above, the Policy responds to EWT’s claim for indemnity.

No.

Concurrent Causes

9. If the answer to issue 8 is “yes”, whether:

(a)    the appropriate counter-factual for the purposes of the “Standard Income” definition in the Policy may take into account the presence and effect of COVID-19 as relevant circumstances, so that any payment to be made reflects the results that but for the insured events, would have been obtained during the relevant period (less any expenses saved as a result of the loss or damage); or

This does not arise.

(b)    to the extent EWT suffered loss that was caused concurrently by events or circumstances referable to the outbreak of COVID-19 other than as a consequence of the matters set out in 2 to 7 above, the Prevention of Access Extension in the Policy covers EWT for the loss resulting from any such concurrent causes of that loss.

This does not arise.

Interest

10. Is interest under section 57 of the Insurance Contracts Act payable? If so from what date is interest payable?

This does not arise, but it would not be unreasonable for QBE to withhold payment unless and until it is finally determined to be liable to make payment in this proceeding.

Unnecessary to answer.

4.    The appeal otherwise be dismissed.

5.    There be no order as to costs.

[Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.]

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    I have had the considerable benefit of reading in draft the reasons for judgment of Derrington and Colvin JJ (the joint judgment). I agree with their Honours’ reasons and with the orders they propose. I wish to set out, briefly, why I have reached the same conclusions as their Honours on certain key issues in each appeal (including, where applicable, the cross-appeal). The following reasons are by way of addition, and are not intended to qualify my agreement with the reasons in the joint judgment. For the purposes of these reasons, I gratefully adopt their Honours’ outline, for each appeal, of the relevant facts, the policy wording, the decision of the primary judge, and the issues to be determined. I also adopt the abbreviations used in the joint judgment.

General issues

2    The principles of construction applicable to commercial documents, such as the insurance policies in issue in these appeals, are well-established, and are outlined in Star Entertainment Group Ltd v Chubb Insurance Australia Ltd [2022] FCAFC 16 at [8]-[14]. That appeal was heard at the same time as the present appeals, and the reasons for judgment of the Full Court in that matter have been handed down on the same day as the reasons for judgment in the present appeals. As is well-established, the task of contractual construction is to be approached objectively, in the sense that the meaning of the words used is to be ascertained by reference to what a reasonable person would have understood the language of the contract to convey; this normally requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. See also: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22] per Gleeson CJ; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35] per French CJ, Hayne, Crennan and Kiefel JJ; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46], [47], [51] per French CJ, Nettle and Gordon JJ, at [109] per Kiefel and Keane JJ; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at [16]-[17] per Kiefel, Bell and Gordon JJ. When undertaking this task, “preference is given to a construction supplying a congruent operation to the various components of the whole”: Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [16] per Gleeson CJ, McHugh, Gummow and Kirby JJ.

3    In the judgment of the primary judge at [53], her Honour noted that the parties relied on those parts of the reasoning in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] AC 649 (FCA v Arch) that suited their purposes. The same can be said of the parties’ submissions on appeal. Insofar as the judgments of the Supreme Court of the United Kingdom deal with causation, their Lordships’ reasoning was helpfully summarised by the primary judge at [53]-[83] of her Honour’s reasons. I do not consider it necessary for the purposes of deciding any issue in the present appeals to consider the correctness or otherwise of their Lordships’ reasoning in relation to causation. It is important to note that the underlying factual circumstances in the United Kingdom at the relevant times for the purposes of FCA v Arch were very different from those in Australia at the relevant times for the purposes of these appeals (namely, during 2020 and 2021). As the primary judge noted at [56], an important part of the context of the decision in FCA v Arch was that the outbreak of COVID-19 in the United Kingdom was “so widespread”. In comparison, it could not be said that the occurrence of COVID-19 cases in Australia at the relevant times was widespread: PJ [66].

LCAM appeal

4    The relevant policy wording is set out in the joint judgment. While it is necessary to have regard to all of these provisions, and the policy document as a whole, it is convenient to set out the key relevant terms, which are as follows. Section 2 of the policy dealt with interruption insurance. Within that section, cl 9 provided in part:

9.    Extent of Cover

9.1    The Insurer will indemnify the Insured in accordance with the provisions of Clause 10 (Basis of Settlement) against loss resulting from the interruption of or interference with the Business, provided the interruption or interference:

9.1.1    is caused by Damage occurring during the Period of Insurance to:

9.1.1.1    any building or any other property or any part thereof used by the Insured at the Situation for the purposes of the Business;

9.1.2    is in consequence of:

9.1.2.1    closure or evacuation of the whole or part of the Situation by order of a competent public authority as a result of an outbreak of a notifiable human infectious or contagious disease or bacterial infection or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease or consequent upon vermin or pests or defects in the drains and/or sanitary arrangements at the Situation but specifically excluding losses arising from or in connection with highly Pathogenic Avian Influenza in Humans or any disease(s) declared to be a listed human disease pursuant to subsection 42(1) of the Biosecurity Act 2015;

9.1.2.3 injury, illness or disease arising from or likely to arise from or traceable to foreign or injurious matter in food or drink provided from or on the Situation;

9.1.2.4 any of the circumstances set out in Sub-Clauses 9.1.2.1 to 9.1.2.3 (inclusive) occurring within a 5 kilometer radius of the Situation;

9.1.2.5     the action of a civil authority during a conflagration or other catastrophe for the purpose of retarding same;

9.1.2.6 the action of any lawful authority attempting to avoid or diminish risk to life or Damage to property within 5 kilometres of such Situation which prevents or hinders the use of or access to the Situation whether any property of the Insured shall be the subject of Damage or not,

occurring during the Period of Insurance. Such events shall be deemed to be loss caused by Damage covered by Section 2 of this Policy. Furthermore Clauses 12 and 13 shall not apply to the cover provided by this Clause 9.1.2.

(Original emphasis).

5    The primary judge held that the exclusion in the latter part of cl 9.1.2.1 applied in the present case (as COVID-19 had been listed as a human disease pursuant to s 42(1) of the Biosecurity Act 2015 (Cth)) and that, accordingly, cl 9.1.2.1 (as expanded by cl 9.1.2.4) did not apply in this case: PJ [215], [233], [327]. There is no appeal from that conclusion.

6    The key determinative issue in the appeal is whether the primary judge was correct to conclude that, as a matter of construction, cll 9.1.2.5 and 9.1.2.6 did not apply in the present case. The primary judge’s construction was essentially based on construing these clauses in the context of the policy as a whole. That context included the whole of cl 9.1.2. The primary judge considered that cll 9.1.2.1 and 9.1.2.4 exclusively provided for loss as a result of an outbreak of a notifiable human infectious or contagious disease or bacterial infection or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease, where cl 9.1.2.3 was not applicable: PJ [241]-[252]. Accordingly, insofar as loss was consequent on the action of an authority resulting from disease, cll 9.1.2.5 and 9.1.2.6 were incapable of being engaged: PJ [253]. The primary judge also held that, in any event, cl 9.1.2.5 had nothing to do with diseases. This was because, read in context, the word “catastrophe” here referred to something like a conflagration, which is a physical event requiring physical action to be retarded; in that respect, a pandemic is not like a conflagration: PJ [332]-[336]. For these additional reasons, the primary judge held that cl 9.1.2.5 did not apply: PJ [337].

7    In my view, the primary judge’s construction of these clauses is the correct construction, for the reasons given by her Honour. Among other things, as the primary judge reasoned at [244], “construing cll 9.1.2.5 and 9.1.2.6 as applying to diseases generally would expunge the careful distinction drawn by cl 9.1.2.1 between notifiable diseases and listed human diseases. That distinction would be meaningless. So too would the requirement for an order of an authority resulting from a notifiable disease. The inconsistency between the provisions would be profound. As her Honour said, the result would not be a reasonable and commercial operation of this part of the policy: PJ [244]. Further, the presence of the Biosecurity Act exclusion in cl 9.1.2.1 indicates that cll 9.1.2.5 and 9.1.2.6 were not intended by the parties to apply to diseases, as does the sub-limit on liability for diseases (as the primary judge reasoned at [247]).

8    For these reasons, reading cll 9.1.2.5 and/or 9.1.2.6 as applicable to loss as a result of an outbreak of a notifiable human infectious or contagious disease or bacterial infection or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease, where cl 9.1.2.3 was not applicable, would result in incoherence and incongruity in the terms of the policy. The primary judge’s construction, with which I respectfully agree, places emphasis on the text of the policy and reading cll 9.1.2.5 and 9.1.2.6 in the context of the policy as a whole. That approach is consistent with, and supported by, the principles of construction referred to above.

9    It follows that LCAM was not entitled to indemnity under the policy in respect of its claims, and the primary judge was correct to so hold: PJ [419]. This is determinative of the substance of the appeal.

Meridian appeal

10    The relevant policy wording is set out in the joint judgment. Again, while it is necessary to have regard to all of these provisions, and the policy document as a whole, it is nevertheless convenient for present purposes to set out the key relevant terms. Section 2 of the policy dealt with business interruption. This included a section headed “Additional benefits”. As amended by the Schedule to the policy, this provided in part:

Additional benefits

This section is extended to include the following additional benefits. …

For additional benefits 1 to 9 inclusive We will pay You (depending on the part of this section which is applicable to You) for: …

e)    ‘Item 9 Gross revenue’,

resulting from interruption of or interference with Your Business as a result of Damage occurring during the Period of Insurance to, or as a direct result of:

8.    Murder, Suicide or Disease

The occurrence of any of the circumstances set out in this Additional Benefit shall be deemed to be Damage to Property used by You in the Situation.

(c)    The outbreak of a human infectious or contagious disease occurring within a 20 kilometre radius of the Situation.

(d)    Closure or evacuation of Your Business by order of a government, public or statutory authority consequent upon:

(1)    the discovery of an organism likely to result in a human infectious or contagious disease at the Situation; or …

Cover under Additional Benefits 8(c) and 8(d)(1) does not apply in respect of Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.

As noted in the joint judgment, there is some inconsistency in the numbering in the policy. It will be convenient to refer to the above clause as “cl 8”.

11    As will be noted, the exclusion at the end of cl 8 referred to the Quarantine Act 1908 (Cth). However, before the policy commenced, the Quarantine Act had been repealed and the Biosecurity Act, which covers some of the same subject matter as the Quarantine Act, had been enacted. Prima facie, on the basis of the decision of the NSW Court of Appeal in HDI Global Speciality SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634 (Wonkana), this meant that the exclusion did not operate. However, in circumstances where Meridian was based in Victoria, the insurer in this matter sought to rely on s 61A of the Property Law Act 1958 (Vic) (set out in the joint judgment) in the following way. The insurer argued that the policy of insurance was governed by the law of Victoria and that s 61A operated such that the reference in the exclusion to “quarantinable diseases under the Quarantine Act 1908 and subsequent amendments” was to be construed as a reference to “listed human diseases under the Biosecurity Act”. The primary judge rejected the insurer’s contention that s 61A operated in that way. For the reasons set out in the joint judgment, the primary judge was correct to so hold. It follows that the exclusion at the end of cl 8 did not operate. It can therefore be put to one side.

Clause 8(c)

12    Before the primary judge, the insurer accepted that there was an outbreak of COVID-19 within 20 kilometres of Meridian’s premises (which were in Heidelberg, Victoria) by no later than 30 March 2020: PJ [449]. The primary judge stated that, based on the evidence, she was unable to find that there was an outbreak (in the sense discussed earlier in her reasons) of COVID-19 within 20 kilometres of Meridian’s premises before 30 March 2020: PJ [450]-[451]. The primary judge also stated that she would not infer that the outbreak ceased by February 2021, as the insurer proposed: PJ [452]. For these reasons, the primary judge held that cl 8(c) applied on the facts of the case from 30 March 2020 to at least the beginning of February 2021: PJ [453]. Apart from a challenge by the insurer to the primary judge’s construction of the word “outbreak”, there is no challenge to these conclusions of the primary judge. For the reasons given in the joint judgment, the primary judge’s construction of “outbreak” was correct.

13    A key issue in this appeal is whether the primary judge’s treatment of causation and adjustments in relation to cl 8(c) was correct. The primary judge dealt with this issue at [479]-[497]. The primary judge held that, on the current state of the evidence, she was unable to infer that the outbreak of a human infectious or contagious disease occurring within a 20 kilometre radius of the Situation was a proximate cause or any other kind of cause of Meridian’s loss: PJ [481]; see also [496]-[497]. The primary judge stated that, given the lack of focus on this issue in the hearing, she would be prepared to hear the parties further about it if appropriate: PJ [481]. Her Honour discussed a number of issues that arose. One of the issues that concerned her Honour (see [485]) was: assuming Meridian can prove that the insured peril in cl 8(c) was a proximate cause of some loss, could it be said, consistently with the logic and reasoning about causation and trends in FCA v Arch, that various actions of the Commonwealth Government (in particular, the Overseas Travel Ban and the ban on cruise ships) were caused by the same underlying fortuity as the insured peril? Her Honour held that the underlying fortuity in the case of the Commonwealth action was not the same as the underlying fortuity of the presence of COVID-19 in the State and the associated risk of spread of COVID-19 throughout the State (including the area within the radius or at the insured Situation): PJ [488].

14    In my view, proceeding on the basis that the principles relating to “underlying fortuity” were correctly stated by the UK Supreme Court in FCA v Arch (which principles were not challenged by Meridian), the primary judge’s conclusion on this issue was correct, for the reasons her Honour gave at [485]-[490]. As the primary judge stated at [487], the Commonwealth actions focused not on the presence of COVID-19 in the State and the associated risk of the spread of COVID-19 throughout the State (including the area within the radius or at the insured Situation); they were focused on the presence of COVID-19 overseas and the risk that an overseas traveller coming to Australia may bring COVID-19 into any part of Australia. The underlying fortuities involved different subject-matter (as the primary judge said at [488]).

Clause 8(d)(1)

15    The primary judge held that cl 8(d)(1) did not apply in the circumstances of this case. Although there is no appeal by Meridian in relation to this conclusion, I note the following matters for completeness. The primary judge held that the Overseas Travel Ban did not close any part of Meridian’s travel business: PJ [463]. The primary judge stated that the fact that international bookings had comprised approximately 90% of Meridian’s revenue and the Overseas Travel Ban had the effect of curtailing or destroying Meridian’s business did not mean that the business, or part of it, was closed by an order as required by cl 8(d)(1): PJ [463]; see also [464]-[465]. Similarly, the primary judge held, the relevant lockdown directions did not close the whole or part of Meridian’s business: PJ [466]-[467]. The primary judge also held that the causal element of cl 8(d)(1) (“consequent upon”) was not present: PJ [469]-[477]. Accordingly, the primary judge held that cl 8(d)(1) was not satisfied: PJ [478]. As noted above, Meridian does not challenge this conclusion.

Taphouse appeal

16    The relevant policy wording is set out in the joint judgment. As noted for the other appeals, while it is necessary to have regard to all of these provisions, and the policy document as a whole, it is nevertheless convenient for present purposes to set out the key relevant terms. Section 2 of the policy dealt with business interruption. This included a part dealing with extensions of cover. That part included:

Extensions of cover

This section is extended to include the following additional benefits. …

We will pay you (depending on the part of this section which is applicable to you) for:

a)     item 1 Gross profit, …

resulting from interruption of or interference with your business as a result of insured damage occurring during the period of insurance to, or as a direct result of:

7. Prevention of access by public authority

We will pay for loss that results from an interruption of your business that is caused by any legal authority preventing or restricting access to your premises or ordering the evacuation of the public as a result of damage to or threat of damage to property or persons within a 50-kilometre radius of your premises.

8. Murder, suicide & infectious disease

We will pay for loss that results from an interruption of your business that is caused by:

a)    any legal authority closing or evacuating all or part of the premises as a result of:

i.    the outbreak of an infectious or contagious human disease occurring within a 20-kilometre radius of your premises, however, there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Quarantine Act 1908 (as amended) irrespective of whether discovered at the location of your premises, or out-breaking elsewhere

Clause 7

17    A key issue in this appeal is whether the primary judge was correct to hold that cl 7 did not apply to diseases, which, instead, were regulated exclusively by cl 8: PJ [561]. The primary judge’s view was based on construing cl 7 in the context of the policy as a whole, including, in particular cl 8. Her Honour considered that the operation of the policy would otherwise involve “profound incongruence and incoherence”. Her Honour inferred that the parties could not have intended that cl 7 would apply to an authority preventing or restricting access to the premises under cl 7 where the threat of damage to persons was from a disease. This was because, if that were so, the various conditions or requirements within cl 7 would be circumvented or would not apply: PJ [561].

18    In my view, the primary judge’s construction of these clauses is the correct construction, for the reasons given by her Honour at [561]-[564]. In particular, if cl 7 were construed as applying to an authority preventing or restricting access to the premises where the threat of damage to persons is from a disease: (a) the requirement in cl 8 for an authority to close or evacuate the premises “as a result of” the outbreak of the disease would be circumvented; (b) the 20 kilometre radius in cl 8 would be circumvented and the 50 kilometre radius in cl 7 would apply; (c) the limitation in cl 8 to infectious or contagious human diseases would not apply; and (d) the exclusion of highly pathogenic Avian Influenza in cl 8 would not apply. In light of these matters, construing cl 7 as applying to an authority preventing or restricting access to the premises where the threat of damage to persons is from a disease would result in profound incoherence or incongruence, as the primary judge concluded. It follows that the primary judge was correct to conclude that Taphouse was not entitled to indemnity under cl 7.

Clause 8

19    Another key issue in this appeal is whether the primary judge was correct to hold that the causal requirement in cl 8 was not satisfied. The primary judge found that the relevant State directions were made as a result of the threat or risk of harm to human health across the whole of Queensland by reason of COVID-19, but that it could not be inferred that the directions were a result of an outbreak of an infectious or contagious human disease occurring within a 20 kilometre radius of the premises: PJ [588]. The primary judge noted, at [589], the distinction between, on the one hand, an authority preventing or restricting access to the premises as a result of a threat or risk of harm to each and every person in the State (which was relevant to one of the alternative issues that her Honour had considered in relation to cl 7), and, on the other hand, an authority closing or evacuating the premises as a result of an outbreak of an infectious or contagious human disease occurring within a 20 kilometre radius of the premises. Her Honour found that the relevant State directions had nothing to do with a perceived outbreak of COVID-19 within a 20 kilometre radius of [Taphouse’s] premises”: PJ [590]; see also [591]. Further, the primary judge found, the relevant directions were not made because of an outbreak of COVID-19 across the whole of Queensland (including within the 20 kilometre radius of the premises): PJ [591]. Accordingly, the primary judge held, the causal requirement of the clause was not satisfied.

20    Before directly addressing this issue, I note that, for the reasons given in the joint judgment, ground 2(a) of Taphouse’s notice of appeal is made out. This concerns a factual statement made by her Honour at [601] that there was no evidence that there was a single case of a person within the 20 kilometre radius who was in the community with COVID-19 at a time when the person was capable of communicating the disease to others. For the reasons given in the joint judgment, that statement was in error – the evidence from the forms submitted to NOCS was sufficient to justify the conclusion that, prior to 23 March 2020 (the date of the relevant direction), there were persons infected with COVID-19 within the community within an area of 20 kilometres of Taphouse’s premises and capable of communicating it to others. In other words, contrary to the primary judge’s statement, there was an “outbreak” or “outbreaks” of COVID-19 in the 20 kilometre radius of Taphouse’s premises prior to 23 March 2020.

21    In my view, notwithstanding the above point, the primary judge was correct to conclude that the causal requirement of cl 8 was not satisfied. The text of cl 8 requires that the authority close or evacuate all or part of the premises “as a result of” the outbreak of an infectious or contagious human disease occurring within a 20 kilometre radius of the premises. There is no indication here that the directions were made as a result of the outbreak or outbreaks of COVID-19 within the 20 kilometre radius of Taphouse’s premises (even if the Chief Health Officer was aware of that outbreak or those outbreaks). Nor were the directions made as a result of an outbreak or outbreaks of COVID-19 in each and every part of Queensland, such that it could be said (by analogy with the situation in the United Kingdom considered in FCA v Arch) that the directions were a result of the outbreak or outbreaks within the radius of 20 kilometres of Taphouse’s premises.

22    It follows that the primary judge was correct to conclude that Taphouse was not entitled to indemnity under cl 8.

Market Foods appeal

23    The relevant policy wording is set out in the joint judgment. Again, while it is necessary to have regard to all of these provisions, and the policy document as a whole, it is again convenient to set out the key relevant terms. Section 2 of the policy dealt with business interruption. Within that section, Extensions B and C provided in part:

Extensions B: Following damage at locations not occupied by you

Cover under Section 2 is extended to include loss resulting from Business Interruption to property: (a) of a type insured by this Policy; and (b) at the locations described in points 1. to 8. directly below;

4. Public Authority

any legal authority preventing or restricting access to an Insured Location or ordering the evacuation of the public due to damage or a threat of damage to property or persons within 50 kilometres of any Insured Location.

Extension C: non damage

1. Infectious Disease, Murder and Closure Extension

Cover is extended for loss resulting from interruption of or interference with the Insured Location in direct consequence of the intervention of a public body authorised to restrict or deny access to the Insured Location directly arising from an occurrence or outbreak at the premises of any of the following:

a)    Notifiable Disease, or

b)    the discovery of an organism likely to cause Notifiable Disease;

leading to restriction or denial of the use of the Insured Location on the order or advice of the local health authority or other competent authority.

Cover under this Extension does not include the costs incurred in cleaning, repair, replacement, and recall or checking of property.

24    The preamble to Extension B used the expression “Business Interruption”, which was defined as:

Business Interruption

means the interruption of or interference with Your Business in consequence of Insured Damage that occurs during the Policy Period.

25    That definition used the expression “Insured Damage”, which was defined as follows:

Insured Damage

means physical loss, destruction or damage occurring during the Policy Period caused by an event insured under the Property Damage, Theft, Money, Glass or General Property Sections.

26    Extension C used the expression “Notifiable Disease”, which was defined as:

Notifiable Disease

means illness sustained by any person resulting from food or drink poisoning or any human infectious or human contagious disease, an outbreak of which the competent local authority has stipulated must be notified to them. Notifiable Disease does not include any occurrence of any prescribed infectious or contagious diseases to which the Quarantine Act 1908 as amended applies.

27    As indicated in the Schedule to the policy, the cover under the policy was for Property Damage, Business Interruption, Theft, Money, Glass, and Public and Products Liability. In respect of Property Damage, there was cover for contents, stock, glass and money, but not for buildings. There were three Insured Locations specified in the Schedule.

Extension B, Item 4

28    A key issue in this appeal is whether the primary judge was correct to hold that, as a matter of construction, Item 4 of Extension B did not provide cover for the effects of a disease: PJ [875], [901]. The primary judge reasoned that, whatever its infelicities, the better view was that Extension B was concerned with “Business Interruption”, as defined, to property other than that owned by the insured: PJ [874]. Her Honour noted that Business Interruption required Insured Damage, which involved physical loss, destruction or damage to property: PJ [874]. The primary judge considered that, even if Item 4 was read as extending that concept to include the threat of physical loss, destruction or damage to property and the threat of physical loss, destruction or damage to persons (whether caused by the threat of physical loss, destruction or damage to property or not), the central concept remained that Extension B was concerned with physical loss, destruction or damage to property other than that owned by the insured: PJ [874]. Implicit in this reasoning was that each Item of Extension B was to be read together with the preamble to Extension B. This was later made explicit in her Honour’s reasons, in the context of Item 4 of Extension B, at [897]-[898]. Her Honour also expressed the view that it would be profoundly inconsistent and incongruous with the context of Extension B to understand it as applying to potential damage to property from a disease or potential harm to persons from a disease: PJ [875]; see also [876]-[883]. The primary judge relied, in particular, on the wording of the preamble to Extension B (at [878]) and reading Extension B in the context of Extension C (at [879]-[880]).

29    In my view, the primary judge’s construction of Item 4 of Extension B, as not providing cover for the effects of a disease, was correct. First, the language used by the parties in the preamble to Extension B strongly points to the Extension relating to physical loss, destruction or damage. The preamble refers to “Business Interruption”, which in turn refers to “Insured Damage”. The latter expression is defined in terms that refer to physical loss, destruction or damage. Insofar as Market Foods suggests that the scope of cover is identified in Item 4 alone (that is, without the preamble), I do not accept that submission. While there may be some grammatical awkwardness in reading the preamble together with Item 4, I do not consider this to provide a sufficient basis to disregard, or read out, the preamble. I consider the better view to be that the preamble and Item 4 are to be read together; each has some work to do in defining the scope of the extended cover. Indeed, the preamble expressly refers to “points 1. to 8. directly below”, providing an express textual link between the preamble and the Items that follow (referred to as “points” in the policy).

30    Secondly, and in any event, Item 4 of Extension B needs to be read in the context of the policy as a whole including, in particular, Extension C. If Item 4 of Extension B were construed as applying to diseases: (a) Extension B would apply to any disease and not only a Notifiable Disease; and (b) the requirement in Extension C that there be an outbreak or occurrence of a Notifiable Disease, or an occurrence of the discovery of an organism likely to cause Notifiable Disease, would not apply. In the context of Extension C, it would be productive of incoherence and incongruity if Extension B provided cover for the effects of a disease.

31    Insofar as Market Foods relies on the contra proferentem rule, I do not consider it necessary to have resort to this rule to resolve the constructional issue.

32    It follows that the primary judge was correct to conclude that Market Foods was not entitled to indemnity under Item 4 of Extension B.

Extension C

33    Another key issue in this appeal is whether the primary judge was correct to conclude that the causal requirement in Extension C was not satisfied. There was no issue that COVID-19 was a Notifiable Disease: PJ [938]. Further, there was no issue that the Queensland Government directions led to restriction or denial of the use of the Insured Locations as required: PJ [940]. As the primary judge stated at [942], the issue was whether the Queensland Government directions directly arose from an occurrence or outbreak at the premises of a Notifiable Disease or the discovery of an organism at the premises likely to cause Notifiable Disease. The primary judge concluded that there was no evidence suggesting that the Queensland Government directions were made because of an occurrence or outbreak of COVID-19 or the discovery of the SARS-CoV-2 virus at these premises: PJ [945]. The primary judge did not accept Market Foods’ contention that the word “premises” extended to land or area in the vicinity of the Insured Locations: PJ [946]. Rather, the relevant premises were the buildings (including curtilages: see PJ [946]) in which the Insured Locations were located, as identified by her Honour at [944], namely:

(a)    in the case of the Herston Insured Location, the Herston building;

(b)    in the case of the William Street Insured Location, the William Street building; and

(c)    in the case of the UQ Insured Location, building 63.

34    In the case of the UQ Insured Location, the primary judge did not accept that the relevant premises was the whole of the UQ campus: PJ [947]. Accordingly, the primary judge held that Extension C was not satisfied: PJ [950].

35    In my view, the primary judge was correct to conclude that the causal requirement in Extension C was not satisfied. As the primary judge stated, there was no evidence suggesting that the Queensland Government directions were made because of an occurrence or outbreak of COVID-19 or the discovery of the SARS-CoV-2 virus at the relevant premises. The insured therefore failed to satisfy the causal requirement (“directly arising”) in Extension C. Further, the primary judge was correct to reject the contention that the word “premises”, as used in Extension C, extended to land or area in the vicinity of the Insured Locations. As used in this context, the word “premises” referred to the buildings (including curtilages) in which the Insured Locations were located, as identified by the primary judge. This reflects the ordinary meaning of the word “premises” (as to which, see PJ [947]). There is no good reason to depart from the ordinary meaning.

36    It follows that the primary judge was correct to conclude that Market Foods was not entitled to indemnity under Extension C.

EWT appeal

37    The relevant policy wording is set out in the joint judgment. Again, while it is necessary to have regard to all of these provisions, and the policy document as a whole, it is nevertheless convenient for present purposes to set out the key relevant terms. The relevant section of the policy was headed “Business interruption section”. Within this, there was a part headed “Additional benefits”, which included:

Additional benefits

If you have chosen to insure gross income or weekly income under this section, we will also pay the following, provided the sum insured for that cover is not exhausted:

3. Prevention of access

The indemnity under this section is extended to include interruption or interference with your business in consequence of:

c.    closure or evacuation of all or part of the premises by order of a competent government, public or statutory authority as a result of a human infectious or contagious diseases [sic]. However there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Quarantine Act 1908 (as amended) irrespective of whether discovered at the location of your premises, or out-breaking elsewhere,

which shall prevent or hinder the use of your building or access thereto, or results in a cessation or diminution of trade due to temporary falling away of potential customers.

(Original emphasis.)

38    As in the Meridian appeal, an issue arises regarding s 61A of the Property Law Act 1958 (Vic). The exclusion at the end of cl 3(c) referred to the Quarantine Act 1908 (Cth). However, before the policy commenced, the Quarantine Act had been repealed and the Biosecurity Act had been enacted. Prima facie, on the basis of the decision of the NSW Court of Appeal in Wonkana, this meant that the exclusion did not operate. However, in circumstances where EWT was based in Victoria, the insurer in this matter sought to rely on s 61A of the Property Law Act 1958 (Vic) in the same way as the insurer in the Meridian matter. In summary, the insurer argued that the policy of insurance was governed by the law of Victoria and that s 61A operated, such that the reference in the exclusion to “quarantinable disease under the Quarantine Act 1908 (as amended)” was to be construed as a reference to “listed human diseases under the Biosecurity Act”. The primary judge rejected the insurer’s contention that s 61A operated. For the reasons set out in the joint judgment, the primary judge was correct to so hold. It follows that the exclusion at the end of cl 3(c) did not operate. It can therefore be put to one side.

39    A key issue in this appeal was whether the primary judge was correct to conclude that the words “by order” in cl 3(c) meant “required by” the order as distinct from “caused by” the order: PJ [1101]-[1102]. Before the primary judge, EWT contended that the words “by order” should be construed as “caused by” the order. The primary judge rejected this, having regard to the context in which the word “by” was used, including other parts of cl 3: PJ [1102].

40    In my view, the primary judge was correct to so hold. Read in the context of cl 3 as a whole, the words “by order” in cl 3(c) mean required by the order, in the sense that the order itself must require the closure or evacuation of all or part of the premises; thus, for example, if the insured makes a voluntary decision to close the premises in response to an order, but the order does not itself require the premises to be closed, this would not be sufficient.

41    It follows that, in my opinion, the primary judge was correct to hold that, insofar as EWT relied on the Overseas Travel Ban, EWT did not satisfy the requirements of cl 3(c). As the primary judge held, the Overseas Travel Ban did not require the closure of the premises: PJ [1108], [1115], [1123]. Mr Camfield, the sole director of EWT, decided to close the premises because of the deleterious effect of the Overseas Travel Ban on the business: PJ [1108]. However, for the reasons given above, this is not sufficient to satisfy cl 3(c). Insofar as EWT challenges this part of her Honour’s reasons, I can discern no error in her Honour’s approach.

42    It follows that the primary judge was correct to hold that cl 3(c) did not provide cover in respect of the Overseas Travel Ban.

43    Another key issue in this appeal is whether the primary judge was correct to conclude that, insofar as EWT relied on the Victorian Workplace Closure directions (which came into force on 6 August 2020), EWT did not satisfy the requirements of cl 3(c). The primary judge accepted that the Victorian Workplace Closure directions required the premises to be closed from 6 August to 9 November 2020: PJ [1109]. However, by the time these directions came into force, Mr Camfield had already closed the premises. That occurred in March 2020 as a result, primarily, of the Overseas Travel Ban: PJ [1109]. The Overseas Travel Ban remained in force when the Victorian Workplace Closure directions came into force: PJ [1116]. In these circumstances, the primary judge concluded that if (as contended by EWT) the words “by order” meant “caused by”, the Victorian Workplace Closure directions did not cause the closure of the premises: PJ [1116]-[1120]. The primary judge also concluded that if (as her Honour considered to be the case) the words “by order” meant “required by”, the premises were not closed by the Victorian Workplace Closure directions: PJ [1121]. In her Honour’s view, the requirement attached to circumstances where premises would otherwise, excluding the order, not be closed; that was not the present case: PJ [1121], [1124]. The primary judge also concluded that EWT’s claim failed to satisfy the tailpiece of cl 3: PJ [1125]-[1126].

44    In my view, the primary judge was correct to conclude that, insofar as EWT relied on the Victorian Workplace Closure directions, EWT did not satisfy the requirements of cl 3(c). In circumstances where EWT’s premises were already closed at the time when the Victorian Workplace Closure directions came into force, and the Overseas Travel Ban remained in force, it cannot be said that the closure of the premises was “by order”, the relevant order being the Victorian Workplace Closure directions. In my view, not only must the order require the closure or evacuation of all or part of the premises, the requirement attaches to circumstances where premises would otherwise, excluding the order, not be closed or evacuated. This is, in my opinion, a commercially sensible construction of the provision, having regard to its text, subject-matter and purpose. Further and in any event, insofar as EWT relies on the Victorian Workplace Closure directions, it fails to satisfy the tailpiece of cl 3, for the reasons given by the primary judge at [1125]-[1126].

45    It follows that the primary judge was correct to hold that cl 3(c) did not provide cover in respect of the Victorian Workplace Closure directions.

Conclusion

46    For these additional reasons, I agree with the orders proposed by Derrington and Colvin JJ.

I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky.

Associate:

Dated:    21 February 2022

REASONS FOR JUDGMENT

DERRINGTON AND COLVIN JJ:

INTRODUCTION

[47]

The potentially advisory nature of the certain issues raised in the appeals

[52]

Nomenclature used in these reasons

[53]

GENERAL ISSUES

[55]

Principles of construction

[55]

Context and reading a contract as a whole

[56]

The Policyholders specified in Schedule 1 to the Arbitration Agreement v China Taiping Insurance (UK) Co Ltd

[65]

The meaning of “context”

[70]

The perspective of the objective reader of the policy

[71]

The contra proferentem rule

[83]

The reasons below

[85]

Issue on appeal

[87]

The established scope of the rule

[89]

Principles of causation and proximate cause

[104]

The requirement of “proximate cause”

[109]

Limits on the application of proximate cause

[112]

The decision in FCA v Arch

[113]

No direct submissions as to the correctness of FCA v Arch

[113]

The unique circumstances in FCA v Arch

[116]

The nature of the test cases before the Supreme Court

[118]

The impact of competing causes of loss

[119]

The operation of the trends clauses

[130]

The causation issues in FCA v Arch adopted by the primary judge

[131]

The approach of the primary judge

[132]

Other regularly arising matters

[140]

Occurrence/outbreak and risk/threat

[140]

Occurrence and “outbreak”

[141]

The insurers’ submissions

[145]

Discussion

[149]

The primary judge’s conclusion as to the meaning of “outbreak” should be adopted

[154]

Role of an authority in relation to hybrid clauses

[156]

The insurers’ submissions to the contrary

[160]

The primary judge’s interpretation should be adopted

[161]

Section 61A of the Property Law Act 1958 (Vic)

[174]

The relevant facts

[189]

Does the reference to “Act” in s 61A includes an Act of the Commonwealth Parliament?

[196]

Was the Biosecurity Act a re-enactment with modification of the Quarantine Act?

[212]

Section 57 of the Insurance Contracts Act 1984 (Cth)

[228]

The reasons below

[231]

Submissions

[233]

Consideration

[235]

The ALRC Report

[237]

The significance of a bona fide dispute as to liability

[242]

Are the circumstances of the present appeals exceptional?

[251]

Conclusion in relation to section 57

[256]

LCA MARRICKVILLE PTY LIMITED V SWISS RE INTERNATIONAL SE – NSD 1079 OF 2021

[259]

The relevant facts

[260]

Policy wording

[269]

The decision at first instance

[282]

The operation of cll 9.1.2.1 and 9.1.2.4 – the hybrid clause

[284]

Section 54 of the Insurance Contracts Act

[286]

The effect of exclusion in cl 9.1.2.1 on cll 9.1.2.5 and 9.1.2.6

[287]

The operation of cll 9.1.2.1 and 9.1.2.4

[294]

Closure or evacuation by order

[299]

Conclusions as to cl 9.1.2.1

[302]

Clause 9.1.2.5 – the catastrophe clause

[304]

Clause 9.1.2.6 – the prevention of access clause

[306]

Causation and adjustment

[311]

Basis of settlement – amounts saved

[313]

Interest pursuant to s 57 of the Insurance Contracts Act

[314]

Answers to questions and relief

[315]

The appeals

[316]

LCAM’s appeal

[320]

The scope of cll 9.1.2.5 and 9.1.2.6 – Appeal, Ground 1

[320]

Clauses 9.1.2.5 and 9.1.2.6 are not concerned with disease

[335]

Conclusion on the impact of cll 9.1.2.1, 9.1.2.3 and 9.1.2.4 on cll 9.1.2.5 and 9.1.2.6

[337]

Clause 9.1.2.5 – the catastrophe clause – Appeal, Ground 2

[339]

The meaning of “catastrophe”

[344]

The meaning of the expression “or other catastrophe”

[348]

The meaning of “catastrophe” in the context of the policy

[353]

The construction of cl 9.1.2.5 in the context of the policy

[357]

Conclusion as to cl 9.1.2.5

[358]

Whether account needs to be taken of third party payments – Appeal, Ground 4; Cross-Appeal, Ground 6

[359]

Whether interest is payable under s 57 of the Insurance Contracts Act – Appeal, Ground 5

[360]

Swiss Re’s cross-appeal

[361]

The meaning of “outbreak” – Cross-Appeal, Ground 1

[361]

Did a catastrophe occur in Australia and when? – Cross-Appeal, Ground 2

[362]

Did cl 9.1.2.6 (the prevention of access clause) respond? – Cross-Appeal, Ground 3

[364]

Swiss Re’s main submission

[365]

The correct operation of cl 9.1.2.6

[369]

Was there a hindrance on the use of the situation – Cross-Appeal, Grounds 1 and 4

[376]

The operation of the trends clause – Cross-Appeal, Ground 5

[381]

The primary judge’s determination as to the operation of the trends clause

[384]

The issue as developed on appeal

[391]

Conclusion

[400]

PROPOSED ORDERS ON THE APPEAL

[402]

MERIDIAN TRAVEL (VIC) PTY LTD V INSURANCE AUSTRALIA LIMITED – NSD 1080 OF 2021

[403]

The relevant facts

[404]

Policy wording

[412]

The decision at first instance

[420]

Meridian’s appeal

[425]

Whether the Overseas Travel Ban and the Cruise Ship Ban were caused by the same underlying fortuity as the insured peril – appeal, Ground 1

[425]

The reasons at first instance in more detail

[427]

Meridian’s submissions as the underlying fortuity

[432]

Insurance Australia’s submissions

[435]

Conclusion as to the fortuity underlying the Commonwealth Government actions

[436]

Whether third party payments had to be taken into account – appeal, Ground 2; Cross-appeal, Ground 4

[442]

The relevant policy terms

[445]

JobKeeper payments

[451]

Federal COVID-19 Consumer Travel Support Program payments

[464]

Victorian Government’s Support Fund

[467]

Whether interest is payable under s 57 of the Insurance Contracts Act – appeal, Ground 3

[470]

Insurance Australia’s cross-appeal

[472]

The application of s 61A of the Property Law Act (Vic) – cross-appeal, Ground 1

[472]

The construction of the word “outbreak” in the disease clause – cross-appeal, Ground 2

[473]

The construction of the phrase “at the Situation” in the hybrid clause – cross-appeal, Ground 3

[474]

The construction of the phrase “closure or evacuation of Your Business” in the hybrid clause – Insurance Australia’s notice of contention, Ground 3

[484]

Conclusion

[485]

PROPOSED ORDERS ON THE APPEAL

[487]

THE TAPHOUSE TOWNSVILLE PTY LTD V INSURANCE AUSTRALIA LIMITED – NSD 1081 OF 2021

[488]

The relevant facts

[489]

Policy wording

[494]

The decision at first instance

[502]

Is cl 7 (the prevention of access clause) capable of applying to interruptions from diseases – Appeal, Ground 1

[509]

Damage, being “accidental physical damage, destruction or loss” to persons

[514]

The incongruence and incoherence of Taphouse’s proposed construction

[519]

Was any threat of damage to persons within a 50 kilometre radius a sufficient cause of the relevant directions – notice of contention, Ground 1

[525]

Insurance Australia’s submissions

[529]

Conclusion as to Ground 1 of the notice of contention

[553]

The meaning of “outbreak” in cl 8 – notice of contention, Ground 2(a)

[554]

Were the relevant directions made “as a result” of a relevant outbreak – Appeal, Ground 2; notice of contention, Ground 2(b)

[560]

Is it necessary to demonstrate, as a fact, that there was an “outbreak” within the specified radius – notice of contention, Ground 2(b)

[561]

Were the restrictions made “as a result” of an “outbreak” within 20 kilometres of the premises – Appeal, Ground 2

[564]

Was there an “outbreak” prior to 23 March 2020 – Appeal, Ground 2(a)

[565]

Did the outbreaks result in the making of the directions – Appeal, Ground 2(b)

[573]

Did the direction of 23 March 2020 close or evacuate all or part of the premises – notice of contention, Ground 2(c)

[583]

Conclusion as to Ground 2(c) of the notice of contention

[595]

No obligation to indemnify – Appeal, Ground 3

[595]

Payments received by Taphouse under the JobKeeper scheme – Appeal, Ground 4; notice of contention, Ground 3

[595]

Interest under s 57 of the Insurance Contracts Act – Appeal, Ground 5

[596]

Conclusion

[597]

PROPOSED ORDERS ON THE APPEAL

[599]

MARKET FOODS V CHUBB – NSD 1082 OF 2021

[600]

The relevant facts

[601]

Policy wording

[611]

The decision at first instance

[616]

The general scope of Item 4 of Extension B

[631]

The issues on appeal

[639]

Item 4 of Extension B and the contra proferentem rule – Appeal, Grounds 1 and 4

[641]

Did Extension B apply to disease?

[645]

No error was demonstrated in the primary judge’s reasons as to the meaning of “damage”

[646]

Chubb’s response

[651]

The effect of Extension C

[654]

No ambiguity

[655]

The alternative construction is not workable

[656]

No room for the operation of the contra proferentem rule

[657]

Sections 13 and 14 of the Insurance Contracts Act

[658]

Conclusion on the main issue

[659]

Was damage sustained by reason of the existence of SARS CoV-2 on the property?

[661]

Market Foods’ submissions

[668]

The obligations of good faith ss 13 and 14 of the Insurance Contracts Act

[678]

Extension C – Appeal, Grounds 5 – 7

[685]

The primary judge’s reasons as to Extension C

[688]

Was there an “occurrence” or “outbreak” of COVID-19 “at the premises”?

[693]

The meaning of “occurrence” or “outbreak”

[694]

Whether it was sufficient that the premises were in the area of an outbreak or occurrence

[695]

The meaning of “premises”

[702]

Conclusion as to the meaning of “at the premises”

[708]

Did the Queensland Government directions “directly arise” from the occurrence or outbreak of COVD-19 on the UQ campus?

[711]

The issues raised on appeal from the above conclusions

[716]

JobKeeper and other benefits received – Appeal, Grounds 8 – 10

[727]

Conclusion

[729]

PROPOSED ORDERS ON THE APPEAL

[730]

COYNE V QBE INSURANCE (AUSTRALIA) - NSD 1076 OF 2021

[731]

The relevant facts

[732]

Policy wording

[743]

The decision at first instance

[745]

Closure of premises “by order” – Appeal, Ground 1

[748]

Does “by order” mean “required by”?

[751]

Conclusion as to the construction of cl 3(c)

[759]

Was the closure “by” the Overseas Travel Ban? – Appeal, Ground 2

[760]

Was the closure from 6 August 2020 “by order” of the Victorian Workplace Closure directions? – Appeal, Ground 3

[763]

Did the Victorian Workplace Closure directions prevent or hinder the use of the premises? – Appeal, Ground 4

[772]

Causation of loss under cl 3 – Appeal, Ground 5

[778]

Can the business interruption be “in consequence of” any one or more of the elements of the insured peril? – Appeal, Ground 7

[785]

Did the Overseas Travel Ban cause an interruption or interference with EWT’s business? – Appeal, Ground 6

[808]

Interest under s 57 of the Insurance Contracts Act – Appeal, Ground 8

[809]

Answers to the questions posed – Appeal, Ground 9

[810]

QBE’s cross-appeal and notice of contention; EWT’s notice of contention

[811]

PROPOSED ORDERS ON THE APPEAL

[812]

INTRODUCTION

47    Whilst the worldwide COVID-19 pandemic brought death to millions across the globe and inflicted illness to varying degrees on hundreds of millions more, the actions of the Commonwealth and State governments in Australia in 2020 and 2021 spared the country a significant number of deaths during that period. Nevertheless, the mitigation of the risks associated with COVID-19 through the imposition of restrictions and other public health measures had adverse financial consequences for businesses across the country. Many such businesses held insurance in the form of Industrial Special Risk combined policies and the like which provided cover for different kinds of loss, including business interruption loss sustained in specifically defined circumstances. The matters before this Court concern whether the events which occasioned loss to several policy holders arising from the presence or threat of COVID-19 in Australia were events in respect of which those policies, as properly construed, provide cover.

48    Ten test cases, each seeking an authoritative construction of a particular policy, were commenced in this Court in February and April of 2021. They were case managed by the Chief Justice and a trial of all matters occurred before Jagot J between 6 and 15 September 2021. Her Honour delivered her reasons in the matter, being some 373 pages and 1,152 paragraphs in length, on 8 October 2021: Swiss Re International Se v LCA Marrickville Pty Ltd (Second COVID-19 insurance test cases) [2021] FCA 1206 (PJ). In large part, the careful and thoughtful explication of numerous difficult issues in that judgment has rendered the preparation of the present reasons much less onerous than it might otherwise have been. Indeed, her Honour’s astute analysis and precise resolution of the numerous questions in issue had the consequence that appeals were lodged in only five of the test cases. Those appeals were brought on for an expedited hearing and were heard together with an appeal from the decision of Allsop CJ in Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2021] FCA 907 (Star first instance). The reasons in that additional appeal have been delivered separately on the same day as these reasons. These reasons deal only with the test cases on appeal from Jagot J, being:

(a)    David Coyne (in his capacity as liquidator of Educational World Travel Pty Ltd) & Anor v QBE Insurance (Australia) Limited (NSD1076/2021);

(b)    LCA Marrickville Pty Limited v Swiss Re International SE (NSD1079/2021);

(c)    Meridian Travel (Vic) Pty Ltd v Insurance Australia Limited (NSD1080/2021);

(d)    The Taphouse Townsville Pty Ltd v Insurance Australia Limited (NSD1081/2021); and

(e)    Market Foods Pty Limited v Chubb Insurance Australia Limited (NSD1082/2021).

49    The structure of these reasons generally follows that adopted by the learned primary judge. Initially, there is some discussion of issues which arose across all or most of the test cases. As a result of the crystallisation of the matters actually in dispute, there has been greater scope for the resolution of these broader issues which reduces the need for their specific treatment in the subsequent discussion of the individual appeals.

50    The primary judge answered a series of questions posed by the parties and incorporated them by reference into the orders made in relation to each matter. Accordingly, to the extent that the answers are challenged in the appeals, and it is determined that the answer should be changed, such changes are reflected in the Court’s orders.

51    The background circumstances of the COVID-19 pandemic were concisely stated in the reasons of the primary judge (PJ [9] – [20]). They were not controversial and it is not necessary to repeat them here. The relevant circumstances of the individual appellant insureds are otherwise identified in the discussion of the issues in their respective appeals.

The potentially advisory nature of the certain issues raised in the appeals

52    In each of the five appeals, there existed an appeal and a cross-appeal and/or a notice of contention, the result of which was that a multitude of issues were raised for consideration by the Full Court. Early in the hearing, the Court raised with the parties whether it was important to resolve them all, in particular, because it would not be strictly necessary to respond to many unless the party advancing them had succeeded on a number of anterior issues. It was only if there was such success that an answer by this Court could have any substantive effect on the parties’ rights. Moreover, although these matters have been advanced as test cases for the purposes of exemplifying certain issues which may arise between many insureds and insurers, real caution must be exercised to avoid the giving of an advisory opinion or answering a question that is hypothetical: Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 (Bass) at 357 [49]. In this case, where the issues arose from “a concrete and established or agreed situation”: Bass at 355 [45]; it was appropriate for the learned primary judge to answer all of the questions raised for determination, even where this necessitated assuming that her reasoning in relation to one or more logically anterior issues was incorrect. The same applies on appeal. As the High Court has emphasised, even if an intermediate appellate court has disposed of a decisive ground of appeal, consideration should still be given to addressing any further grounds: Kuru v State of New South Wales (2008) 236 CLR 1 at 6 [12] and the cases there cited. In the context of these matters having been advanced as test cases, it was generally appropriate that this Court address the issues raised by the grounds of appeal even where they proceeded on a basis which had already been determined to be incorrect. However, there were some grounds by which an insurer challenged the primary judge’s answer to a separate question or even mere obiter dicta comments in relation to an issue, where logically anterior issues had been resolved in the insurer’s favour and were not the subject of an appeal by the insured. For example, one insurer cross-appealed in relation to the construction given to the word “outbreak” in a hybrid clause, even though the insured had not appealed from the conclusion that the clause did not respond to its claim. The appropriateness of considering that issue did not have to be determined because the same issue legitimately arose in other appeals and it was appropriate to resolve it in them. In some other instances, where an issue only arises on the assumption that an answer to an anterior issue was incorrect, it has been considered unnecessary and inappropriate to address it. In such cases, the primary judge’s answer to the question in issue has been amended to, “Unnecessary to answer”.

Nomenclature used in these reasons

53    In these reasons, each appeal is referred to by an abbreviation of the name of the insured: EWT, LCAM, Meridian, Taphouse, and Market Foods. The same abbreviation is used to refer to the particular policy held by each insured – for example, the “Meridian policy”. Likewise, each insurer is referred to by a convenient abbreviation: QBE, Swiss Re, Insurance Australia, and Chubb.

54    These reasons also adopt much of the nomenclature used by the primary judge. In particular, the following terminologies and definitions adopted by her Honour (PJ [99]) as to the types of clauses which arose for consideration:

(1)    infectious disease clauses [or disease clauses]: these provide cover for loss that arises from either infectious disease or the outbreak of an infectious disease at the insured premises or within a specified radius of the insured premises;

(2)    prevention of access clauses: these provide cover for loss from orders/actions of a competent authority preventing or restricting access to insured premises because of damage or a threat of damage to property or persons (often within a specified radius of the insured premises); and

(3)    hybrid clauses: these provide cover for loss from orders/actions of a competent authority in closing or restricting access to premises, but only where those orders/actions are made or taken as a result of infectious disease or the outbreak of infectious disease within a specified radius of the insured premises;

(4)    a catastrophe clause: this provides cover for loss resulting from the action of a civil authority during a catastrophe for the purpose of retarding the catastrophe.

GENERAL ISSUES

Principles of construction

55    In general, there were limited real differences in the parties’ express submissions as to the general principles applicable to the construction of policies of insurance and there is no need to further traverse that well-trodden ground. They have, in any event, been restated in the reasons for decision in Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2022] FCAFC 16. However, the parties did diverge on three particular matters, though their differences may have related to the application of principles rather than their content. Those matters concern the obligation of courts to read contracts “as a whole”, the objective person from whose perspective a document ought to be interpreted, and, in the Market Foods appeal, the application of the contra proferentem rule. Each of those issues is addressed, seriatim, below.

Context and reading a contract as a whole

56    The issue as to the application of the principle that documents ought to be read in their context and “as a whole” arose in relation to several appeals as a consequence of a number of the policies containing several extensions of business interruption cover. In particular, they contained clauses specifically directed to interruption losses consequent upon the outbreak or occurrence of an infectious disease, as well as more general clauses providing cover in relation to the consequences of governmental authorities responding to major calamities or preventing or restricting access to an insured’s premises. Where that was so, the obligation to read the policy as a whole is relevant to ascertaining the respective clauses’ scope of cover. Disease or hybrid clauses often contain inherent limitations as to the types of disease or circumstances to which they respond, as well as exclusions in relation to specific diseases or specific types of disease. In such scenarios, an insured, whose claim for indemnity for loss following a disease is prevented by the limited scope of cover or such exclusions, may seek indemnity under a more broadly expressed prevention of access clause. This was a common feature in the current appeals and raised the question of whether the existence of a clause specifically dealing with cover in relation to the effects of disease reduces the scope of more broadly expressed clauses.

57    It is often identified as “trite law” that the duty of a court when construing a document is to discover its meaning by considering it “as a whole”: Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109 per Gibbs J. The rationale is, as Gibbs J observed, that “the meaning of any one part of it may be revealed by other parts” and, as a corollary, “the words of every clause must if possible be construed so as to render them all harmonious one with another”. In Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 (Wilkie v Gordian Runoff), a majority of the High Court observed that in construing a policy of insurance, as with other instruments, “preference is given to a construction supplying a congruent operation to the various components of the whole”: at 529 [16] citing Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381 – 382 [69] – [71]. Necessarily, the identification of that construction can only be achieved by ascertaining how a contract or policy might operate as affected by each of the competing interpretations. This “iterative process”, involving “checking each of the rival meanings against the other provisions of the document and investigating its commercial consequences”, “enables a court to assess whether either party’s preferred legal meaning gives rise to a result that is more or less internally consistent and avoids commercial absurdity: HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 [134] quoting Re Sigma Finance Corp [2009] UKSC 2 [12].

58    In the interpretive process, the concept of reading a document as a whole involves more than merely acquiring an awareness of the surrounding and related provisions. It requires a substantive intellectual process of evaluating the degree of operative coherence and consistency between a proffered construction and the instrument’s other terms. Depending upon the terms of the particular policy it may be that, if giving a broadly worded clause its fullest scope would negate the operative efficacy of a specific clause directed to the issue at the centre of a claim for indemnity, some alternative and narrower meaning may have to be given to the broadly worded one. Whether this involves the application of the maxims generalia specialibus non derogant, generalibus specialia derogant, or the principle that the context requires one clause to be qualified by another does not matter. It is merely part of construing one clause of a document by reference to the others and, as was said by Higgins J in Hume Steel Ltd v Attorney-General (Vic) (1927) 39 CLR 455 at 466, it is a process which is “based on sound common sense and appeals to everyone, layman and lawyer”: cf BMW Australia Ltd v Brewster (2019) 269 CLR 574 at 651 – 652 [206].

59    A preparedness to read a more specific clause as reducing the scope of a more general one may be more acute where the former contains detailed and specific provisions dealing with a particular subject matter. The existence of such a clause tends to indicate to the objective reader that the parties had turned their mind to the precise topic and intended to specifically record their respective rights and obligations in relation to it. This is especially applicable to the construction of clauses in a policy of insurance which provide different types of cover. Where cover is provided in respect of a particular subject matter and the insuring clause stipulates the circumstances in which the cover is or is not available, barring a clear intention to the contrary, it might reasonably be thought that the clause articulated the extent of the insurer’s indemnity in relation to that subject matter. Whether that is so is, of course, a matter for the particular policy and no general rule can apply in all cases. Nevertheless, if a more broadly worded clause is construed as providing cover in circumstances where the claim would otherwise be excluded by a clause dealing with the claim’s specific subject matter, the issue of incoherence or incongruence in the policy’s operation is likely to arise.

60    The importance of reading an agreement as a whole and its provisions in context was recognised by the learned primary judge in this matter who referred to the observations of Lockhart and Hill JJ in Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402, 411 (Chapmans v Australian Stock Exchange) to the effect that:

It is an elementary proposition that a contract will be read as a whole giving weight to all clauses of it, where possible, in an endeavour to give effect to the intention of the parties as reflected in the language which they have used. A court will strain against interpreting a contract so that a particular clause in it is nugatory or ineffective, particularly if a meaning can be given to it consonant with other provisions in a contract. Likewise where there are general provisions in a contract and specific provisions, both will be given effect, the specific provisions being applicable to the circumstances which fall within them.

61    Her Honour also adopted the reasoning of Leeming JA in Greencapital Aust Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd [2019] NSWCA 53 [52] where reliance was placed upon the statement of Sackville AJA in Park v Murray Irrigation Ltd [2018] NSWCA 166 [79] that “a conflict between apparently inconsistent provisions is to be resolved on the basis that one provision qualifies the other and, hence, both have meaning and effect”. She also had regard to similar observations of the Victorian Court of Appeal in The Trust Company (Nominees) Ltd v Banksia Securities Ltd (recs and mgrs apptd) (in liq) [2016] VSCA 324 (Banksia Securities) where the Court held (at [46]):

The principle traditionally called generalibus specialia derogant, or its obverse generalia specialibus non derogant, by either of which specific provisions will be given effect in preference to general provisions, or specific provisions are given greater weight than general provisions applying to the same subject matter, has been described as reflecting ‘sound common sense’. On the other hand, when it is open to debate which provision is the more general and which the more specific, the utility of the principle is correspondingly limited. Hoffman LJ made the converse point in William Sindall plc v Cambridgeshire County Council, that the ‘rule is particularly apposite if the effect of general words would otherwise be to nullify what the parties appear to have contemplated as an important element in the transaction’.

(Footnotes omitted).

62    In none of the appeals to this Court is there room to debate which of the policies’ provisions are more general and which are more specific. As appears later in the discussion of the specific matters, the difference is clearly discernible.

63    As her Honour also noted, the Court of Appeal in Banksia Securities identified (at [53]), an alternative approach when dealing with a contract containing both a general and specific provision which have overlapping operation. It was to determine whether either of the competing provisions, taken alone, gives effect to an object important to the transaction which the agreement embodies. In none of the appeals was it submitted on behalf of an insured that this principle was not applicable.

64    As more fully expressed in these reasons when considering the specific contentions, in each appeal the primary judge’s approach to the construction of the polices in the several appeals, by reading them as a whole and thereby according their several insuring clauses a coherent and congruent operation, was entirely correct and in accordance with both principle and established authority. Her Honour was right to reject the insureds’ submissions that it was permissible to construe a clause providing cover divorced from the operative effect of other insuring clauses even where such a construction rendered the operation of one or some of those other clauses either wholly or partially ineffective. That approach does not accord with the principles referred to and, in particular, it fails to accord prominence to provisions which are expressed in terms that are evidently intended to regulate the rights of the parties in respect of the particular circumstances.

The Policyholders specified in Schedule 1 to the Arbitration Agreement v China Taiping Insurance (UK) Co Ltd

65    An illustration of the application of the above principles appears in the observations of Lord Mance in his arbitral award in the matter of The Policyholders specified in Schedule 1 to the Arbitration Agreement v China Taiping Insurance (UK) Co Ltd (China Taiping Insurance). That matter concerned, inter alia, claims on policies of insurance featuring identical policy wording for business interruption losses consequent upon interference with the insureds’ businesses arising from restrictions imposed by the UK Government at various times in 2020 in response to the COVID-19 pandemic. The insureds had made claims under a prevention of access clause which did not specifically relate to the occurrence of a disease. The policies included a hybrid clause which covered losses from interruption or interference as a consequence of restrictions on the use of premises by an order of a competent local authority as a result of the occurrence at the insured premises of one of the notifiable human infectious or contagious diseases listed in the policy. As at the time of the occasioning of loss, COVID-19 was not included in that list. The policyholders nevertheless claimed indemnity under the broader prevention of access clause and the insurer declined cover on the basis that the existence and terms of the hybrid clause necessarily narrowed the scope and operation of the former such that it did not respond to the claim.

66    In his award, Lord Mance referred to several of the observations of Lord Hodge JSC in Wood v Capita Insurance Services Ltd [2017] AC 1173, including (at 1179 [11]) that in “striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause”, and that the poorer the quality of the drafting the greater latitude a court had to depart from the natural meaning of the words used. His Lordship also referred to the following observations of Lord Neuberger in Arnold v Britton [2015] AC 1619 at 1628 – 1629 [20]:

Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight.

67    The insurer had submitted that the hybrid clause specifically addressed the occurrence of the listed notifiable diseases and, in the light of its careful wording, the parties could not have intended that the insured obtained different and potentially wider cover in respect of them under another extension. It further relied on the fact that the hybrid clause covered only notifiable diseases occurring “at” the premises and, then, only those which appeared on a closed list of notifiable diseases which did not include COVID-19. So the submission went, it would considerably widen the scope of cover if the policyholder was entitled to rely on the prevention of access clause to obtain indemnity for loss following the occurrence of diseases not covered by the hybrid clause.

68    Importantly for the purposes of the present discussion, Lord Mance found (at [24]) that the clauses in the policy wording before him could not be differentiated on the basis that one was clearly more specifically worded than the other. Certainly, that is a point of differentiation from the clauses in any of the matters in this appeal. His Lordship went on to conclude that the potential for overlap did not have the consequence that any particular provision in an extension must apply to the exclusion of the other. Both must be allowed to operate according to their respective terms. On this basis, losses arising from the consequences of disease, which would not otherwise be covered due to the inherent limitations in the hybrid clause, might fall to be indemnified under the prevention of access clause.

69    It should be kept steadily in mind that his Lordship’s award does not constitute an “authority”, albeit that is how it was occasionally described during the hearing. Nevertheless, as it contains the observations of an eminent jurist on a topic related to the issues before the Court, it is necessarily of persuasive value. However, the policies in that arbitration were quite unlike any which are the subject of the present appeals. There, the prevention of access clause (referred to as a “Denial of Access” clause in the policy) and the hybrid clause were structured and carefully drafted, and each contained their own expressly articulated limitations. In the matters before this Court, no policy had any similar structure. The award of Lord Mance, whilst of assistance, can be confined to the particular circumstances of the policy wording under consideration and the, perhaps, unusual aspect of the two clauses addressing specific but overlapping matters. Neither it nor its contents detracts from the general principles referred to above and, indeed, it would be most surprising were it to have purported to do so.

The meaning of “context”

70    In the course of the appeal, a number of submissions were made to the effect that “context” would rarely displace the ordinary meaning of the words of a contract. In particular, the written submissions of LCAM referenced the decision of Leeming JA in Cherry v Steele-Park (2017) 96 NSWLR 548 at 565 [72], where his Honour made an observation to that effect, relying upon his reasons in the earlier decision of Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 at 654 [74]. However, in those cases, his Honour was referring to the surrounding circumstances in which an agreement was entered into as the “context”, rather than the internal context of the terms of the agreement. Here, the circumstances surrounding the entry into the policies of insurance were not identified in detail and, apart from the policies including business interruption cover and that some were brokered, that context generally provides little assistance.

The perspective of the objective reader of the policy

71    The dispute in relation to the objective reader concerned the identity or characteristics of the notional person from whose perspective a policy of insurance is to be construed. For a number of the insureds it was submitted that it ought to be “a reasonable person in the position of the prospective insured” or a “reasonable policyholder”. For the several insurers, it was submitted that the policies ought to be interpreted objectively by ascertaining what a reasonable person, with all of the knowledge which was known or, perhaps, was available to the parties: Byrnes v Kendall (2011) 243 CLR 253 at 283 [94]; when they entered the contract would have understood the terms of the contract to mean.

72    In support of the proposition that the Court should interpret a policy of insurance by reference to the understanding of the personified “reasonable insured” or a “reasonable policyholder”, Mr Finch SC, who appeared for a number of the insureds, relied upon the High Court’s decision in Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 (Federico). That case concerned the interpretation of a policy of personal accident insurance, the question being whether the insured had suffered total disability as a result of “bodily injury … caused by an accident”. The majority observed of the policy (at 525) that it was a standard document used by the insurer in the course of its insurance business and was offered in different States across the Commonwealth to ordinary working people such as Mr Federico, who were unlikely to have the advantage of the advice of a commercial lawyer when they purchase insurance against the contingency of sustaining a disabling injury or illness. Moreover, it contained nothing which suggested that its terms were to be construed in any special technical sense, or conveyed anything other than that which they convey as a matter of ordinary language. Thus, their Honours observed (at 525):

That being so, the starting point of a consideration of whether Mr. Federico’s central disc prolapse and its consequences were an “injury” for the purposes of the policy must be a consideration of what the words of the policy convey, as a matter of contemporary language read in the context of the whole policy, to a reasonable non-expert in this country. If that meaning is plain, it can be of but limited significance if, at other times and in other places, other courts, however eminent, have held that similar words in other policies were to be construed as having had some different meaning.

73    In the course of his submissions in the LCAM appeal, Mr Finch SC provided an example of the approach which his postulated reasonable insured would adopt in construing a policy of insurance. It was to the effect that the insured would, on suffering loss and damage, consider the policy and, on identifying a generally worded clause, satisfy themselves that their circumstances fell within it. Then, on reading another clause which dealt with the specific circumstances in which loss was covered and identifying that an exclusion prevented any claim under it, the insured would not read that clause or any limitation in it as applying to the more generally worded clause which, on its face, responds to the claim. In effect, the alleged reasonable insured would construe each term of the policy unaffected by others around it.

74    Similar submissions were made on behalf of other insureds. They were necessitated by the existence in most policies of specific provisions dealing with interruption to the insured’s business activities consequent upon the outbreak or occurrence of disease, but the insured’s claim either being excluded or not otherwise falling within the indemnity. So the submissions went, the fact that a policy contained a specific provision dealing with the subject-matter of the claim but excluded it was irrelevant to the reasonable policyholder whose concern was with a more general provision which apparently responded to their claim.

75    After referring to the above passages from Federico, Mr Finch SC submitted that it founded a “key” or “central” part of the way in which the policies should be construed. He said:

And we would extend the same reasoning to not only looking at what judges in other courts may have said about other policies in other places, but also to not reading the policy through the eyes of an expert commercial lawyer. That is, you would not, having read if something is plain in clause A, go through the policy to see if clauses B, C, D or E are in any way different to, inconsistent with or overlapped with the clause that catchments [sic: catches] your eye as applicable. So that the glasses that your Honours wear as expert lawyers are not the glasses that you wear when you read this policy from the point of view of the Taphouse [which was the insured].

76    This suggests an approach which attributes to the notional third party considering the terms of the policy a disinclination to accept that incongruence or incoherence flows from a construction which has the consequence of rendering redundant a clause providing specific cover in relation to an insured’s claim. Rather, the third party postulated by Mr Finch SC construes the terms of the policy as operating independently of each other or, at least, regards a construction that renders a more specific provision ineffective to be an instance of mere overlap. That does not accord with the obligation to read the contract “as a whole” and, particularly to engage in an iterative assessment of a proposed construction by reference to its impact on the operation of other provisions.

77    None of this is to suggest that the position of the parties is irrelevant. On the contrary, an objective construction requires that account be taken of the surrounding context which includes the essential characteristics and nature of the parties. The policies in issue in these proceedings were between insurers and business operators and ought to be construed from the point of view of a reasonable businessperson appreciating that and the purpose and object of the agreements.

78    It is also to be kept in mind that policies of insurance for business interruption are commercial documents and, in this case, were either Industrial Special Risk policies or composite policies especially tailored to businesses, all with business interruption extensions. Such policies are commonly acquired by the operators of small to medium businesses for the purposes of their business activities and, as such, should be given an appropriate business interpretation: Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640 (Electricity Generation) at 656 657 [35]. In Wilkie v Gordian Runoff, the majority of the High Court said as to the correct approach to policies of insurance (at 528 – 529 [15]):

In McCann v Switzerland Insurance Australia Ltd [(2000) 203 CLR 579 at 589 [22]; cf at 600-601 [74]], after observing that, as a commercial contract, a policy of insurance should be given a businesslike interpretation, Gleeson CJ added:

“Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.”

See also CGU Insurance Ltd v Porthouse (2008) 235 CLR 103 at 116 [43].

79    It must be accepted that some support for the approach urged by Mr Finch SC and others on behalf of the insureds might be derived from HDI Global Speciality SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634 (Wonkana), where Meagher JA and Ball J stated (at 639 [21]):

Where the written contract evidences the terms on which a financial product or service is offered for acquisition, the meaning of its language is to be construed from the perspective of a reasonable person in the position of the offeree, in this case the prospective insured. This analysis was adopted in Australian Casualty Co Ltd v Federico (1986) 160 CLR 513; [1986] HCA 32. The plurality (Wilson, Deane and Dawson JJ) observed at 525 in relation to a sickness and accident policy that it was “a standard document used by Australian Casualty in the course of its insurance business. It is apparently offered in different States of the Commonwealth to ordinary working people … who are unlikely to have the advantage of the advice of a commercial lawyer when they purchase [it]”. Their Honours described the starting point for the exercise of construction as being (at 525):

“what the words of the policy convey, as a matter of contemporary language read in the context of the whole policy, to a reasonable non-expert in this country.”

80    However, with respect to their Honours, the passage in Federico says nothing in support of the proposition that a policy is to be interpreted from the perspective of a reasonable policyholder. Rather, their Honours in the High Court merely rejected the reverse proposition that the reasonable person from whose perspective the policy is to be interpreted is to be imbued with the characteristics of a legal expert. This in turn led their Honours to reject the insurer’s argument that Mr Federico’s central disc prolapse and its sequelae were not an “injury” for the purposes of the policy because it was not “caused by an accident”. This argument, it was noted, “involved reliance upon what was described as ‘the fundamental distinction drawn by the law between cause and effect’”: at 529. This issue was ultimately answered (at 531) with the following comments of Lord Robertson in Fenton v Thorley & Co Ltd [1903] AC 443 at 452:

Much poring over the word “accident” by learned counsel has evolved some subtle reasoning about these sections. I confess that the arguments seem to me to be entirely over the heads of Parliament, of employers, and of workmen. No one out of a Law Court would ever hesitate to say that this man met with an accident, and, when all is said, I think this use of the word is perfectly right. The word “accident” is not made inappropriate by the fact that the man hurt himself. … Yet the argument … is … that there is nothing accidental in the matter, as the man did what he intended to do. The fallacy of the argument lies in leaving out of account the miscalculation of forces, or inadvertence to them, which is the element of mischance, mishap, or misadventure.

81    There was nothing in the above approach which diverges from the orthodox approach of interpreting the policy from the perspective of a reasonable person in the position of the parties. It merely supports the uncontroversial proposition that those parties are not to be attributed with the special knowledge of a legal expert which is unknown or unavailable to both parties.

82    To the foregoing it can be added that even if a policy’s interpretation is to be approached from the perspective of the reasonable insured, it cannot be assumed that they would do so in a manner inconsistent with the requirement to construe the policy “as a whole”. Indeed, Meagher JA and Ball J in Wonkana confirm that the reasonable insured would not do so: at 642 [33].

The contra proferentem rule

83    A further recurring issue in the several appeals concerned the application of the contra proferentem rule insofar as it applied to the construction of insurance policies. That well known rule derives from the maxim, verba chartarum fortius accipiuntur contra proferentem, translated as “the words of the deed should be construed strongly against the grantor”: Insurance Commission of Western Australia v Container Handles Pty Ltd (2003) 218 CLR 89 (Container Handles) at 122 [97]. Although not reflected in that translation, where the rule applies, a relevant ambiguity in a contract is resolved by construing the relevant words against the interests of the proferens and adopting the construction which favours the other party.

84    Unlike many other interpretive maxims, the rule cannot be said to be an extension or application of the uncontroversial principle that documents should be construed as a whole: cf. Herzfeld P and Prince T, Interpretation (2nd ed, Thomson Reuters, 2020) (Interpretation) [24.10]. Rather, in the insurance context, it has been observed that it applies in recognition of certain characteristics of insurance contracts, including the use of standard form documentation over which insurers generally have control: Johnson v American Home Assurance Co (1998) 192 CLR 266 at 274 – 275 [19] per Kirby J (in dissent). The view has emerged that, as the insurer is in a position to clarify the scope of the promise it offered, it ought to bear the consequences of failing to do so: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 (McCann) at 602 [74], 604 – 605 [78] per Kirby J. See also Halford v Price (1960) 105 CLR 23 at 30 per Dixon CJ; Container Handles at 122 [97]. In a different context, Kirby J identified a similar rationale for the application of the rule in relation to contractual exclusions of liability: Siemens Ltd v Schenker International (Aust) Pty Ltd (2004) 216 CLR 418 at 471 [167].

The reasons below

85    In the course of summarising the relevant principles of construction (PJ [21] – [40]), the learned primary judge quoted with approval from the following passages from the reasons of Meagher JA and Ball J in Wonkana (at 641 – 642 [30] – [31]):

30    There remains the contra proferentem rule which provides that any ambiguity in a policy of insurance should be resolved by adopting the construction favourable to the insured: Halford v Price (1960) 105 CLR 23 at 30; [1960] HCA 38; Darlington Futures at 510; Johnson v American Home Assurance (1998) 192 CLR 266 at 275 (Kirby J, dissenting); [1998] HCA 14; McCann at [74]. The justification for the rule is that the party drafting the words is in the best position to look after its own interests, and has had the opportunity to do so by clear words. It ought only be applied for the purpose of removing a doubt, and not for the purpose of creating a doubt, or magnifying an ambiguity: Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453 at 456 (Lindley LJ).

31    With acceptance of the principle that ambiguity can be resolved by reference to the surrounding circumstances, the contra proferentem rule is now generally regarded as a doctrine of last resort. However, it continues to have a role to play in insurance and other standard form contracts. That is so for two reasons. First, by their nature, standard form contracts are not negotiated between the parties, and the surrounding circumstances relevant to the entry into one contract or another are less likely to shed much light on the meaning of the written words. Secondly, the contra proferentem rule complements the principle that standard form contracts should be interpreted from the point of view of the offeree. The offeror has the opportunity to, and should, make its intentions plain. The point was made by Dixon CJ (at 30) in Halford v Price, citing with approval the following statement in Halsbury’s Laws of England (Butterworth & Co, 3rd ed, 1958) vol 22, p 214:

“The printed parts of a non-marine insurance policy, and usually the written parts also, are framed by the insurers, and it is their language which is going to become binding on both parties. It is therefore their business to see that precision and clarity is attained and, if they fail in this, any ambiguity is resolved by adopting the construction favourable to the assured …”

86    Her Honour subsequently concluded that the insurers were the proferens of the policies in question, being the promisors for the purposes of the relevant provisions (PJ [35] quoting Commonwealth v Aurora Energy Pty Ltd (2006) 235 ALR 644 at 652 – 653 [41] per North and Emmett JJ. But see North v Marina [2003] NSWSC 64 [56] – [74]). Thus, if the rule applied, an ambiguity in a policy was to be resolved by adopting the construction which favoured the insured. It was irrelevant to the application of the rule that several of the insureds had been represented by brokers in the process of obtaining the insurance (see PJ [35] – [36], [204], [558], [877], [1078]).

Issue on appeal

87    The debate on appeal was directed to the circumstances in which the rule may apply and, in particular, the validity of the proposition stated in Wonkana at 641 [31] that “the contra proferentem rule is now generally regarded as a doctrine of last resort”. The learned primary judge accepted that proposition and later concluded that the rule had no material role to play where the issues of construction could be resolved by the orthodox process of construction (PJ [36], [248], [881], [891], [892], [897(5)]). Nevertheless, her Honour accepted that the rule might apply in the event that aspects of her analysis were wrong (PJ [764(3)], [901(6)]).

88    It was also submitted by QBE that the operation of the rule was generally confined to exclusion clauses rather than provisions such as insuring clauses by which the proferens is conferring a benefit upon the insured. This was not developed at the hearing, but is readily answered by reference to the decision in Darlington Futures, where the High Court emphasised that the words of an exclusion clause are to be construed by reference to the same principles of construction as are applicable to other kinds of clauses. The justification for the rule ultimately rests on the proferens having control with respect to the policy’s wording, rather than the particular kind of clause. Whilst the issue may arise more frequently in the context of exclusion or limitation clauses because of their fundamental inconsistency with the principal obligation or liability which they circumscribe, that is no basis for confining the rule’s application to those kinds of clause. See also Interpretation, [25.110], [29.310].

The established scope of the rule

89    It is trite law that the contra proferentem rule may “only be applied for the purpose of removing a doubt, and not for the purpose of creating a doubt, or magnifying an ambiguity”: Wonkana at 641 [30] citing Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453 at 456. See also CE Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 at 548 per Dawson, Toohey and McHugh JJ. However, although there must be an ambiguity in the words of a policy, that is not sufficient to warrant the application of the rule. As Kirby J observed in McCann (at 602 [74]):

Courts now generally regard the contra proferentem rule (as it is called) as one of last resort because it is widely accepted that it is preferable that judges should struggle with the words actually used as applied to the unique circumstances of the case and reach their own conclusions by reference to the logic of the matter, rather than by using mechanical formulae.

(Footnote omitted).

90    It has long been recognised that the rule has a limited, residual application. In Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533, the High Court considered the construction of a contract of insurance which required the insured to give notice of damage to the insured property to its insurer within 15 days “at the latest”, but provided that, in default thereof, no claim in respect of the damage could be payable “unless and until” such notice was given. In the circumstances, there was no possible construction of the condition which gave full effect to the words “at the latest” and “unless and until” with the result that the Court resolved the issue by applying the contra proferentem rule and concluded that the condition merely suspended the right of action until notice was given: at 554 – 555 per Griffith CJ; at 559 per Barton J; at 566 – 567 per O’Connor J; at 574 per Higgins J.

91    In applying the rule, each member of the Court explicitly recognised its limited application. In particular, Barton J observed (at 559):

There is, no doubt, an ambiguity, and when we consider also the prior words “at the latest,” I do not see how that ambiguity is solved by the application of the ordinary rules of construction. But if that point of intractability is reached we are entitled to apply the maxim verba chartarum fortius accipiuntur contra proferentem.

(Citation omitted).

92    Higgins J doubted the validity of the maxim as a rule of construction, but nevertheless accepted that, if it was applicable “as the last resort in construction”, it ought to be applied in that case to construe the condition against the interests of the insurer: at 574.

93    The rule was later referred to in Halford v Price, a case in which the appellant underwriters had sought to imply a restriction on the scope of an indemnity in a policy of insurance. In dismissing the appeal, Dixon CJ (with whom Menzies and Windeyer JJ agreed) resolved the issue in favour of the insureds by undertaking an orthodox process of construction. Although the Chief Justice did not find it necessary to rely upon the rule, he made the following observation (at 29 – 30):

I do not think that the provision or the entire insurance documents contain any materials from which an implication may be made restraining the operation of the indemnity in the manner desired by the appellant underwriters. But were there any such materials I would regard it as contrary to principle to attempt to work out a restrictive implication unless the context and subject matter supplied convincing evidence of intention. “The printed parts of a non-marine insurance policy, and usually the written parts also, are framed by the insurers, and it is their language which is going to become binding on both parties. It is therefore their business to see that precision and clarity is attained and, if they fail in this, any ambiguity is resolved by adopting the construction favourable to the assured in accordance with the maxim verba chartarum fortius accipiuntur contra proferentem.” 22 Halsbury 3rd ed. p. 214.

94    In a concurring judgment, Fullagar J resolved the ambiguity in favour of the insured by applying the rule: at 34.

95    In its appeal, Market Foods submitted that Dixon CJ’s approval of the quoted passage, in particular the words “any ambiguity” showed that it was incorrect to consider the contra proferentem rule “as one of last resort”. In response, Chubb submitted that approval was expressed in obiter. In any case, that passage must be considered in light of the earlier reasoning by which the relevant ambiguity was resolved without recourse to the rule. Thus, Dixon CJ’s comments are, at best, an equivocal indication that the rule may be applied to resolve “any ambiguity” or where the words are “fairly susceptible” of more than one construction: at 34 per Fullagar J.

96    The contrary view, that the rule applies only where an ambiguity cannot be resolved by the orthodox process of construction, is well supported by the earlier decision in Western Australian Bank v Royal Insurance Co. It is also consistent with the later decision in Darlington Futures where the High Court unanimously rejected the argument that exclusion and limitation clauses are to be construed restrictively. That decision instead confirmed that the general approach to the interpretation of contracts is to be applied to those kinds of clause. The Court stated (at 510 – 511):

These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity… And the principle, in the form in which we have expressed it, does no more than express the general approach to the interpretation of contracts and it is of sufficient generality to accommodate the different considerations that may arise in the interpretation of a wide variety of exclusion and limitation clauses in formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises.

(Emphasis added).

See also Wonkana at 641 [29].

97    While the phrases, “where appropriate”, and, “in case of ambiguity”, in that passage may conceal more than they reveal, the passage as a whole confirms that the construction of a clause by the usual principles is to be attempted first and before recourse to the contra proferentem rule. It would be surprising to read the Court’s decision as endorsing a more liberal approach to the application of the rule while, simultaneously, emphasising the universality and importance of the orthodox principles of construction. This is supported by its conclusions in relation to the proper construction of the relevant exclusion and limitation clauses, one favourably to each party, which were reached without any reliance on the rule. The Court’s reasoning instead rested on the proferens preferred construction of the exclusion clause being absurd or uncommercial and the limitation clause being unambiguous: at 511.

98    The conclusion that the contra proferentem rule applies only once the orthodox process of construction has failed to resolve an ambiguity is also sound as a matter of principle. Unlike other interpretive rules, it is not based upon logic or inference as to the objective intention of the contracting parties as are other principles of construction but, instead, applies as a matter of legal policy. This distinction lead Kirby J to observe in McCann that it is preferable that judges should reach their own conclusions as to the construction of words “by reference to the logic of the matter, rather than by using mechanical formulae”: at 602 [74]. It is only when the process of construction based upon logic had failed to elucidate the parties’ intention that his Honour considered the rule had a role to play. As his Honour continued:

Nevertheless, dictionaries, facts and logic alone will sometimes not provide an answer to the contest before the court. In those cases: “it is not unreasonable for an insured to contend that, if the insurer proffers a document which is ambiguous, it and not the insured should bear the consequences of the ambiguity because the insurer is usually in the superior position to add a word or a clause clarifying the promise of insurance which it is offering.”

(Footnotes omitted).

99    Were it to be accepted that the rule is not one of last resort, there would be not insignificant difficulty in ascertaining its limits. In the course of the hearing, Mr Morris QC sought to avoid the characterisation of Market Foods’ position as being that the rule applies as a “rule of first resort”, and accepted, at least, that the context of the words used must first be considered before resorting to the applying the rule. This tended to undermine his submission that the rule applied to “any ambiguity”. It also rendered it difficult to ascertain precisely when, in his submission, the rule was to be applied, except that it ought to be applied in this case. It might be asked rhetorically, if the rule is not a rule of last resort, what principles of construction may be jettisoned in favour of its application? It is sufficient to state that question to recognise the error in the approach for which Market Foods contended.

100    In any case, the High Court’s decisions considered above strongly support the application of the rule as one of last resort. There is also ample intermediate appellate authority to support that position: see e.g. Wonkana at 641 – 642 [31]; Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561 (Zhang v ROC Services) at 591 [140] and the cases there cited; Lange v Queensland Building Services Authority [2012] 2 Qd R 457 at 466 [52].

101    In its written submissions, Market Foods also took issue with the learned primary judge’s drawing a distinction between words which are “merely ambiguous”, in that they can be construed without recourse to the contra proferentem rule, and those which are more egregiously ambiguous, such that recourse to the rule is necessary. The problem, so it was submitted, was that if the rule applies only if an ambiguity is intractable but does not apply where one possible construction gains ascendancy by “the narrowest of margins” following the orthodox process of construction, then it had no real scope of application.

102    With respect, that submission misstated the way in which the rule is actually applied and, in particular, when there will be “two genuinely available alternatives”: Dalby v Bio-Refinery Ltd v Allianz Australia Insurance Ltd [2019] FCAFC 85 [32]. Having undertaken the orthodox process of construction, the court does not merely elect between whichever construction is favoured by “the narrowest of margins”. Rather, the rule applies where, after ascertaining the literal or grammatical meanings and evaluating them against the text, context and purpose of the contract, there remains “real doubt” as to the correct construction: Zhang v ROC Services at 591 [140]. See also XL Insurance Co SE v BNY Trust Company of Australia Ltd (2019) 20 ANZ Ins Cas 62-211 (XL Insurance v BNY Trust Company) at 77,413 [107]. Thus, the description of the rule as a last resort is apt because it applies only where that process fails to resolve any ambiguity and there is insufficient basis for choosing between the then available constructions.

103    On the basis of the nature of the rule as identified, save in the most unlikely of the scenarios which are discussed in these reasons, there was no scope for the contra proferentem rule to alter the outcome of any disputed issue of construction which arose in any of the appeals.

Principles of causation and proximate cause

104    The appeals also raised issues as to the nature of causation in the law of insurance. Although the broad principles were accepted, there remained some differences as to their application and the correct use of the concept of “proximate cause”. In general terms, the element of proximity relates to the degree of immediacy between the cause and the result, and not to its degree of force by comparison with another cause. That may be relevant to the issue as to whether a minimal factor which is contemporaneous is in fact causal of the result at all; but if it does cause the result, even minimally, it is an operative cause, but absent that, it cannot be said to have caused it.

105    In some cases under discussion, the issue is simply a question of causation of any degree. Causation may be an element of any provision, such as an insuring promise, an exclusion or a condition, and the degree of proximity required between the cause and the result in order to engage the provision may be express or implied. Further, the issue of causation is not necessarily limited to the cause of the insured loss. (For the convenience of brevity, this discussion will be limited to the element of causation referred to in an insuring promise.) The choice of degree of proximity required may extend from the immediate to one very remote provided that causation is somehow present.

106    In a discussion of causation in this context, it is necessary to distinguish its application from that in which causation issues determine the rights of parties in other situations. In the law of tort and in the criminal law it is concerned with the attribution of personal liability or culpability for a personal act. In both, the boundaries are set by public policy. In insurance, the principles of causation, or at least the concept of proximate cause, are concerned with whether an insurer is obliged to provide indemnity pursuant to the bargain between it and the insured. As was said by Lords Hamblen and Leggatt JJSC in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] AC 649 at 726 – 727 [192] (FCA v Arch), the issue of causation raises the question, “did the insured peril cause the business interruption losses sustained by the policyholder within the meaning of the causal requirements specified in the policy?” In that context it is apt to keep in mind that, it is by the policy’s terms that the insurer stakes its money against an actuarially assessed risk that an insured peril will be the proximate cause of the insured’s loss. This requires a different causal analysis from that applied in relation to the assessment of a person’s culpability for an act: Davies M, “Proximate Cause in Insurance Law (1996) 7 Insurance Law Journal 135 at 140. In particular, the causation inquiry is narrower and has the function of determining “whether the insurer must indemnify the insured allowing for any agreed limits placed on the transfer of risk from the insured to the insurer”: McDonald A, Proximate cause in insurance law: Fire following earthquake (1995) 25 Victoria University of Wellington Law Review 525 at 533.

107    Necessarily, the degree of causality required before an insurer incurs liability on its policy is, in the first instance, a matter of the interpretation of the policy and ascertaining for what loss has the insurer agreed to compensate the insured as a result of the occurrence of an insured peril. However, in the absence of any contrary intention, it is presumed that it is only those causes “proximate” to the loss in respect of which the insurer has agreed to indemnify, which will trigger that liability. In this way, proximate cause functions as a presumptive standard of causation for the purpose of determining when the insurer’s liability arises. More generally, the development of a generally universal standard of causation based on the presumed mutual intention of the parties aids in maintaining the availability of insurance. In Clarke MA, Burling JM and Purves RL, The Law of Insurance Contracts (6th ed, Informa, 2009) (The Law of Insurance Contracts), the learned authors observe (at [25-2]):

The characteristic emphasis on the contract of insurance and on party intention affects not only the selection of potential causes but also proximity, that is, the degree of connection required between cause and loss. Insurers wish to know as accurately as possible the extent of the real risk written. Too loose a connection between peril and recoverable loss, it is said, would make underwriting difficult, except on terms that would drive away business: insurers want to write risks that are actuarial rather than entrepreneurial. Consequently, the proximity required between cause and loss is close.

(Footnotes omitted).

108    In the context of concurrent causes, the adoption of the requirement of proximate causation is further supported by the fact that insurers’ liability to indemnify occurs without any apportionment for the degree to which the insured peril has caused the insured’s loss: Derrington DK and Ashton RS, The Law of Liability Insurance, (3rd ed, LexisNexis Butterworths, 2013) at 1,246 [8-351].

The requirement of “proximate cause”

109    Nearly all of the parties accepted that the general principles of proximate cause, insofar as they apply in Australia, were correctly stated by McColl JA (with whom Ipp and Tobias JJA agreed) in Lasermax Engineering Pty Ltd v QBE Insurance (Aust) Ltd (2005) 13 ANZ Ins Cas 61-643 (Lasermax). The primary judge summarised those principles as follows (PJ [44]):

(1)    [i]n the law of insurance it early became, and has remained, the rule to look to the proximate and not the remote cause of loss or damage in order to determine the liability of underwriters (causa proxima non remota spectatur) [the immediate cause, and not the remote cause, is to be considered]: [39];

(2)    in this context, the words “proximate cause” and “direct cause” came to be used interchangeably: [41];

(3)    as Gibbs CJ said in Federico at 521 “… the words ‘caused by an accident’ naturally refer to the proximate or direct cause of the injury, and not to a cause of the cause, or the mere occasion of the injury”: [42];

(4)    proximate in this context meant proximate in efficiency rather than in time: [44];

(5)    the proximate cause rule was not divorced in the cases from the terms of the particular policy under consideration but was based upon the inferred common intention of the parties and would not apply if it would defeat the manifest intention of the parties: [45]; and

(6)     it is consistent with this approach that the proximate cause rule is capable of applying even where the word “directly” expressly qualifies the word “cause” in a policy: [46].

110    Her Honour also referred to Allsop CJ’s summary of the principles in Sheehan v Lloyds Names Munich Re Syndicate Ltd [2017] FCA 1340 (Sheehan), which was as follows (at [77]):

The causal inquiry in insurance law is directed to the proximate cause of the relevant loss or damage. This means proximate in efficiency, not the last in time: Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 at 369 per Lord Shaw; Global Process Systems Inc v Syarikat Takaful Malaysia Berhad (The “Cendor MOPU”) [2011] UKSC 5; 1 Lloyds Rep 560 at 564 [19] per Lord Saville and 568 [49] per Lord Mance. A proximate cause is determined based upon a judgment as to the “real”, “effective”, “dominant” or “most efficient” cause: see Leyland Shipping [1918] AC at 370 per Lord Shaw; Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] QB 57 at 66 per Lord Denning MR. What is the proximate cause is to be decided as a matter of judgment reached by applying the commonsense knowledge of a business person or seafarer: see The “Cendor MOPU” [2011] l Lloyds Rep at 564 [19] per Lord Saville and 568 [49] and 576 [79] per Lord Mance. There does not need to be a single dominant, proximate or effective cause of loss or damage: McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; 157 FCR 402 at 430 [90]. In City Centre Cold Storage Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739 (referred to in McCarthy 157 FCR at 430 [90]), Clarke J at 745 approached the question as follows:

… to determine in the first instance whether there is one effective cause. But, recognising that in the present case there are a number of contributing causes, I do not propose straining to isolate one if it seems to me that two or more causes operated with approximately equal effect.

111    It is well established that there may be more than one proximate cause of loss: Midland Mainline Ltd v Eagle Star Insurance Co Ltd [2004] 2 Lloyd’s Rep 604 at 606 [8]; McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402 (McCarthy) at 429 – 431 [88] – [91]. In the latter decision, Allsop J (as the Chief Justice then was) observed (at 430 – 431 [91]) that in the application of policies of insurance the first step was to ascertain whether only one cause can be said to be the proximate or efficient cause of the loss. If there is more than one, the policy must be applied to those circumstances. Absent any provision in the policy to the contrary, if there are two concurrent causes, one being covered by the policy and the other not, the insured may recover. However, different considerations will apply if there is one cause falling within the policy and the other cause is the subject of an exclusion. If the two causes are concurrent and interdependent, in that neither cause would have caused the loss but for the other, the exclusion clause will prevail: Wayne Tank and Pump Co Ltd v Employers’ Liability Assurance Corp Ltd [1974] QB 57. Where the two concurrent proximate causes, one within the policy and the other the subject of an exclusion, are independent, it is “always essential to pay close attention to the terms of any policy and the commercial context in which it was made, for it is out of these matters that the answer to the application of the policy to the facts will be revealed”: McCarthy at 434 [104]. If the policy’s construction leads to the conclusion that the parties intended that no cover is provided for any loss caused by a particular cause and the loss was so caused, the policy cannot respond. However, if the parties’ intention was that the policy would not respond if only the excluded clause was the sole cause of the loss, the existence of that concurrent excluded cause is irrelevant: at 438 [114].

Limits on the application of proximate cause

112    Many of the policies before the Court in these appeals provide cover for business interruption loss consequent upon the occurrence of an insured peril of a complex nature. In particular, the insured peril in the hybrid clauses is the occurrence of a series of causally-related, sequential events. Often they are (a) the occurrence of a disease causing (b) the actions of a relevant government authority causing (c) the closing or restricting of access to business premises. Since the causal nexus between (a) and (b) and between (b) and (c) are expressed in varying terms, it is necessary in each case to identify the precise nature of the cause referred to, the precise result to which it is to be associated, the degree of causal relationship that is necessary, all according to the language used for the particular provision, and whether that is present in the circumstance of the claim. Although proximate cause was not expressly raised by the parties as being relevant to the causal nexus between elements of a composite insured peril, it was advanced implicitly by a number of insurers who submitted that it was appropriate to construe those causal links by reference to it. There is, however, no self-evident justification for a default application of the principle in these circumstances where the rationales for it do not exist. The insurers’ submission, if accepted, would significantly limit the policy’s coverage without offering any textual reason for doing so.

The decision in FCA v Arch

No direct submissions as to the correctness of FCA v Arch

113    Most, if not all, parties in the appeal referred to the decision of the Supreme Court of the United Kingdom in FCA v Arch. It was the most frequently cited authority in the written submissions. However, as her Honour recognised below, the parties referred to those parts of the judgment which suited their purposes. Where an aspect of it posed an impediment to their argument, their Lordships’ reasoning was distinguished on the basis of the substantial differences in the underlying factual foundations of that case and those of the test cases. No party before either her Honour or this Court sought to critically analyse the decision or suggested any error in the majority’s reasoning or conclusions. In those circumstances, it is not necessary to reach any view as to its correctness.

114    For present purposes it is appropriate to acknowledge the existence of two features of the decision. First, that the Supreme Court adopted a particular view as to the circumstances in which a single case of an infectious disease (which qualified as an insured peril) could be said to be a proximate cause of loss under a business interruption policy despite it being neither a sufficient nor necessary cause of that loss. That issue does not arise in the present appeals and there is no need to address it.

115    The second feature was the articulation of the “underlying fortuity principle”. Again, no party in the present appeals contested the appropriateness of their Lordships’ formulation and application of that principle. Rather, the disputes concerned whether it applied in the particular case or in relation to particular circumstances. Prima facie, in those particular circumstances, an insured would face difficulty in demonstrating that any outbreak of COVID-19 in a defined area was a cause, let alone a proximate cause, of the imposition of any relevant restrictions.

The unique circumstances in FCA v Arch

116    Not only were the relevant circumstances underpinning the issues in FCA v Arch substantially different from those which occurred in Australia, they were rather unique in themselves concerning as they did the occurrence of a disease of pandemic proportions. COVID-19 is highly infectious even prior to the onset of symptoms or in asymptomatic infectious persons, with the consequence that it is able to spread faster and more widely than other Notifiable Diseases which might trigger disease, prevention of access or hybrid clauses. Moreover, it had, in fact, spread throughout the whole of the United Kingdom and had infected a significant proportion of its population prior to the government taking the measures which affected businesses there. It followed that, as at the time of the implementation of those measures, many businesses were concurrently affected by a downturn in trade caused by the presence of the disease generally. Further, cases of infected persons existed, for all practical purposes, across the country such that the government’s measures were both in response to that situation and were national in their operation.

117    Those circumstances posed critical difficulties for businesses which were insured under the policy wordings which were the subject of consideration by the Supreme Court. In general terms, the insured peril in the disease clauses was the occurrence or outbreak of a disease within an identified geographical area around an insured’s premises, usually defined by a radius of some specified length. In other clauses, the insured peril was in the nature of interference in the use of the insured’s premises due to actions by a public authority caused by the outbreak of disease, also within a specified radial area of the premises. However, unlike one or more localised outbreaks which might announce the appearance of many Notifiable Diseases, the rapid spread of COVID-19 in the United Kingdom prior to the imposition of government measures meant that it was impossible to identify that any particular outbreak or outbreaks caused the government’s response. Indeed, it was accepted by the Supreme Court that the measures in question would have been imposed regardless of whether there were any cases of the disease in the areas demarcated by the policies: FCA v Arch at 722 [179]: raising the issue of whether the insured peril could be a proximate cause of the claimed loss.

The nature of the test cases before the Supreme Court

118    The Supreme Court’s decision was the culmination of a number of test cases brought against eight insurers by the Financial Conduct Authority, representing the interests of business interruption policyholders. In each action, declarations were sought as to the operation of certain insuring clauses and “basis of settlement” clauses consequent upon the effects of the COVID-19 pandemic and the restrictions imposed in the United Kingdom in response to it. The clauses in question were disease, hybrid, prevention of access and trends clauses. Central to the operation of each type of clause was the identification of the cause of the business interruption losses in respect of which indemnity was sought. As mentioned, the circumstances of the COVID-19 pandemic in the United Kingdom were such that the government measures would have been imposed whether or not there were cases of the disease within the specified radial areas around insured premises and, conversely, would have been imposed in that area by reason of the cases in the defined areas alone: at 727 [195]. See also PJ [61]. This gave rise to substantial disputation before the Court as to whether the insured perils were a cause or a proximate cause of the claimed losses. That issue was resolved in favour of the policyholders through a construction of the policies which treated each case of COVID-19 as a proximate cause of government restrictions with the consequence that the policies responded to the claims and losses were recoverable even though the losses would have occurred in any event. As mentioned, this issue does not arise on the present appeals.

The impact of competing causes of loss

119    The Supreme Court also considered (at 733ff [217]ff) the manner in which the composite insured peril found in the hybrid clauses (COVID-19 causing the government measures causing restrictions on use of premises) might be a cause of loss where the disease and its sequelae had otherwise caused substantial damage to the insured’s business. In the operation of hybrid clauses, the occurrence of the disease is merely the first element of a sequential and composite insured peril which, as a potential cause of insured loss, is substantially more specific than the disease itself. Hence, the question became one of identifying the efficiency of that insured peril in causing the business interruption losses in circumstances where the pandemic had otherwise detrimentally impacted the insured’s business.

120    The insurers’ submissions (identified at 734ff [221]ff) were that in such circumstances it could not be said that “but for” the restrictions caused by the government measures, the business interruption losses would not have occurred. In relation to the question of whether the composite insured peril had caused relevant loss, they submitted that the relevant counterfactual was one which hypothesised the identical situation as the existing circumstances, save that the insured was relieved from the restrictions imposed on the use of their premises. So the submission went (at 734 [219]), were it otherwise, an insured would recover all losses resulting from the effects of the disease, even though the insured peril is the closure of the premises and the insured loss is only that consequent upon that closure. However, their Lordships observed (at 736 [227]) that the necessary effect of this approach would be to reduce the scope of actual cover resulting from the insured event to a narrow and fanciful risk.

121    Their Lordships, Hamblen and Leggatt JJSC (with whom Lord Reed PSC agreed), identified that these difficulties arose only because the insurers posed the wrong counterfactual question, being, “what would the financial position of the business have been but for the occurrence of the insured peril?” It was said (at 736 [228]) that the effect of applying such a test was to limit the indemnity to business interruption which was caused solely and exclusively by the insured peril and had no other proximate cause. With respect, it might be thought that the first necessary question is whether the insured peril was an efficient cause of the loss which, at a minimum, is to be analysed by ascertaining whether, “but for” the occurrence of the peril, the loss would have occurred. If the insured peril was not an effective cause the inquiry need go no further. If it is, the inquiry can proceed to consider the relevance of any uninsured concurrent causes. If such causes exist and are not excluded, the policy usually responds. Indeed, so much was recognised by their Lordships: at 737 [229] – [230].

122    Nevertheless, the critical development of their Lordships was the adoption of a causal analysis in respect of the effect of an insured peril which limited the impact of other competing causes. They reasoned (at 738 [237]) that when the elements of a composite insured peril occur, they originate from the same cause – in this case, the COVID-19 pandemic – and it is entirely predictable that, even if those elements had not combined to cause indemnifiable loss, they would individually have had a similar detrimental impact on the business. It would be wrong, so they held, to treat those other detrimental effects as diminishing cover under the policy because, although they are not themselves covered, they are matters arising from the same “underlying fortuity” which the parties would naturally have expected to occur concurrently with the insured peril. In that sense, they were not a separate and distinct risk. It was said (at 739 [239]):

We … consider the underlying explanation to be that, where insurance is restricted to particular consequences of an adverse event … the parties do not generally intend other consequences of that event, which are inherently likely to arise, to restrict the scope of the indemnity.

123    Their Lordships later added caveats to that general principle to the effect that (a) it does not apply where the policy excludes loss from the other consequences of the insured event, and (b) that the principle is dependent upon findings of concurrent causation involving causes of approximately equal efficiency: at 740 [244].

124    Their Lordships then applied the “underlying fortuity” principle in answer to the insurers’ submission that the insured peril in the hybrid clause was not a proximate cause of the insured loss due to the independent effects of COVID-19. However, there appears to be difficulty in ascertaining how it can be said that the principle is applicable at that stage of the causal analysis only if there exists a finding of a cause, concurrent to the insured peril, of approximate equal efficiency. Prior to any conclusion that an insured peril is a proximate cause of loss, its putative causative effect may be denied due to the impact of the non-insured perils having overwhelming effect. Therefore, in the alternative, it may be that the “underlying fortuity” principle is only productive of recovery under the policy if, after applying it to strip out from the required counterfactual analysis the other competing causes, the insured peril is sufficiently elevated to the status of being a proximate cause of loss.

125    It is important to recognise that the practical consequences of the approach to causation described above are possibly concordant with the expectations of the parties to a policy of insurance of the type in question. In general terms, it can be accepted that the insurer who provides cover for business interruption loss following the restrictions on access to premises by authorities due to an infectious disease, intends that the insured’s indemnified losses are not to be negated or reduced by the necessary sequelae of the essential elements of the insured peril. Neither would that be an insured’s intention or expectation. However, the difficult question is, which concurrent causes might be ignored in undertaking the task of determining whether the insured peril has a sufficient causal connection to loss and, if so, to what extent. The greater the number of such causes which must be “stripped out” of the counterfactual in order to ascertain the causal contribution of the insured peril, the further one is from ascertaining whether the insured peril is, in the correct sense, a proximate cause of the loss.

126    A difficulty which arose in applying the underlying fortuity principle in the circumstances of the present appeals was that the parties’ submissions were advanced in very broad terms, merely framing the question as, whether a cause of loss did or did not derive from the same underlying fortuity. However, the principle is more refined than those submissions would suggest. It does not apply in relation to any cause of loss which has some connection to an element of an insured peril or, indeed, its underlying cause. It cannot be said that, where there has been an occurrence of an insured peril which includes as an element an outbreak of COVID-19, the insured is entitled to recover all losses which can somehow be traced to the underlying outbreak of the disease. Were it otherwise, any clause which included the outbreak of a disease would effectively be converted into a form of “pandemic cover”. What is required is some discrimen between the several causes of loss which have their origin in the underlying fortuity from which the insured peril sprung. This had been addressed at first instance in FCA v Arch and answered in terms of whether the concurrent causes of loss were “inextricably linked” to the elements of a composite peril. In the Supreme Court, their Lordships rejected that approach but accepted the need for some limitation on the concurrent causes which might be ignored in the process of ascertaining whether an insured peril was causative of an insured’s loss. Their resolution of this issue is probably best seen in the following passage of the reasons of Lords Hamblen and Leggatt JJSC (at 738 [237]):

The other sense in which the elements of the insured peril are inextricably connected is that those elements and their effects on the policyholder’s business all arise from the same original cause—in this case the Covid-19 pandemic. It is inherent in a situation where the elements of the peril insured under the public authority clause occur in the required combination to cause business interruption that there has been an occurrence of a notifiable disease which has led to the imposition of restrictions by a public authority. It is entirely predictable and to be expected that, even if they had not led to the closure of the insured premises, those elements of the insured peril would have had other potentially adverse effects on the turnover of the business. We have already expressed our view that it would undermine the commercial purpose of the cover to treat such potential effects as diminishing the scope of the indemnity. The underlying reason, as it seems to us, is that, although not themselves covered by the insurance, such effects are matters arising from the same original fortuity which the parties to the insurance would naturally expect to occur concurrently with the insured peril. They are not in that sense a separate and distinct risk.

(Emphasis added).

127    It would appear that the necessary refinement of the underlying fortuity principle exists in their Lordships’ observations that the matters which are to be disregarded or “stripped out” are those “which the parties would naturally expect to occur concurrently with the insured peril.” Whilst it may be that the relevant underlying fortuity is the global COVID-19 pandemic, the consequences or effects of that which the parties might expect to occur with the insured peril may be somewhat narrow in scope. One might take the example of a hybrid clause where the insured peril was the closure of premises by order of an authority as a result of the outbreak of an infectious disease within five kilometres of those premises. In any consideration of whether the insured peril was a proximate cause of the insured’s loss, no account would be taken of the effect of concomitant “stay-at-home” orders requiring residents not to leave their premises other than for specific reasons. It can be expected that, if in response to an outbreak an order is made requiring businesses to cease operations, other orders or directions would be made limiting the movement of people within the same area. Similarly, no account would be taken of the reduced patronage which would necessarily occur as a result of persons avoiding interactions with others in an area where an outbreak occurred. On the other hand, if the business was dependent on trade from international tourism, bans on persons entering the country which cause loss would not be excluded because such bans cannot be reasonably expected to occur concurrently with an outbreak of a disease near the insured’s premises.

128    A similar approach can be seen in the Supreme Court’s treatment of the example of a travel agency which lost most of its business due to travel restrictions imposed as a result of the pandemic: at 740 [244]. Their Lordships held that, although customer access to its premises might have become impossible, as the sole proximate cause of the loss of the walk in customers was the travel restrictions and not the inability of customers to enter the agency, the loss would not be covered. It is apparent from their Lordships’ reasons that they did not regard overseas travel restrictions as a matter which the parties would naturally expect to occur concurrently with the imposition of lockdown orders. Indeed, it may even be that the twin causes of loss did not arise from the same underlying fortuity in that the lockdown orders were the result of the localised outbreak of a disease and international travel bans were concerned with wider issues.

129    Despite the apparent expansive effect of the underlying fortuity principle, all it does is to remove from the hypothetical counterfactual certain competing causes of loss which would otherwise diminish the causative impact of the insured peril. It does not expand the scope of loss which might flow from the occurrence of the insured peril in the sense that it is only the loss which, after making the relevant adjustments, was proximately caused by the insured peril which might be recovered. Reference can be made to the travel agency example referred to above. Even if the underlying fortuity of COVID-19 in the local area or more generally is removed from the counterfactual, it was the overseas travel ban which has caused the loss and not the restriction on access to the premises which is the essential part of the insured peril.

The operation of the trends clauses

130    Finally, in relation to this issue of causation, the Supreme Court turned its attention to the operation of the trends clauses which required adjustments to the amount recoverable under the policies so as to put the insureds in the position they would have been “but for” the occurrence of the insured peril: at 741ff [251]ff. The insurers advanced submissions similar to those made in relation to causation generally; namely that only the closure of the premises consequent upon government order should be “stripped out” of the counterfactual, leaving the insured in a position where the general effects of COVID-19 would have diminished its business in any event. Their Lordships (at 243 [260] – [262]) applied an approach consistent with that described above to this issue and held (at 749 [287]) that trends clauses should be construed so that an adjustment is made only to reflect circumstances which are unconnected with the insured peril and not those which are inextricably linked with it in the sense they derive from the same underlying fortuity.

The causation issues in FCA v Arch adopted by the primary judge

131    The geographic and demographic circumstances in the United Kingdom are vastly different to those in Australia. The geography and population density in the United Kingdom is such that the radial areas described in several of the policies (such as a radius of 25 miles around an insured premise) covered a significant portion of the country and its population. This impacted heavily upon the question of causation in FCA v Arch because, so their Lordships held, it must have been understood by the parties to any policy that the government would have acted identically in any assumed counterfactual scenario: that is, the restrictions would have been imposed even if there was no case of COVID-19 in the relevant radial area and all cases were outside of it. Further, the occurrence and spread of COVID-19 in the United Kingdom differed from the position in Australia in 2020 and 2021 by orders of magnitude. As was recognised by Lords Hamblen and Leggatt JJSC, by the time of the imposition of government restrictions in the United Kingdom, the virus had spread throughout the whole country and had infected a significant portion of the population. As a consequence, the governmental measures put in place there were necessarily taken by the UK Government for the whole of the United Kingdom, the whole of England or, in other instances, by each nation State (England, Wales, Scotland and Northern Ireland) for the entirety of their respective countries. The actions were at a national level in response to a widespread national issue.

The approach of the primary judge

132    The primary judge (PJ [61]) identified the above geographic and demographic issues as being critical to understanding the reasoning in FCA v Arch in relation to causation. In particular, it was almost impossible to avoid the conclusion that there existed two sufficient concurrent causes of the government action which resulted in the business interruption losses; being the cases within the radial area of the insured premises and those outside of it. On that basis, her Honour accepted that it was rational to infer that the cases of COVID-19, both inside and outside the relevant areas, were concurrent causes of the relevant restrictions and lockdowns which interfered with the insureds’ businesses. This had the consequence that the “but for” test was inapplicable as a minimum requirement for determining the cause of government action.

133    Her Honour distinguished the circumstances of the policies in question in the matters before her from those considered in FCA v Arch and, in particular, identified that the former were made in the Australian Constitutional context where the Commonwealth and State governments had different spheres of power and operation (PJ [62]). In the case of the outbreak of COVID-19, the Commonwealth Government was empowered to impose bans restricting international travel and preventing people from entering or leaving Australia, whereas the States were empowered to require businesses to cease operating, require premises to close, or regulate the number of persons a business might allow on its premises (PJ [63]).

134    Additionally, the geographic and demographic differences were substantial (PJ [64]). Australia is a large continent with a sparse population such that an area within a 25 or 50 kilometres radius around a business premises may or may not encompass a densely populated area. Her Honour observed (PJ [65]) that the extent of the presence of COVID-19 in Australia in 2020 and 2021 could be contrasted with the widespread outbreak which occurred in the United Kingdom. The parties had agreed upon the numbers of persons who contracted the disease in Australia from 25 January 2020 to 30 April 2021 and a table of that data is set out in her Honour’s reasons. As at 23 March 2020, there had been approximately 2,000 cases (cumulatively) and, by 30 April 2021, that number had increased to approximately 30,000. As her Honour noted, given Australia’s population of approximately 26 million, it was not possible to conclude that the occurrence of COVID-19 was widespread (PJ [66]). Indeed, it was far from it and, to a large extent, most cases of infection were of Australians returning from overseas who often remained in quarantine prior to entering the community. Other instances involved sporadic outbreaks originating from returning overseas travellers and, in the main, were locally confined.

135    Her Honour also noted (PJ [67]) that it had been agreed between the parties in FCA v Arch that there existed cases of COVID-19 both within the relevant radial areas delineated by the policies and beyond them. On that basis, the government actions could be tested by asking whether it would have acted as it did if there were no cases in the radial areas, to which their Lordships answered, “Yes”. A further underlying assumption was that there were a sufficient number of cases in the several radial areas to have caused the government to take the same action with respect to those areas at the least. The primary judge concluded (PJ [68]) that, as these factors were not present in the matters before her, it could not be concluded that each and every known case of COVID-19 in any location in a State was equally effective to cause the actions of the State governments. For that reason, it was not possible to apply the approach adopted by the Supreme Court to causation and, where it was a requirement of a policy, it would be incumbent on the insured to establish that the occasions or outbreaks of COVID-19 at or within a specified distance of a particular place were a relevant cause of the government’s action.

136    On the other hand, different considerations arose where an essential element of an insured peril is not the occurrence of a disease but the risk associated with it. In those circumstances, the learned primary judge approached the causation issues in a manner similar to that adopted by the Supreme Court in relation to actual cases of the virus (see PJ [78] – [81]).

137    The learned primary judge did accept (PJ [73]) the Supreme Court’s underlying fortuity principle insofar as it concerned the impact of the individual elements of a composite insured peril in a hybrid clause on the question of whether the insured peril was a proximate cause of the loss and as it concerned the operation of trends clauses. In the latter respect, her Honour rejected the “but for” approach adopted in Orient-Express Hotels Ltd v Assicurazioni Generali SA [2010] Lloyd’s Rep IR 531, but recognised (PJ [74]) the important qualification that the reasoning depended upon the underlying fortuity giving rise to the insured peril being the same as that giving rise to the uninsured peril. In the absence of that coincidence, there would be nothing uncommercial in the policy requiring the effects of the uninsured peril to reduce the amount of the indemnified loss.

138    As her Honour further observed (PJ [75] – [76]), the position in the United Kingdom was the existence of a national COVID-19 pandemic at the time of the government’s actions, whereas in Australia the circumstances were different. The actions of the Commonwealth government were responsive to the threat of COVID-19 overseas and the potential for it to enter the country. Conversely, the exercises of power by the several State governments were concerned with the existence of COVID-19 within the respective States and the associated risk of it spreading from known and unknown cases throughout the State. From this, the primary judge held that the Commonwealth government’s actions were not caused by the same underlying fortuity as the insured perils in the respective policies. It acted to prevent the entry of COVID-19 into the country and was motivated by the existence of the spread of the disease overseas and the threat presented to Australia by uncontrolled entry of international travellers. Those matters did not have their origin in the existence of cases of COVID-19 in Australia, or the threat of its spreading throughout a State or country, which were the issues in respect of which the policies responded.

139    Her Honour then concluded (PJ [78]) that it was the existence of COVID-19 cases in the State (known) and the associated threat or risk of COVID-19 to persons (from cases both known and unknown) across the State as a whole, which were the causes of State government action. It could not be concluded that any State Government action “was caused by, or resulted from, or was in consequence of, the existence of any case of COVID-19 at the location or within area required by the insuring provisions” (PJ [79]). It necessarily followed that it was not possible to conclude that the occurrence or outbreak of the disease at any place identified in a policy was the cause of any government measures which may have restricted business operations. Her Honour also held that it was not possible to conclude “that each and every case of COVID-19, including any case within the area defined by the insuring clause, was an equally effective cause of the taking of the State Government action.” Rather, the governments acted because they were aware that some cases existed in certain locations, albeit not every location, and that there was a risk to all persons across the State. That risk extended to the location or areas identified in the several insuring clauses. In accordance with the approach of Lords Hamblen and Leggatt JJSC in FCA v Arch, her Honour held (PJ [81]):

Accordingly, an insuring provision requiring the action of the authority to be caused by or result from or be in consequence of the threat or risk of infectious or contagious disease at a location or within a specified area is satisfied, as the threat or risk to each and every person is an equally effective cause of the action of the State Government.

Other regularly arising matters

Occurrence/outbreak and risk/threat

140    Although not contested by any of the parties, it is apt to identify the primary judge’s observations (PJ [84]) that a fundamental difference existed between clauses which operate upon the occurrence or outbreak of a disease within an area, and those which operate on the threat or risk of an occurrence or outbreak within an area. That difference is obviously important to keep in mind when ascertaining the reason or reasons for the imposition of government measures which result in business interruption.

Occurrence and “outbreak”

141    An important recurring issue in the following reasons is the meaning to be attributed to the words “occurrence” and “outbreak” where they appear in a number of the insuring clauses in dispute. There is no question that the meaning which each word has on any particular occasion will depend upon the context in which it is used. However, absent any textual or contextual indicators that they are to be regarded as having similar, or even interchangeable, meanings they should be given different meanings when used in relation to disease (PJ [91]).

142    The primary judge concluded (PJ [92]) that the meaning of each word was disease dependent and, in that respect, noted that the characteristics of COVID-19 were: (a) it is highly contagious in a non-controlled environment (that is, not in a hospital, quarantine or isolation); (b) people are likely to be infectious with it prior to becoming symptomatic; and (c) accordingly, the risk to public health was from both known and unknown cases of the disease. In those circumstances, her Honour held (PJ [95]) that an “occurrence” of COVID-19 would mean an event or case of COVID-19 in any setting. It would not matter that the case occurred in a controlled environment where the person infected was in quarantine or isolation and the possibility of transmission was very low.

143    Conversely, her Honour identified (PJ [96]) the usual meaning of the word “outbreak” as being something more than an “occurrence”, but not requiring any event of transmission in the community. As such, an “outbreak” of COVID-19 only required a case of active (that is infectious) COVID-19 in the community, in the sense that it occurs in a non-controlled environment, where potential transmission may occur. In the course of her reasons in the LCAM matter, her Honour confirmed that to be the position given the absence of any contrary textual indicators. As she explained (PJ [294]), in the case of a highly contagious disease such as COVID-19, the risk of transmission in a non-controlled setting (that is in the community) is so high that it may readily be inferred that a person with the disease will have transmitted it prior to becoming aware of their infectious status. In this way, her Honour reasoned, it would be most unlikely that the parties required anything more than probabilistic reasoning as to the transmission of the disease between individuals in order for an “outbreak” to have occurred.

144    Although her Honour’s conclusion as to the nature of an “outbreak” of COVID-19 was the subject of criticism by the several insurers, in the absence of any contrary textual or contextual influences, it provides an appropriate and workable definition. It should be accepted that the answer to the question of whether an “outbreak” has occurred is disease-dependent. The circumstances which might constitute an “outbreak” of an extremely serious disease are not the same as for a mild or moderate one. That view is supported by the observations of McDonald J of the High Court of Ireland in Hyper Trust Ltd t/as The Leopardstown Inn v FBD Insurance plc [2021] IEHC 78 (Hyper Trust (No 1)), where his Honour held (at [143]) that an “‘outbreak’ is capable of consisting of a relatively small number of cases or, where the pathogen is particularly serious, a single instance of disease”. Later in his reasons, his Honour referred to the definition provided by the Health Protection Surveillance Centre, a government body, which identified that an outbreak might be constituted by a single case of a disease caused by a significant pathogen such as diphtheria or viral haemorrhagic fever, the latter being the disease caused by the Ebola virus. A similar definition of “outbreak” in relation to COVID-19 appears in the National Health Guidelines for Public Health Units provided by the Communicable Diseases Network Australia (a part of the Commonwealth Government Department of Health). Whilst this definition was published in May 2021, it is nevertheless supportive of the logic of the primary judge’s conclusion. In 2020, any occurrence of COVID-19 in the community might properly be described as an “outbreak” given: (a) it was a new and potentially deadly disease not previously known to occur in humans prior to 2019; (b) it is of significant severity and virulence; (c) there was no known vaccine, nor any cure; and (d) the previously expected number of cases of it was zero.

The insurers’ submissions

145    Several of the insurers made submissions as to the meaning of the word “outbreak” when used in relation to a “disease” in expressions such as, “outbreak of a notifiable human infectious or contagious disease”. In particular, Swiss Re submitted that “outbreak” requires the existence of multiple persons infected with the disease and that those infections were connected by:

(a)    time, in that the persons must have contracted COVID-19 at about the same time;

(b)    location, in that those infections must have occurred at the insured “Situation” or within the relevant radius and not elsewhere; and

(c)    cause, in that each of those infections must be linked to a common cause originating at the “Situation”, or within the radius.

146    These elements were said to derive from the following dictionary definitions of the word “outbreak”: (a) a “sudden eruption of anger, war, disease, rebellion etc” from the Australian Concise Oxford Dictionary; (b) “a breaking out; an outburst … a sudden and active manifestation” from the Macquarie Concise Dictionary; and (c) “a time when something suddenly begins, especially a disease or something else dangerous or unpleasant” from the Cambridge Dictionary. So Swiss Re’s submission went, these had the consequence that for there to be an “outbreak” of a disease it was necessary that there be a sudden eruption, breaking out or an outburst of it, and that a single instance or multiple unconnected individual instances was insufficient.

147    In support of that Swiss Re relied upon the observation of Lords Hamblen and Leggatt JJSC in FCA v Arch at 696 [69] to the effect that a single occurrence of disease could not be regarded an “outbreak”, unless the individual cases of disease described as an outbreak have a sufficient degree of unity in relation to time, locality and cause. However, their Lordships’ comments are of little assistance with respect to the issue at hand. First, they were concerned with the meaning of the word “occurrence” rather than “outbreak” and, secondly, it is apparent from the context that their Lordships were not indicating that an “outbreak” of a disease could not be constituted by a single isolated case.

148    Nevertheless, Swiss Re maintained that an “outbreak” necessarily required a confirmed case of transmission. It submitted that, as with an “occurrence”, there had to be something happening at a particular time, at a particular place, and in a particular way with the consequence that an event of transmission of the disease was necessary. Absent transmission, there was no relevant “event”. The mere presence of a person in the community with the disease was said to be insufficient to amount to an event or a happening which would constitute an outbreak. It further submitted that an approach which considered the severity of the disease did not overcome the requirement for there to be an event or happening at a particular place and time and in a particular way.

Discussion

149    None of the above undermines the primary judge’s conclusion. Whilst the dictionary definitions referred to incorporate concepts of suddenness or an outburst of something dangerous, they are comfortably consistent with the primary judge’s conclusion. The emergence or discovery of a person in the community with a highly contagious and virulent disease such as COVID-19, in circumstances where the presence of the disease was otherwise unfamiliar or unknown, is an event or happening which satisfies the requirements of the dictionary definitions and is appropriately referred to as an “outbreak”. The sudden presence of a hitherto absent, potentially deadly, contagious disease has the appropriate attributes of “sudden eruption” or “active manifestation” of something dangerous or unpleasant indicating its precipitous beginning. In addition, the highly infectious nature of the disease prior to it becoming symptomatic has the consequence that, in an uncontrolled environment, there is a very high likelihood that transmission will have occurred prior to the person discovered to have contracted it knowing that to be the case. This has two consequences. First, it elevates the significance of the discovery of the presence of the disease which then presents a serious public health risk. As those dictionary definitions disclose, the concept of “outbreak” is confined to matters of significance. Secondly, the high probability of it having been transmitted to another or other persons indicates that the event or happening is wider than the mere presence of the person known to be infected. This latter point was relied upon by the trial judge as meeting the insurers’ submission that transmission was required.

150    There is little or no justification for the view that, for there to be an “outbreak” of a disease, there must have been a transmission in the particular place where the outbreak is said to have occurred. That is particularly so in the context of a policy of insurance where the outbreak is an element of a composite insured peril. Importantly, the term is used in a policy of insurance as being the cause of action taken by an authority. That necessarily connotes that the “outbreak” has been identified by the authority which then acts upon it in the way required by the cover. In this context, the insurers’ submissions slip into commercial absurdity or, at least, unreasonableness. On their construction, if an authority imposed a lockdown involving restrictions on access to the insured’s property on becoming aware that a person or a number of persons had been present in the community (in a non-controlled setting) with a potentially fatal and highly infectious and contagious disease for a number of days, the policy would not respond because there was no “outbreak”. On the other hand, the policy would respond if the lockdown occurred once the authority had become aware of a case of transmission of the disease. It is difficult to understand why the parties to the policy would have intended the word “outbreak” to have the narrower meaning which would produce that result. The gravamen of the type of cover under discussion is the loss arising from restrictions imposed by authorities responsible for the protection of the health of persons in the community in response to a serious disease and it is obvious that any authority would act expeditiously when such a disease is discovered. It is an unlikely construction that a policy would respond only where the authority acts after knowledge of a case or cases of transmission of a disease rather than on immediately becoming aware of its existence in the community.

151    In this way the expression “outbreak” is to be construed both in its literal and circumstantial contexts, particularly with regard to the circumstances reasonably contemplated by the subject matter of the whole relevant text. Here it is used to describe the circumstances in which a relevant authority might impose a restriction on the insured’s business causing loss which would attract the cover. As the restrictions are an element of the concept, the circumstances of their imposition are influential in understanding what is meant by “outbreak”. Simply, as it must cause the imposition, it must be of a nature to do so, and indeed must have done so for other elements of the trigger to be considered. That action by an authority would require consideration of a number of factors, including but not necessarily determined by the number of cases. A single case, quickly discovered and isolated, of a mild and only slightly infectious disease and which experience had taught was not likely to spread would not amount to an outbreak since it would not cause the necessary response of the authority. But the known presence of a single case might well cause such a response if the disease were dangerous, highly infective, with delayed symptoms which withheld warning of its presence so as to obstruct suitable isolation, and which experience had taught could easily spread from a single case. That would be an outbreak. The measure is whether it is such as would cause the authorities to impose restrictions which would cause the insured’s loss.

152    Contrary to the insurers’ submissions, the meaning of “outbreak” adopted by the primary judge would exclude occasions when a person with a highly infectious disease was present in a particular area, but in circumstances where transmission was not possible or likely. Her Honour held that an “outbreak” requires the presence of an infected person in non-controlled circumstances, and that would exclude a person isolated in hospital or quarantine or, say, travelling in a car through the area, but not stopping and interacting with others. In such situations, the person’s presence does not carry any element of seriousness sufficient to establish the existence of an outbreak because there is no highly infectious disease in the community in circumstances where transmission is likely or possible.

153    The meaning attributed by her Honour to the word “outbreak” in relation to a disease with the characteristics of COVID-19 was appropriate, especially in the circumstances which existed in Australia as at March 2020. At that time, COVID-19 was an entirely new and deadly virus, it was not known to have occurred in humans prior to December 2019, it was a severe and virulent disease, and there was no known vaccine or medical cure for it. Indeed, one of the few steps which could be taken to mitigate its spread was the making of government orders affecting the use of premises at which the virus might be transmitted. Based on those characteristics, a single instance of COVID-19 would appropriately be described as sudden and exceeding the number of expected cases, being nil.

The primary judge’s conclusion as to the meaning of “outbreak” should be adopted

154    It follows that the primary judge’s conclusion as to the meaning of the word “outbreak” when considering highly infectious and virulent diseases such as COVID-19 should be adopted. An “outbreak” of COVID-19 occurs in or at a particular place where there exists a case of active (that is infectious) COVID-19 in the community (in the sense that it occurs in a non-controlled environment). As was apparent from her Honour’s discussion of the point, the requirement of the person being “in the community” necessarily incorporates the circumstance of the possibility of transmission to other persons.

155    As will be seen in the discussion that follows, there are no textual or contextual matters in any of the policies which might alter the meaning of “outbreak” from that identified.

Role of an authority in relation to hybrid clauses

156    A further important and recurring issue in the following discussion concerns the causal nexus between the elements of a composite insured peril and, in particular, what is intended where the actions of an authority are said to be conditioned on a particular state of affairs, usually being the existence of a disease. A number of hybrid clauses require the authority to have acted “as a result” of or “as a consequence” of an outbreak of a disease or in response to some other event. Usually, the authorities’ actions must result in the interruption of or interference with the insured’s business or premises. The recurring issue is whether the insured is required to establish, as matters of fact, first, that the event in consequence of which the authority acted did occur and, secondly, that the authority acted in consequence of it. The position taken by the insureds was that it was sufficient to rely upon the terms of the instruments issued by the authorities and the surrounding circumstances to evidence both matters.

157    The primary judge accepted (PJ [85]) the insureds’ submissions and, in doing so, noted that there is a difference between an action resulting from a thing, such as a disease, and the existence of the disease itself. In this sense, the action of an authority can result from a disease even if the authority is mistaken about its existence. However, her Honour (PJ [86]) put to one side the actions of an authority taken arbitrarily, capriciously or in bad faith which the parties to a policy of insurance would not contemplate as being determinative of liability. Otherwise, “where parties have made an insuring provision depend on the action of an authority resulting from some or other thing, they have effectively committed themselves to accept the view of the authority about the thing”.

158    The underlying rationale for this approach was that, in relation to the hybrid clauses, it is not the existence of the thing (the disease) which is determinative, but the authority’s reasons for acting as it did. In that respect, the primary judge did not accept the parties intended that they would go behind an authority’s articulated reasons to ascertain whether it was correct in its assessment of the existence of a relevant occurrence or outbreak of a disease (PJ [86] – [87]). Her Honour considered that this approach accorded with the manner in which hybrid clauses were drafted (usually, action resulting from specified disease) which focussed attention on the reason for the authority’s action. It was also held that the insurers’ preferred approach did not accord with common sense or a business-like interpretation of the provisions. The concern of the cover is to indemnify for loss from business interruption caused by the actions of an authority taken as a consequence of a state of affairs. If the authority takes the action because of the state of affairs and the loss is suffered, subject to a clear contrary intention in the policy, it should not be assumed that the parties intended the loss not to be indemnified if the authority is subsequently shown to have been mistaken about that state of affairs.

159    The necessary corollary of the above is that evidence of facts not known to an authority or not relied on by it in deciding to take action will be of little use in ascertaining whether the policy responds. It is the authority’s actions and what they resulted from which are of central importance. In this latter respect, her Honour also held (PJ [88]) that the parties to such a policy would be taken to intend that the causal requirement (being that the action of the authority resulted from some other thing) would be objectively determined by what the authority in fact did, what it said about what it did at the time, and the contemporaneous circumstances as they can be inferred to have been known to and considered by it at the time. The parties could not have intended that the subjective state of the authority’s mind was in issue, and nor would it be permissible to go behind its actions to demonstrate that it was in error. The effect of this was summarised as follows (PJ [89]):

Accordingly, the question of what the actions of an authority resulted from is best answered by reference to what the authority did, why the authority said it did what it did, and other contemporaneous explanations and circumstances casting light upon the actions of the authority. It is not answered by subsequent unearthing of facts or opinions not known to or considered by the authority at the time it took the actions.

The insurers’ submissions to the contrary

160    The above approach was criticised by the insurers on the basis that the ordinary meaning of the language used in the several clauses did not indicate that the elements of the composite insured peril could be established otherwise than by proof in the ordinary way. It was submitted that the clauses are concerned with whether the objective facts are that the identified event caused the relevant authority’s action and there is no room for substituting an element based on the authority’s subjective beliefs. It followed, they submitted, that if the authority made an error and caused the shutting down of businesses in the mistaken belief of an outbreak of a disease, the policy would not respond. It was also submitted that the primary judge’s approach injected an element of uncertainty into the operation of the clause, particularly in those cases where the authority does not express any reason for its actions. It was said that in such a case the policy could not respond.

The primary judge’s interpretation should be adopted

161    Although the matter is not free of doubt, the primary judge’s general approach to the construction of the operation of the hybrid clauses should be accepted. It is not necessary to determine whether there is an exception in relation to the conduct of an authority which is subsequently shown to be arbitrary, capricious or in bad faith. Although parties can indicate a contrary intention in the policy wording, it can generally be accepted that when a clause provides for a relevant authority to have acted on the basis that a relevant fact (e.g. an outbreak or an occurrence) existed, there is no requirement for the insured to prove the authority was correct in its assessment that the fact did exist. The reasons of the learned primary judge are substantive and the insurers were unable to demonstrate any error in them.

162    An important characteristic of a hybrid clause is the sequential nature of the separate elements of the insured peril with the final element (e.g. the restriction on the use of premises) being that which most effectively causes the loss. However, the preceding elements and their consecutive occurrence are also important. When they are objectively ascertainable without difficulty, no serious issues would arise in establishing them for the purposes of indemnity. On the other hand, when they involve the responsive actions of an authority consequent upon the occurrence of an event, significantly different questions arise. By incorporating a subjective element in the composite, sequential causative chain, the parties have filtered the occurrence of one element (the event) through the analysis of the relevant authority. This is evident in the LCAM policy where the relevant part of the hybrid clause provided, “by order of a competent authority as a result of an outbreak of a notifiable human infectious … disease”. Here, the words “as a result of” incorporates the subjective motivation for the authority’s conduct. Necessarily, that involves both its assessment that the outbreak in question existed and the intention to act upon it. As the primary judge reasoned, the effect was that the parties agreed that this part of the insured peril is satisfied where the authority perceives that an outbreak has occurred and, for that reason, makes a relevant order.

163    The alternative approach, as advanced by the insurers, would require the insured to prove that the outbreak occurred, that the authority perceived that had happened, and that it acted accordingly. That would be a substantially more difficult task for the insured in comparison to relying upon the authority’s statements as to the existence of an outbreak and its reasons for acting. It would require the insured to prove the medical conditions of the person or persons who had reportedly contracted the disease and, perhaps, the accuracy of any medical diagnosis. On the insurers’ case, if reliance on official reports of an outbreak of disease is not sufficient to establish the existence of the outbreak, nor would be media reports and the like. It may be that in order to substantiate its claim for indemnity the insured would be obliged to subpoena the medical records held by a relevant hospital. It seems somewhat improbable that this is the intention to be gleaned from the policy.

164    Further, there was no commercial rationale advanced, and none is evident from the wording used in the policy, as to why the extent of the insured peril might be confined to instances where the insured can demonstrate that, in addition to the loss having resulted from action by the authority which it took by reason of the disease, the authority was justified in taking that action in the sense that it had some factual basis or was otherwise demonstrated to be within the extent of lawful authority. The insured peril focusses upon the reason motivating the authority to act, not whether there was sufficient justification to support the lawfulness of that action. It follows that, in relation to some of the clauses under consideration, proof of the facts underlying the actions of the relevant authority is not necessary.

165    In the context of business interruption insurance, the ease with which an insured may establish matters relevant to its claim for indemnity may influence questions of construction. The purpose of business interruption insurance is to inject additional funds into a going concern to maintain it as a going concern and, in that respect, to return it to an operational state as soon as possible: Arbory Group Ltd v West Craven Insurance Services (A Firm) [2007] Lloyd’s Rep IR 491 [48] – [50]; Adelaide (SA) Pools & Spa Manufacturing and Installation Pty Ltd v Westcourt General Insurance Brokers Pty Ltd (No 2) [2021] SASC 123 [990]. That being so, a construction which advances the purpose of the cover is to be preferred to one that hinders it. Here, that approach supports an interpretation that the relevant integer of the insured peril is satisfied when it is shown that the authority has acted upon its belief as to the existence of an outbreak. That can be established relatively quickly by reference to the authority’s statements and surrounding existing facts. Not only would an insured encounter substantive difficulties if it were required to establish those matters as actual facts, the extended period of time which it would take may well deprive it of the benefit of the cover.

166    The primary judge’s approach is consistent with the structure of many hybrid clauses which provide cover following the imposition of restrictions by relevant authorities consequent upon events, the occurrence of which may involve a matter of judgment. For instance, such clauses often identify the events which motivates the authority’s action as including “hygiene problems associated with drains or other sanitary arrangements”, “incorrect operation of drains or other sanitary arrangements”, “defects in drains or other sanitary arrangements”, or discovery of organisms etc. Where an authority imposes restrictions in the apparent belief that such matters have occurred at a premises, it is unlikely that the parties intended that the insured’s claim might be denied if the authority were later shown to be in error. These matters involve an evaluative act by the authority and it can be assumed that the parties intended that its public assertions as to the outcome of its evaluation should be accepted by them.

167    Further, hybrid clauses are concerned with the actions of public bodies whose obligations involve the preservation of public health and, in the ordinary course, it is likely that they will need to act expeditiously and with limited information. That is especially so in relation to highly infectious diseases, but it is also applicable to other events such as defective sanitary arrangements, disease from food or injurious matter in food, and the appearance of vermin. An authority, acting in the public interest, is likely to have power to impose restrictions for such reasons even if it is subsequently transpires that it was mistaken about the event. This provides additional support for the primary judge’s preferred construction. As the primary judge articulated the point (PJ [87]), “The provisions are intended to operate where an authority takes action because of a thing which causes the interruption or interference to the business which causes loss”.

168    For the above reasons, her Honour’s conclusion that the parties intended that the causal requirement (that the authority’s action “resulted” from a particular event) would be objectively determined by what the authority did, what it said about it at the time, and the contemporaneous circumstances known by, or inferred to be known by, the authority at the time should also be accepted. Indeed, those reasons apply with greater force given that the task of establishing the motivation by which a political body or legal authority has acted is inherently problematic. An insured can identify the public statements of the body in question or the objective facts surrounding the action, but cannot reasonably prove the actual cause of any action by it. Absent the ability of the insured to rely upon those public statements or the objective evidence, how else will it discharge its onus? Even if the restrictions were imposed by a single authorised person, such as a Chief Health Officer, it is most unlikely that the parties intended that insured must adduce evidence from that person as to their actual motivations for the making of any order. If the restriction in question had been imposed by regulation passed by a legislative body, it is even more unlikely the parties intended the insured is to call each and every member who voted in favour of the restriction so as to establish their “true” motivation for voting.

169    Contrary to the insurers’ submission, the construction adopted by the primary judge reduces the uncertainty in the operation of the hybrid clause. In the ordinary course, it would be reasonably apparent why an authority has acted to cause premises to be closed. It is not likely that any closure by the exercise of authority would occur without explanation and it would be unusual for a closure to occur without a written instrument being produced which provided such an explanation. Moreover, the objective facts surrounding the authority’s actions would usually be sufficiently apparent to ascertain why it acted. Conversely, if the insured were required to prove, as a fact, the occurrence of an outbreak, that would require the ascertainment of information which might not be publicly available or, at least, not obtainable for a significant period of time.

170    Despite the above conclusion, it should not be assumed that the insurers' submissions were without merit. In many cases it can be assumed that the insurer intended, and the insured accepted, any apparent limitation contained in an insuring clause. In the cases at hand, those limitations may include the insured’s onus to establish the outbreak as well as the motivation of a relevant authority in imposing restrictions on businesses. However, the circumstances envisaged by the cover may lead to the conclusion that the limitation was not intended to be insurmountable. For instance, where it would be impossible for an insured to establish by first-hand evidence the events or occurrences on which the claim is founded, it is necessary to accept that the parties envisaged alternative modes of proof. That commercial and businesslike construction would extend to cases where proof is also extremely difficult. Naturally, at the other end of the spectrum where proof of the relevant matters is not out of the ordinary, the usual rules would apply and the insured must discharge its onus in the usual way. Whilst the circumstances of the present matters are near the dividing line between exact proof and inferential proof, for the reasons given by the learned primary judge, they fall on the latter side. The degree of difficulty in establishing matters beyond the insured's control and personal knowledge, being the outbreak of disease, knowledge of it by an authority, and its efficacy as the motivation for the authority's action, demonstrate that to be so. It may well be that in the vast majority of cases insurers will accept the public utterances of authorities and admit both the outbreak and its causative effect. However, cases such as the Taphouse appeal demonstrate that will not always be so. The policys construction in a commercial and businesslike manner depends upon the terms of the policy and how they may actually operate, rather than upon a presumption that in the course of disputed claims an insurer will adopt a reasonable attitude to the contentious facts.

171    It might be added that it is unlikely that any serious disputation would exist around the issue of whether an outbreak of a disease occurred or whether an authority imposed restrictions on the use of premises as a result. Outside of the scenarios propounded in test cases, it is difficult to envisage an occasion in which an insurer might put in issue the veracity of public records relating to the outbreak of a disease and an authority’s response to it.

172    In the circumstances of the present appeals it is not necessary to consider the correctness of the qualification adopted by the primary judge when the actions of the authority are arbitrary, capricious, or in bad faith. Given the rationale for accepting the authority’s statements as to its reasons for its acting, there is force in the proposition that it should also not matter whether its actions were affected by any of those adverse motivations. Nevertheless, as this issue was not argued by any of the parties there is no need to consider it and it has no impact on any of the appeals.

173    As appears in the following discussion, a number of the insurers made submissions contrary to the above conclusions. Those submissions must be rejected and there is nothing in any of the policies which indicated a contrary intention as to how the particular hybrid clauses might operate.

Section 61A of the Property Law Act 1958 (Vic)

174    Both the Meridian appeal and the EWT appeal raised issues relating to s 61A of the Property Law Act 1958 (Vic) (Property Law Act (Vic)). That section provides:

61A    Construction of references to repealed Acts

Where an Act or a provision of an Act is repealed and re-enacted (with or without modification) then, unless the contrary intention expressly appears, any reference in any deed, contract, will, order or other instrument to the repealed Act or provision shall be construed as a reference to the re-enacted Act or provision.

175    In each appeal, the policy contains an additional benefit clause that is subject to an exclusion that refers to “diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments” (or equivalent wording).

176    In the Meridian policy, the relevant clause is Additional Benefit 8 as set out in the Renewal Schedule to the policy. This relevantly provides:

8    Murder, Suicide or Disease

The occurrence of any of the circumstances set out in this Additional Benefit shall be deemed to be Damage to Property used by You at the Situation.

(c)    The outbreak of a human infectious or contagious disease occurring within a 20 kilometre radius of the Situation.

(d)    Closure or evacuation of Your Business by order of a government, public or statutory authority consequent upon:

(1)    the discovery of an organism likely to result in a human infectious or contagious disease at the Situation; …

Cover under Additional Benefits 8(c) and 8(d)(1) does not apply in respect of Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.

(Emphasis added).

177    In the EWT policy, the relevant clause is Additional benefit 3 to the business interruption section. This relevantly provides:

3.    Prevention of access

The indemnity under this section is extended to include interruption or interference with your business in consequence of:

c.    closure or evacuation of all or part of the premises by order of a competent government, public or statutory authority as a result of a human infectious or contagious diseases [sic]. However there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Quarantine Act 1908 (as amended) irrespective of whether discovered at the location of your premises, or out-breaking elsewhere,

which shall prevent or hinder the use of your building or access thereto, or results in a cessation or diminution of trade due to temporary falling away of potential customers.

(Emphasis added).

178    However, before each policy commenced, the Quarantine Act 1908 (Cth) (Quarantine Act) had been repealed and the Biosecurity Act 2015 (Cth) (Biosecurity Act) enacted.

179    In Wonkana, the New South Wales Court of Appeal considered two policies of insurance with exclusions that referred to “diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments” (or words to similar effect). Each policy commenced after the Quarantine Act was repealed and the Biosecurity Act commenced. The insurers argued that the references to “diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments” were to be construed as extending or referring to “diseases determined to be listed human diseases under the Biosecurity Act 2015 (Cth)”. However, the Court unanimously rejected this argument and made a declaration that the exclusion in each policy was not enlivened. Neither of the policies considered in Wonkana was governed by Victorian law so no issue arose as to the potential operation of s 61A of the Property Law Act (Vic). There was no equivalent provision in New South Wales.

180    In each of the Meridian and EWT appeals, the insurer argued that the policy of insurance is governed by the law of Victoria and that s 61A of the Property Law Act (Vic) operates, such that the reference in the exclusion to “diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments” (or equivalent wording) is to be construed as a reference to “listed human diseases under the Biosecurity Act”, the Biosecurity Act being, it is contended, a re-enactment with modification of the Quarantine Act. In its terms, the effect of s 61A is merely that, if it applies, the reference in the exclusion to the Quarantine Act would be construed as a reference to the Biosecurity Act. However, as the learned primary judge accepted (PJ [180]), s 61A would have the effect for which the insurers contended, if it applied, and there was no challenge to this conclusion on appeal.

181    The primary judge concluded (PJ [112]) that the Meridian policy is governed by the law of Victoria. There was no challenge to this finding on appeal. This was not in dispute in relation to the EWT policy (PJ [108]).

182    However, the primary judge rejected the insurers’ contention that s 61A operated. This was for two main reasons.

183    First, the primary judge held (PJ [131]ff) that the reference to “Act” in s 61A means an Act of the Parliament of Victoria. It followed that the section does not apply to the Quarantine Act and the Biosecurity Act, which are Commonwealth Acts (PJ [151]).

184    Secondly, the primary judge held that, even if (contrary to her earlier conclusion) s 61A could apply to Commonwealth Acts, the Biosecurity Act was not a re-enactment with modification of the Quarantine Act (PJ [161]).

185    The primary judge also considered an argument advanced by the insured in each of these cases to the effect that the policy evidenced an express contrary intention for the purposes of s 61A. As set out above, the section does not apply where “the contrary intention expressly appears”. The insureds in each appeal also contended that, as the parties to the policy chose to refer to quarantinable diseases under the Quarantine Act when they could have referred to listed human diseases under the Biosecurity Act, an express contrary intention appeared for the purposes of s 61A. However, the primary judge did not accept this argument (PJ [176]).

186    Insurance Australia and QBE each cross-appealed from the primary judge’s conclusion that s 61A does not apply: in the Meridian appeal, Insurance Australia’s notice of cross-appeal, Ground 1 and notice of contention, Ground 2; in the EWT appeal, QBE’s notice of cross-appeal, Grounds 1 – 3 and notice of contention.

187    In addition, Meridian and EWT each filed a notice of contention by which they contended that her Honour’s conclusion in relation to s 61A should be affirmed on an additional ground, namely that a contrary intention expressly appears in their policy.

188    The issues that arose on appeal in relation to s 61A in the Meridian and EWT appeals can be summarised as follows:

(a)    whether the reference to “Act” in s 61A includes an Act of the Commonwealth Parliament;

(b)    whether the Biosecurity Act is a re-enactment with modification of the Quarantine Act; and

(c)    whether a contrary intention expressly appears in the Meridian and EWT policies for the purposes of s 61A.

The relevant facts

189    There is no issue about the relevant facts, which were set out below (at PJ [115] – [120]) and are repeated in the following paragraphs.

190    The Quarantine Act was repealed on 16 June 2016, at the same time as s 3 of the Biosecurity Act commenced: see Sch 1 to the Biosecurity (Consequential Amendments and Transitional Provisions) Act 2015 (Cth).

191    The Biosecurity Act, ss 3 to 645, commenced on 16 June 2016: s 2.

192    COVID-19 was not a disease declared to be a quarantinable disease under the Quarantine Act (as amended) before its repeal.

193    COVID-19 was determined to be a listed human disease under s 42 of the Biosecurity Act on 21 January 2020: Biosecurity (Listed Human Diseases) Amendment Determination 2020 (Cth).

194    In the EWT appeal, the policy commenced on 6 January 2020 and remained in force until 6 January 2021.

195    In the Meridian appeal, the policy commenced on 22 February 2020 and remained in force until 22 February 2021.

Does the reference to “Act” in s 61A includes an Act of the Commonwealth Parliament?

196    Section 61A of the Property Law Act (Vic) has been set out above. The other key relevant provision for the purposes of this issue is s 38 of the Interpretation of Legislation Act 1984 (Vic) (Interpretation of Legislation Act), which relevantly provides:

In all Acts and subordinate instruments, unless the contrary intention appears—

“Act” means an Act passed by the Parliament of Victoria;

“Commonwealth” means the Commonwealth of Australia;

“Commonwealth Act” means an Act passed by the Parliament of the Commonwealth;

197    Thus, one starts with the position that the reference to “Act” in s 61A means an Act passed by the Parliament of Victoria. The issue, then, is whether a contrary intention appears in s 61A, such that the word “Act” in that section encompasses not only an Act of the Victorian Parliament but also includes a Commonwealth Act.

198    The insurers submitted that a contrary intention does appear, such that the word “Act” in s 61A of the Property Law Act (Vic) encompasses an Act of the Commonwealth Parliament. They submitted that a contrary intention need not appear from the text of the provision. Indeed, they submitted, that is rarely the case. In particular, they referred to the principles set out in DRJ v Commissioner of Victims Rights (No 2) (2020) 103 NSWLR 692 (DRJ), where Bell P stated in the context of ss 5(2) and 12 of the Interpretation Act 1987 (NSW) (at 698 [10]):

Contrary legislative intention sufficient to rebut or displace the operation of s 12 of the Interpretation Act may be evinced by any of the following:

(i)    express words: see, for example, Waller v Freehills (2009) 177 FCR 507; [2009] FCAFC 89;

(ii)    necessary implication: see, for example, Macleod v Attorney-General for New South Wales [1891] AC 455 at 457–458;

(iii)    reading the Act as a whole: see, for example, University of Birmingham v Federal Commissioner of Taxation (1938) 60 CLR 572 at 579–580; [1938] HCA 57;

(iv)    if the legislative purpose would otherwise be frustrated: see, for example, Australian Securities Commission v Bank Leumi Le-Israel (1995) 134 ALR 101; [1995] FCA 1012; or

(v)    if the contrary intention is indicated by “the object, subject matter or history of the enactment”: see, for example, Schmidt v Government Insurance Office of New South Wales [1973] 1 NSWLR 59 at 67–68.

See generally P Herzfeld and T Prince, Interpretation (2nd ed, 2020, Lawbook Co), at par 9.280.

199    The insurers placed particular emphasis on paragraphs (iv) and (v) of the above passage and relied upon each of these propositions in the present appeals.

200    The insurers first submitted that the legislative purpose of s 61A would be frustrated if its operation were limited to Acts of the Victorian Parliament. They submitted that the purpose of s 61A is to avoid the inconvenience that would otherwise result where a document refers to an Act or provision and the Act or provision is repealed and re-enacted. They submitted that, on the primary judge’s construction, the section solves this problem only for references in such documents to Victorian Acts and, accordingly, on this construction, its purpose would be frustrated. By way of example, they referred to a contract governed by Victorian law that was made before the enactment of the Corporations Act 2001 (Cth) and referred to the uniform companies legislation. In their submission, on the primary judge’s construction, insofar as the contract referred to the Victorian component of the national scheme, the section would pick up repeals and re-enactments, but insofar as the contract referred to other Acts of the same uniform scheme, the section would not pick up repeals and re-enactments. The insurers submitted that no purpose could be served by the differential operation of s 61A in this way. To the contrary, they submitted that such an operation would be capricious and absurd.

201    The insurers also contended that a contrary intention appears from the legislative history of s 61A, as the word “Act” in the predecessor provisions was not limited to an Act of the Victorian Parliament and there was no intention to change this position when s 61A was enacted.

202    The earliest provision relied on by the insurers is s 27(1) of the Acts Interpretation Act 1890 (Vic) (the 1890 Act). That section provided:

27. (1)    Where any Act mentioned in the Second Schedule to this Act or any Act passed after the commencement of this Act repeals and re-enacts with or without modification any provisions of a former Act, references in any other Act or document to the provisions so repealed shall unless the contrary intention appears be construed as references to the provisions so re-enacted.

(2)    Where any Act mentioned in the Second Schedule to this Act or any Act passed after the commencement of this Act repeals any other enactment, then unless the contrary intention appears the repeal shall not—

(a)    revive anything not in force or existing at the time at which the repeal takes effect; or

(b)    affect the previous operation of any enactment so repealed or anything duly done or suffered under any enactment so repealed; or

(c)    affect any right privilege obligation or liability acquired accrued or incurred under any enactment so repealed; or

(d)    affect any penalty forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or

(e)    affect any investigation legal proceeding or remedy in respect of any such right privilege obligation liability penalty forfeiture or punishment as aforesaid.

And any such investigation legal proceeding or remedy may be instituted continued or enforced and any such penalty forfeiture or punishment may be imposed as if the repealing Act had not been passed.

It is convenient to note at this point that the Second Schedule to the 1890 Act listed some 107 Acts of the Victorian Parliament, all enacted in 1890 as part of a consolidation of existing legislation by the then colony of Victoria: see Browne AA, “Legislative Summary – Victoria 1958 – Consolidation and Reprinting” (1959) 2 Melbourne University Law Review 222 at 223.

203    The insurers submitted that, as a matter of construction, the word “Act” in s 27(1) of the 1890 Act was not limited to an Act of the Victorian Parliament and relied on other sections of the 1890 Act (in particular, ss 3, 4, 5, 6 and 22) that used the word “Act” in a way that included the Acts of other legislatures.

204    The insurers then submitted that the same meaning of “Act” continued in subsequent provisions (discussed below) to the same effect as s 27(1) of the 1890 Act, and that this meaning of “Act” remains in s 61A of the Property Law Act (Vic).

205    It is appropriate now to consider each limb of the insurers’ argument.

206    The first limb of the insurers’ argument is that, unless “Act” in s 61A of the Property Law Act (Vic) is construed as extending to the Acts of other legislatures, its legislative purpose (as outlined above) will be frustrated. Assuming that the purpose of the provision is as described by the insurers, namely to avoid the inconvenience that would otherwise be caused where a document refers to an Act or provision and the Act or provision is repealed and re-enacted, it does not follow that this purpose would be “frustrated” if “Act” means an Act of the Victorian Parliament; it merely means that the purpose is not given effect to the maximum extent possible. Accordingly, it has not been demonstrated that a contrary intention appears on this basis.

207    The second limb of the insurers’ argument is based on the legislative history of s 61A. Central to this limb of the insurers’ submissions was the contention that the word “Act” in s 27(1) of the 1890 Act encompassed Acts of Parliaments other than the Victorian Parliament. For the following reasons, that contention should not be accepted. First, s 27(1) commenced by referring to “any Act mentioned in the Second Schedule to this Act”. As noted above, that Schedule referred only to Acts of the Victorian Parliament. This tends to suggest that the next reference to “Act” is referring to future Acts of the same Parliament. Secondly, s 27(1) provided that references “in any other Act or document” to the repealed provisions were to be construed in a particular way. It is clear that the reference to “Act” in this part of the provision was a reference to an Act of the Victorian Parliament. It may be inferred that the Victorian Parliament was not seeking to address how the Acts of other legislatures should be construed. In oral argument, Mr Herzfeld SC for Insurance Australia accepted that the word “Act” in the phrase “in any other Act or document” in s 27(1) had to be a reference to Acts of the Victorian Parliament. One of the difficulties, then, with the insurers’ construction is that the word “Act” would have different meanings within the one section. Thirdly, it seems clear that the word “Act” where it appeared in s 27(2) referred to an Act of the Victorian Parliament. That subsection dealt with the effect of a repealing Act. It provided, among other things, that the repeal would not “revive anything not in force or existing at the time at which the repeal takes effect”. In dealing with the effects of a repealing Act, the Parliament of Victoria can only have been concerned with Acts of the Parliament of Victoria. Again, one of the difficulties with the insurers’ construction is that it would give different meanings to the word “Act” within the one section.

208    It is true that other sections of the 1890 Act (such as ss 3, 4, 5, 6 and 22) used the word “Act” in a way that expressly or by clear implication included the Acts of other legislatures. However, those provisions dealt with Acts of the United Kingdom or of the colony of New South Wales that were then in force in Victoria, and provided that certain expressions used in those Acts should be interpreted in a particular way that was apposite for the colony of Victoria, and for the citation of those Acts. It was only in that context that the word “Act” was used in a broader sense. However, that context does not apply to s 27(1). For the reasons given above, the word “Act” in s 27(1) must be taken to be a reference to an Act of the Parliament of Victoria.

209    In light of this conclusion, it is unnecessary to discuss in any detail the subsequent provisions. This is because this limb of the insurers’ argument depended upon its construction of s 27(1) of the 1890 Act being accepted. However, for completeness, it is appropriate to set out those subsequent provisions:

(1)    In 1915, the Parliament of Victoria (now a State) enacted the Acts Interpretation Act 1915 (Vic) (the 1915 Act). Section 6(1) of that Act was in substantially the same terms as s 27(1) of the 1890 Act, save that it did not refer to Acts mentioned in the Second Schedule to the 1890 Act. It provided:

6. (1)    Where any Act passed on or after [1 August 1890], whether before or after the commencement of this Act, repeals and re-enacts with or without modification any provisions of a former Act, references in any other Act or document to the provisions so repealed shall unless the contrary intention appears be construed as references to the provisions so re-enacted.

(2)    In 1928, the Parliament of Victoria enacted the Acts Interpretation Act 1928 (Vic) (the 1928 Act). Section 6(1) of that Act was in the same terms as s 6(1) of the 1915 Act.

(3)    In 1958, the Parliament of Victoria enacted the Acts Interpretation Act 1958 (Vic) (the 1958 Act). Section 7(1) of that Act was in the same terms as s 6(1) of the 1928 Act.

(4)    In 1984, the Parliament of Victoria enacted the Interpretation of Legislation Act. At this time, s 7(1) of the 1958 Act was, in effect, split into two provisions: s 16(a) of the Interpretation of Legislation Act dealt with the aspect concerning with the construction of statutes and subordinate legislation, while s 61A, which was inserted into the Property Law Act (Vic) by s 4(4) and item 2 of the Schedule to the Interpretation of Legislation Act, dealt with the aspect concerned with the construction of documents. Both s 16(a) and s 17(b) of the Interpretation of Legislation Act should be set out as they overlap to some extent. They provide:

Repeal and re-enactment.

16.    Where an Act or a provision of an Act is repealed and re-enacted (with or without modification) then, unless the contrary intention expressly appears—

(a)    any reference in any Act or subordinate instrument to the repealed Act or provision shall be construed as a reference to the re-enacted Act or provision; and

Construction of references in Acts to other enactments.

17.    A reference in an Act to that Act or to any provision of that Act or to any other Act or to any provision of any other Act or to any subordinate instrument or provision of a subordinate instrument shall, unless the contrary intention appears, be construed—

(b)    if the Act, subordinate instrument or provision in question has been re-enacted or re-made (with or without modification), as a reference to the Act, subordinate instrument or provision as re-enacted or re-made and in force for the time being;

(5)    As already noted, the Interpretation of Legislation Act inserted s 61A into the Property Law Act (Vic). It may be inferred that, as the subject matter of the Interpretation of Legislation Act was the interpretation of statutes and subordinate legislation, it was considered appropriate for the aspect of s 7(1) of the 1958 Act relating to the construction of documents to be located in another Act.

(6)    Section 38 of the Interpretation of Legislation Act also introduced the definition of the word “Act” set out above. The previous Acts referred to above did not contain a definition of the word “Act”.

(7)    In 1993, the Parliament of Victoria enacted the Interpretation of Legislation (Amendment) Act 1993 (Vic). This amended s 17 of the Interpretation of Legislation Act by providing that, in that section, a reference to an Act includes a reference to a Commonwealth Act and an Act or ordinance of another State or Territory. Although the insurers submitted that this amendment merely clarified what was already the position under s 17, the better view is that, in making this amendment, the legislature proceeded on the premise that the word “Act” in s 17 did not otherwise extend to a Commonwealth Act or an Act of another State or Territory.

210    Assuming that it is correct to construe the word “Act” in s 27(1) of the 1890 Act as meaning an Act of the Parliament of Victoria, there is nothing in the legislative history that suggests that the word “Act” in the successor provisions in the 1915 Act, the 1928 Act, the 1958 Act and the Interpretation of Legislation Act (as enacted) had any different meaning. Nor does the legislative history suggest that the word “Act” in s 61A of the Property Law Act (Vic) has any different meaning. Accordingly, a contrary intention does not appear from the legislative history of s 61A for the purposes of s 38 of the Interpretation of Legislation Act.

211    It follows that the primary judge was correct to hold that the word “Act” in s 61A means an Act of the Parliament of Victoria and does not include a Commonwealth Act.

Was the Biosecurity Act a re-enactment with modification of the Quarantine Act?

212    In light of the conclusion above, it is not necessary to consider this issue. Nevertheless, it is appropriate to make the following brief observations.

213    The insurers do not challenge the primary judge’s statement of the applicable principles. The primary judge referred to: Woolworths Ltd v Lister [2004] NSWCA 292 [15], [17] – [18] per Handley JA; Hill v Villawood Sheet Metal Pty Ltd [1970] 2 NSWR 434 at 437 – 438 per Sugerman P; Karlsson v Griffith University (2020) 103 NSWLR 131 (Karlsson) at 136 [22], 137 [24] per Payne and White JJA; and Day v Adam; Ex parte Day [1989] 2 Qd R 9 at 10 – 11. These authorities emphasise that the question whether a repealed enactment has been re-enacted with or without modification is a question of substance and not of form. An enactment that is entirely new and different will not be a re-enactment. On the other hand, an enactment that deals with essentially the same subject matter to achieve the same or similar ends may constitute a re-enactment.

214    As the primary judge recognised (PJ [160]), the fundamental issue is whether the Biosecurity Act as a whole is a re-enactment with modification of the Quarantine Act. As her Honour also recognised, a secondary issue is whether provisions of the Biosecurity Act are a re-enactment with modification of the relevant provisions of the Quarantine Act, namely the provisions relating to the declaration of a disease as a quarantinable disease.

215    The insurers submitted that: the primary judge’s reasoning on this aspect tends to get caught up in the minutiae of the two different regimes; stepping back from the differences of detail, the undeniable fact is that the Commonwealth regime for identifying and responding to highly contagious diseases was contained in the Quarantine Act; and the regime empowered the Commonwealth Government to identify such diseases from time to time and, if so identified, exercise extraordinary powers directed to their containment.

216    The insurers also submitted: the Biosecurity Act dealt with the same subject matter, as was recognised by Hammerschlag J in Wonkana (at 653 – 654 [106]); in its essentials, the Biosecurity Act replicates the previous scheme; and although the precise machinery is different, it too empowers the Commonwealth Government to identify highly contagious diseases from time to time and, if so identified, exercise extraordinary powers directed to their containment.

217    The insurers referred to the Explanatory Memorandum to the Biosecurity Bill 2014 (Cth). They noted that it: explained that the Bill was necessary because of changes to Australia’s biosecurity risks since the Quarantine Act was first drafted (p 7); stated that many powers in the Bill are similar to existing powers under the Quarantine Act, but are clearly stated and easier to use (p 9); and stated that “[t]he Bill is intended to replace the century-old Quarantine Act 1908 … to provide a modern regulatory tool aimed at better managing biosecurity risks in current and future trading environments” (p 19).

218    The insurers did accept that there may have been extensive modifications to update the legislation to take into account developments in biosecurity risks and to replace terms and procedures in old legislation with simpler and more modern ones. However, in their submission, the fundamental subject matter and the object of the two Acts are the same and that, in this respect, the case is relevantly indistinguishable from the re-enactment of the Trade Marks Act 1955 (Cth) in the Trade Marks Act 1995 (Cth), considered in Karlsson.

219    If, contrary to the conclusion above, s 61A of the Property Law Act (Vic) applies in relation to references to Commonwealth Acts, the Biosecurity Act was not a re-enactment with modification of the Quarantine Act. While it is true that the Biosecurity Act replaced the Quarantine Act and that the Biosecurity Act covers some of the same subject matter as the Quarantine Act, the subject matter of the Biosecurity Act is more extensive and, to the extent that the subject matter of the two Acts is the same, there are substantive differences between the provisions of the two Acts. The differences are so many and so extensive that it is inapt to describe the Biosecurity Act as a re-enactment with modification of the Quarantine Act.

220    The background and context of the Biosecurity Act is indicated in the Explanatory Memorandum, which stated (p 7):

Australias biosecurity system must be underpinned by a modern and effective regulatory framework. Currently, biosecurity is managed under the Quarantine Act 1908 (Quarantine Act) and related regulations. Australias biosecurity risks have changed significantly since the Quarantine Act was first drafted over a century ago. Shifting global demands, growing passenger and trade volumes, increasing imports from a growing number of countries and new air and sea craft technology have all contributed to a new and challenging biosecurity environment.

Whilst the Quarantine Act has enabled the effective management of biosecurity risks to date, it has been progressively amended no less than fifty times, mostly to cater for the changing demands placed on the biosecurity system. These amendments have contributed to creating complex legislation that is difficult to interpret and contains overlapping provisions and powers. Australias biosecurity system has been subject to review several times, and proposed reforms to strengthen the system have included the development of new biosecurity legislation.

(Emphasis added).

221    One of the reviews that proposed the development of new biosecurity legislation was the Beale Review: see Beale R, Fairbrother J, Inglis A and Trebeck D, One Biosecurity: A Working Partnership – The Independent Review of Australia’s Quarantine and Biosecurity Arrangements – Report to the Australian Government (30 September 2008). The covering letter enclosing this report included the following statement:

Australia’s biosecurity system has worked well in the past, and is often the envy of other countries. However, the system is far from perfect and recent events have exposed a number of systemic deficiencies. The Report recommends far-reaching changes to rectify these problems while enhancing the good aspects of the system.

The central theme is the development of a seamless biosecurity system that fully involves all the appropriate players—business, other nations, the states and territories and the Australian community—across pre-border, border and post-border risk management measures. …

(Emphasis added).

222    The Explanatory Memorandum, which runs to 434 pages, indicates the scope of the new Act and the extent of the differences between the provisions of the Biosecurity Act and the provisions of the Quarantine Act. The Explanatory Memorandum provides an overview of the Bill (pp 19 – 20) which includes that:

The Bill is intended to replace the century-old Quarantine Act 1908 (the Quarantine Act) to provide a modern regulatory tool aimed at better managing biosecurity risks in current and future trading environments. The Bill allows for the management of a broader range of biosecurity risks at the border and provides for additional powers to monitor and manage biosecurity risks when they are detected in Australian territory to help prevent pests and diseases from impacting upon human, animal or plant health, the environment and the economy.

The Bill provides an effective and adaptive range of biosecurity measures to manage the public health risk posed by serious communicable diseases. It will provide a range of measures which can be tailored to accommodate an individual’s circumstances and aims to ensure individual liberties and freedoms are considered in conjunction with the disease risk. It will provide for consideration of personal freedoms and rights to review in decision-making. The Bill is consistent with Australia’s international obligations under the World Health Organization’s International Health Regulations 2005.

The legislation enables a risk based approach to compliance, ensuring that enforcement measures are appropriate to achieve the regulatory outcome sought. The Bill aims to reflect the shared responsibility for biosecurity between governments at all levels, business, industries, trading partners and the community. It is designed to promote good governance, shared responsibility, efficient processes and procedural fairness.

The Bill is also designed to draw upon, support and give effect to various international and domestic agreements and obligations. Internationally, these include:

    the Agreement on the Application of Sanitary and Phytosanitary Measures (the SPS Agreement)

    the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the Ballast Water Convention)

    the International Health Regulations 2005 (International Health Regulations)

    the Convention on Biological Diversity (the Biodiversity Convention)

    the United Nations Convention on the Law of the Sea, and

    the Treaty between Australia and the Independent State of Papua New Guinea concerning Sovereignty and Maritime Boundaries in the area between the two Countries (the Torres Strait Treaty).

Domestically, these include the Intergovernmental Agreement on Biosecurity and various emergency response deeds, including the Emergency Animal Disease Response Agreement, Emergency Plant Pest Response Deed and the National Environmental Biosecurity Response Agreement. The Commonwealth intends to work collaboratively with state and territory governments to complement existing powers and agreements in the management of biosecurity risks (however, the Commonwealth will cover the field in some circumstances, as expressly stated in the Bill).

(Emphasis added).

223    Many of the aspects of the scope and regulatory approach outlined above, reflected in the provisions discussed by the primary judge (at PJ [164] – [168]), differ from those of the Quarantine Act. It is fair to say that the changes made by the Biosecurity Act were far-reaching. This is not merely a matter of form, but rather is a matter of substance.

224    These observations are not inconsistent with those of Hammerschlag J in Wonkana (at 653 – 654 [106]). His Honour recognised that the Biosecurity Act “has a more extensive reach in terms of its subject matter than the Quarantine Act”. Further, although his Honour accepted that the two Acts dealt with the same subject, he was not considering a comparable issue.

225    As noted above, a secondary issue is whether the relevant provisions constitute a re-enactment with modification. However, the provisions relating to “listed human diseases” in the Biosecurity Act do not constitute a re-enactment with modification of the provisions relating to “quarantinable diseases” in the Quarantine Act. First, the person who makes the declaration or determination is different (the Governor-General under the Quarantine Act; the Director of Human Biosecurity under the Biosecurity Act). Secondly, the criteria for making the declaration or determination are different (no criteria under the Quarantine Act; specific criteria in s 42 of the Biosecurity Act). Thirdly, the legal consequences of the declaration or determination are substantively different (compare, e.g., ss 2, 4, 18 of the Quarantine Act, and ss 44, 45, 46, 51, 52 of the Biosecurity Act).

226    Accordingly, the primary judge was correct to hold that the Biosecurity Act was not a re-enactment with modification of the Quarantine Act. Her Honour was also correct to conclude that the provisions of the Biosecurity Act relating to listed human diseases were not a re-enactment with modification of the provisions of the Quarantine Act relating to quarantinable diseases.

227    In light of these conclusions, it is not necessary to consider the third issue identified above, namely whether a contrary intention does expressly appear in the Meridian and EWT policies for the purposes of s 61A of the Property Law Act (Vic).

Section 57 of the Insurance Contracts Act 1984 (Cth)

228    In each matter, the insureds sought a declaration that its insurer was liable with respect to its claim and that it was also liable to pay interest on the amount for which it was so liable pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) (Insurance Contracts Act). That section provides:

57    Interest on claims

(1)    Where an insurer is liable to pay to a person an amount under a contract of insurance or under this Act in relation to a contract of insurance, the insurer is also liable to pay interest on the amount to that person in accordance with this section.

(2)    The period in respect of which interest is payable is the period commencing on the day as from which it was unreasonable for the insurer to have withheld payment of the amount and ending on whichever is the earlier of the following days:

(a)    the day on which the payment is made;

(b)    the day on which the payment is sent by post to the person to whom it is payable.

(3)    The rate at which interest is payable in respect of a day included in the period referred to in subsection (2) is the rate applicable in respect of that day that is prescribed by, or worked out in a manner prescribed by, the regulations.

(4)    This section applies to the exclusion of any other law that would otherwise apply.

   (5)    In subsection (4):

law means:

(a)    a statutory law of the Commonwealth, a State or a Territory; or

(b)    a rule of common law or equity.

229    Its effect is that, a person who is entitled to be paid an amount under a policy has an additional right to interest on that amount: Walker v FAI Insurance Ltd (1991) 6 ANZ Ins Cas 61-081 at 77,277. It is substantially different from the entitlement to interest pursuant to an order of the court under the rules of court. Prior to the insertion of subs (4) and (5), it was uncertain whether s 57 displaced any other right to interest, but that is now the accepted position: Fitzgerald v CBL Insurance Ltd (No 2) [2015] VSC 176 (Fitzgerald (No 2)) [17] – [19].

230    The period in respect of which interest accrues commences on “the day as from which it was unreasonable for the insurer to have withheld payment”: s 57(2). Market Foods alone contended that it was unreasonable for its insurer to have withheld payment from the date on which it made its claim. Each other appellant insured sought interest from the date on which its claim for indemnity was denied, being various dates in 2020.

The reasons below

231    Having regard to the conclusions that, except in one case, the policies did not respond to the insureds’ claims, it was strictly unnecessary for the primary judge to consider the claims for interest pursuant to s 57. Nevertheless, in the LCAM matter, her Honour concluded that if Swiss Re were liable to pay any amount under the policy, it had not unreasonably withheld it from the date on which it denied the claim. Further, she determined that it would not be unreasonable for it to continue withholding payment pending the outcome of the test case, including any final determination on appeal. Her Honour’s reasoning was that (PJ [415]):

As Swiss Re submitted: (a) the case is part of a test case proceeding with the co-operation of insurers, insureds, ACFA and other regulators, (b) AFCA agreed to this proceeding being dealt with as a test case, (c) LCA Marrickville has been providing material to supplement and, in part, has changed the basis for its claim as part of this proceeding, and (d) it was not unreasonable for Swiss Re to deny cover in the circumstances which involved sufficient complexity to become the subject of the test case and would not be unreasonable for it to await the outcome of the test case (including any final determination on appeal).

232    That reasoning was adopted by reference in the other matters before her Honour (PJ [516], [631], [696], [785], [842], [969], [1016], [1063], [1142]).

Submissions

233    The appellant insureds’ submissions in relation to this issue were broadly uniform. They accepted that an insurer was entitled to a reasonable time to investigate a claim and consider whether to provide indemnity, after which interest based on the section should accrue. In their submissions, although the ascertainment of that date raises a question of fact which depends upon the particular circumstances, the existence of a bona fide dispute by an insurer as to its liability is irrelevant. They further submitted that, where a claim is denied, it may be inferred that a reasonable period of time required by the insurer to investigate and consider the claim has elapsed. That, of course, is subject to the insurer not unduly delaying its consideration of the claim.

234    Those principles were generally not in dispute insofar as most insurers expressly accepted that they represented the “ordinary position” in relation to s 57. However, they added that the words of that section did not require their application as an inflexible rule. The present circumstances were sufficiently exceptional, so they submitted, that it was not unreasonable for them to wait until a final determination of the matters or at least a judgment of the court holding them liable, before paying any amount. They attributed particular significance to the insureds’ claims being litigated as part of a test case. Swiss Re also submitted that the basis of LCAM’s claim had changed over time and that the insured had yet to provide all material necessary to determine quantum as required by the policy. Insurance Australia made similar submissions in relation to the Meridian and Taphouse appeals.

Consideration

235    It is desirable to turn first to the observations of Beach J in Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Ltd (No 2) [2018] FCA 1450 (Australian Pipe & Tube) where his Honour articulated a commonly shared view as to the section’s operation. In particular, he observed (at [291]):

Under s 57(2), the period in respect of which the insurer is required to pay interest commences on the day on which it became unreasonable for the insurer to refuse to pay the claim. An objectively determined reasonable period is to be given to the insurer to investigate the claim and determine its position. But where that position constitutes a refusal to pay the claim, in circumstances where a court has held that a liability to pay the claim does exist, such refusal cannot relevantly extend this period to the point of adjudication, regardless of whether that position was formed and held bona fide (see Fitzgerald & Anor v CBL Insurance Ltd [2014] VSC 493 at [415] and [416] per Sloss J). In short, the award of interest is to be calculated taking into account a reasonable time for completion of the insurer’s investigation of the claim.

236    Although the issue of reasonableness is at large and necessarily fact dependent to some extent, it can only ever arise for consideration where an insurer is ultimately found to be liable to pay a relevant amount. In the learned primary judge’s reasons (PJ [631] – [632]), Beach J’s observations were distinguished on the basis that, as to that point in time, no court had determined the insurer to be liable. With respect, that would appear to be an erroneous foundation for departing from Beach J’s reasons. As is explained below, the allegedly exceptional circumstances of these matters, including the fact that they are being litigated as part of a test case, also do not afford a basis for doing so.

The ALRC Report

237    Section 57 was originally recommended by the Australian Law Reform Commission (ALRC) in its final report, Insurance Contracts (Report No 20, 1982) (the ALRC Report), as part of its examination of the adequacy of the law governing contracts of insurance which culminated in the enactment of the Insurance Contracts Act. With inconsequential amendments, s 57 was enacted in the form recommended in the draft legislation appended the ALRC Report. In general terms, subs (1) – (3) remain in the form originally enacted, while subs (4) and (5) were introduced by amendments in 1998.

238    According to the report its purpose was to address delay by insurers in meeting claims and the concomitant effect of inflation in eroding the real value of amounts ultimately paid: at 197 – 198 [320]. In particular, the ALRC recognised that an insured may be deprived of full compensation for their loss when a substantial delay occurred and the existing curial powers to award interest were thought to provide inadequate remediation. In particular, the powers of the respective courts were not uniform, existed only in relation to claims which were litigated, and often provided for rates of interest which were well below market rates. By contrast, the uniform requirement that insurers pay interest on claims at a realistic rate, whether or not a claim was litigated, was recommended as one “method of protecting the insured against loss caused by delay in payment of claims”. It was also intended to encourage quicker settlements by removing insurers’ incentive to delay.

239    The report provides limited guidance as to when it would be “unreasonable” for an insurer to withhold payment. Importantly, the ALRC accepted that some delays were readily explicable on the basis that an insurer requires a reasonable time in which to consider a claim and quantify the amount to which the insured was entitled: at 196 – 197 [319]. In a similar vein, reference was made to an earlier report of the Law Commission of England and Wales which had identified that it was not fair to regard the insurer as withholding payment until a claim to indemnity had been presented and investigated: at 198 [321] quoting Law Commission, Law of Contract: Report on Interest (Report No 88, 1978).

240    There is an apparent imprecision between the ALRC’s stated concern with delays which went beyond the period of time necessary to consider and quantify a claim, and its recommendation of a provision which applies from “the day as from which it was unreasonable for the insurer to have withheld payment”. Nevertheless, it was the recommended wording which was adopted by the Parliament and it is at least arguable that the issue of reasonableness raised by s 57(2) may take into account further circumstances, including those which the insurers submitted made the present appeals exceptional.

241    The Explanatory Memorandum to the Insurance Contracts Bill 1984 (Cth) provides no further clarification concerning the intended operation of s 57 and identified a similar rationale for the introduction of that provision: at 82 – 83 [188] – [191].

The significance of a bona fide dispute as to liability

242    The submission that an insurer was not acting unreasonably in withholding payment until a bona fide dispute as to liability was resolved by a court was rejected by Cole J in Bankstown Football Club Ltd v CIC Insurance Ltd (unreported, Sup Ct, NSW, 17 December 1993). His Honour’s opinion as to the manner in which s 57(2) operated was as follows:

In my view, section 57 is directed to a determination of the point of time at which empirically, it can be stated that it was unreasonable to decline to make payment. That decision is not to be determined simply by a determination of whether or not there was a bona fide dispute regarding the entitlement to payment. It is rather to be determined by a finding as to whether or not there was liability.

If there was liability found and the insurer to pay, then the presumption must be that the insurer would be deemed to know of that obligation as ultimately determined, even though it may bona fide have held a different view at all times prior to determination, at least at the first instance level, in relation to the question of liability.

A reasonable period is to be given to the insurer to investigate and determine its position but if it adopts an incorrect position in relation to its obligation to pay under the policy, that, in my view, does not mean that simply because that incorrect position is adopted on a bona fide basis, it becomes reasonable for the insurer to decline to pay the sums otherwise due. That seems to me to be the correct interpretation of section 57(2), particularly in circumstances of section 57(1) of the Act, where an insurer is liable to pay to a person an amount under a contract of insurance.

243    This approach was subsequently endorsed by a majority of the New South Wales Court of Appeal: CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 8 ANZ Ins Cas 61-232. The issue was not taken on appeal to the High Court: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 410 – 411, however, it is notable that the majority of that Court described the approach at first instance as being that, “the existence of a bona fide dispute … is not necessarily an answer to the complaint that the insurer has been acting unreasonably”: at 410.

244    The approach of Cole J has also been approved in subsequent first instance decisions, including Hams v CGU Insurance Ltd (2002) 12 ANZ Ins Cas 61-542 (at 76,363 [27]) and HIH Casualty & General Insurance v Insurance Australia Ltd (No 2) (2006) 14 ANZ Ins Cas 61-685 (HIH Casualty (No 2)). In the latter decision, Bongiorno J expressed agreement with Cole J’s approach and stated (at 75,253):

Once the court has rejected the insurer’s defence to a policyholder’s claim, that defence becomes irrelevant as does the fact that the insurer had a bona fide belief in its efficacy. To hold otherwise would put a premium on erroneous advice. Taken to its logical extreme, an insurer which relied upon incorrect legal advice or an inadequate report of a loss adjuster to form a belief as to the possibility of its successfully defending a policyholder’s claim would be advantaged by having obtained bad legal or loss adjusting advice. The successful policyholder would be correspondingly disadvantaged by the same irrelevant circumstance.

245    In Sayseng v Kellogg Superannuation Pty Ltd (2007) 213 FLR 174, Nicholas J further affirmed the correctness of the approach of Cole J. His Honour stated (at 176 – 177 [7]):

In my opinion it should now be accepted that the correct approach to be taken by the court on this question is that taken by Cole, J in Bankstown Football Club. In my assessment, the cases to which I have referred establish that the question of reasonableness is to be judged by reference to the true position in respect of the claim with allowance to be made for the insurer to have a reasonable period of time within which to investigate the claim and to consider its position. The discretionary determination is to be made having regard to the particular circumstances of the case, including the probable issues which require investigation. Under the Act the court is not required to evaluate and pronounce upon the opinion or decision-making process of the insurer. It is not relevant that the insurer acted bona fide in denying the claim, or when the judgment of the court established the insurer’s liability to pay it. In short, the award will be calculated on the basis of what the court finds is a reasonable time for completion of the insurer’s investigation of the claim. Put another way, in my opinion, the insurer is not automatically liable to pay interest from the day on which it became liable to pay to a person an amount under a contract of insurance. Under s 57(2) liability to pay interest is to be calculated with regard to the day on which it was unreasonable for the insurer to withhold payment of the amount after it had become liable to pay it in response to a claim.

246    Later cases have generally referred with approval to one or more of the approaches of Cole J, Bongiorno J and Nicholas J set out above: see e.g. McConnell Dowell Middle East LLC v Royal & Sun Alliance Insurance Plc (No 2) [2009] VSC 49 (Royal & Sun Alliance) [42]; Fitzgerald v CBL Insurance Ltd [2014] VSC 493 (Fitzgerald) [415] – [420]. In Mutual Community General Insurance Pty Ltd v Khatchmanian (2013) 17 ANZ Ins Cas 61-974 (Khatchmanian), the Victorian Court of Appeal approved the passage from HIH Casualty (No 2) set out above and concluded that the primary judge in that case had erred in taking into account the insurer’s subjective belief that the insured had committed arson: at 73,482 [42] – [43].

247    The Court of Appeal’s approach in Khatchmanian of ascertaining the period of investigation justified by the objective circumstances is consistent with the manner in which Beach J described the issue in Australian Pipe & Tube [291]. It is also consistent with the underlying purpose ascribed to s 57 in the Explanatory Memorandum and in the ALRC Report. Like more general powers to award interest, the provision is intended to compensate a successful insured for the detriment of being kept out of money to which it is found to have been entitled: Elders Ltd v Swinbank (2000) 96 FCR 303 at 312 [32]. That purpose is qualified by the acceptance of the practical need of an insurer for time to determine that it is liable: ALRC Report at 196 – 197 [319].

248    The cases referred to above ultimately establish that what is a reasonable period of time to investigate a claim is a question of fact to be determined objectively by reference to the circumstances of each claim for indemnity which the insurer had to consider: O’Neill v FSS Trustee Corp [2015] NSWSC 1248 [29] – [31]. Failed or abandoned defences raised by an insurer in good faith must be ignored in ascertaining that period of time, but the existence of objective circumstances calling for investigation may nevertheless be relevant: Fitzgerald (No 2) [22] and the cases there cited. As is explained below, it may also be relevant that the insured failed to provide information reasonably required by the insurer to investigate the claim or that the basis of that claim changed. What is required is a determination of the day on which a reasonable insurer would have paid out the claim on which the insured did succeed, assuming the insurer reached the factual conclusions ultimately found by the court and otherwise adopted the correct view as to its legal position.

249    This conclusion is supported by reference to the insured’s general rights under a policy of insurance. The payment of the premium entitles the insured to indemnity upon the sustaining of loss caused by an insured peril and, usually, the making of a claim. As with any contractual right, upon the occurrence of the events giving rise to the right of indemnity the contractual entitlement becomes due, save that it might be expected that the insurer has a sufficient time and information to evaluate the claim. Nevertheless, once the entitlement to payment under the contract arises and is not made, the person so entitled commences to suffer the loss of the use of that money whilst the obligor obtains its benefit. The payment of interest at an appropriate rate by the delaying obligor both disgorges the unjustified benefit received by reason of the improper retention of the funds and restores the payee to its bargained-for position. Neither under the law of contract generally nor insurance law does a mistaken but bona fide belief by the obligor that they are not liable to pay the party entitled, alter the actual rights and obligations between them. In this respect, s 57 operates to ensure that the contractual rights of the insured are fulfilled and the approach adopted by Beach J in Australian Pipe & Tube reinforces that.

250    EWT submitted that an insurer’s denial of a claim gave rise to an assumption or inference that the time it required to investigate and consider the claim had elapsed by the date of such denial. The authority of Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 cited in support of that proposition did not concern s 57(2) and is of no assistance in relation to the present issue. Nevertheless, the fact of an insurer’s having denied a claim has obvious relevance: see e.g. Ransley v Chubb Insurance Company of Australia Ltd [2015] NSWSC 1350 [16]. The highest this can be put is that the fact that an insurer denies a claim whilst possessing the necessary information to make a decision as to indemnity, provides strong inferential support for the conclusion that the reasonable period of time required to consider that information has elapsed by then. However, it is not of itself be conclusive.

Are the circumstances of the present appeals exceptional?

251    In essence, the insurers accepted that Australian Pipe & Tube and the earlier cases describe the “ordinary position”, but submitted that the exceptional or unique circumstances of these matters make it reasonable for them to continue to withhold payment. The relevant circumstances were most comprehensively stated by Swiss Re in its written submissions as follows:

a.    First, LCAM’s claim arises in unique circumstances, which include forming part of an industry test case, advanced with the co-operation of insurers, the Insurance Council of Australia, the Australian Financial Complaints Authority (AFCA), and other industry regulators.

b.    Secondly, and relatedly, in dealing with the complaint made to it by LCAM in relation to its claim, AFCA agreed to this proceeding being dealt with as a test case (J[1]).

c.    Thirdly, LCAM has, over time, changed the basis on which its claim is advanced and is yet to provide Swiss Re with material that would establish the amount to which it would be entitled to receive if cover were available (despite that being a requirement under clause 14.2.1 of the LCAM Policy).

d.    Fourthly, to advance the objectives of the test cases, the proceedings were commenced by Swiss Re at an early stage and have been advanced expeditiously, including on appeal, to enable the prompt determination of the issues and any appeals.

252    Those circumstances, and those relied upon by the primary judge (PJ [415]), generally concerned the fact of the litigation of these matters as part of a test case, with the cooperation of the insureds and certain third parties. However, the test case is primarily a vehicle for litigating the insurers’ position for their future guidance. It was not otherwise articulated why the circumstances of the test case had any logical relevance to the issue of reasonableness. In large part, they simply went to demonstrating the bona fides of the insurers’ subjective uncertainty as to whether they are liable or belief that they are not liable. The authorities referred to above demonstrate that this underlying feature is not relevant. Far from being exceptional, there is no basis for concluding that the way in which these matters are being litigated is any more relevant to the issue raised by s 57(2) than an insurer’s bona fide belief as to its liability in relation to an individual claim. The fact that the test case has been advanced with the cooperation of the insureds and third parties does not alter that position, particularly since the insurers have denied their claims. If it was unreasonable for an insurer to withhold payment as from the date on which it denied its insured’s claim, it cannot subsequently become reasonable for it to continue to withhold such amount because the insured, amongst others, has agreed to their claim being determined as part of the test case.

253    It is also irrelevant to s 57(2) that an insurer has succeeded at first instance. If that decision is overturned on appeal, it does not reflect the true position against which the question of reasonableness is to be judged: see e.g. Worth v HDI Global Specialty SE (2021) 393 ALR 93 (Worth v HDI Global Specialty). The reasonableness of an erroneous belief is not relevant to its relevance.

254    The third circumstance identified by Swiss Re may be relevant. In Fitzgerald, Sloss J considered a claim for “pre-issue” interest pursuant to s 57 in circumstances where the claim advanced on behalf of beneficiary employees had changed after the issue of proceedings. Having concluded that the claim pursued at trial bore “little resemblance” to the claim either notified to the insurer or pleaded, her Honour rejected the claim for interest: Fitzgerald [428], [436], [439]. For reasons parallel to those supporting a reasonable time for an insurer to investigate and consider a claim, that the whole nature of the claim had changed justified a qualification to the general position is sound in principle. The period of time which a reasonable insurer would require to investigate and consider a claim cannot elapse until the claim which ultimately succeeds has actually been advanced or becomes apparent. However, this requires more than amendments to pleadings which do not change the essential nature of the claim: Royal & Sun Alliance [45] – [46].

255    The alleged failure to provide information required by the insurer to consider and quantify the amount of a claim is a separate matter but with the same underlying rationale. It may be relevant that the insured has delayed providing necessary information: see e.g. Preston v AIA Australia Ltd [2013] NSWSC 282 [87]. The information which is “necessary” is such information as a reasonable insurer would have required to consider a claim: Royal & Sun Alliance [47]; Triffitt v Australiansuper Pty Ltd (2007) 214 FLR 407 at 415 [29]. An insurer cannot have reasonably withheld payment merely because the insured had not provided all the information which was ultimately adduced at the final hearing of the matter, nor on the basis that, having had the claim denied, the insured did not subsequently provide information necessary to quantify the amount of the claim: VL Credits Pty Ltd v Switzerland General Insurance Co Ltd (No 2) [1991] 2 VR 311 at 320. Instead, it is appropriate to consider when a reasonable insurer would have accepted and quantified the claim, having regard to any actual limitations as to when the necessary information became available: see e.g. Fitzgerald (No 2) [23] – [24]. It may also be unreasonable for the insurer to fail to pay its best assessment, from time to time, of the amounts to which the insured is entitled, even if there were other amounts in respect of which a reasonable insurer would not be satisfied the insured was entitled: see e.g. Kernaghan v Corrections Corp of Australia Staff Superannuation Pty Ltd (No 3) [2007] FCA 2018 [9].

Conclusion in relation to section 57

256    It follows that the learned primary judge erred in her conclusions, albeit predicated on the assumed position that the insureds were entitled to indemnity, as to the date from when it was unreasonable for the insurers to have withheld payment of any amounts to which the insureds were entitled. Unfortunately, the submissions advanced on appeal do not enable a complete re-examination of that issue in relation to the claim of each appellant insured. Although Swiss Re amongst others advanced the submission that LCAM had changed its claim over time, neither its written nor oral submissions identified the extent to which the claims ultimately advanced at the hearing differed from those which were initially advanced to and rejected by the insurers. Swiss Re also failed to establish that the withholding of any amount to which LCAM was entitled would have been reasonable on the basis that the insured failed to provide information necessary for it to consider and quantify the claim.

257    The fact that an insurer has denied its insured’s claim does not give rise to a necessary inference that it became unreasonable as from that date for the insurer to withhold payment of any amounts to which the insured was ultimately found to be entitled. If it were necessary to ascertain such a date, it would be appropriate to invite the parties to provide further submissions to enable the Court to do so. However, in the circumstances, it is not necessary to do so: apart from the fact that the primary judge answered questions about the issue, the issue is unnecessary to answer in most appeals. The exception is in the Meridian appeal where the insured may be entitled to recover some of its losses and the opportunity for it to do so was left open by the primary judge. In that case the appropriate answer is:

If Meridian is entitled to cover, further evidence and submissions would be required in relation to interest

258    In relation to the other appeals, subject to variations in the particular questions posed to the Court, the questions relating to the entitlement to interest under s 57 should be answered as follows:

(a)    Is the insured entitled to interest?

No.

(b)    If yes, from what date?

Unnecessary to answer.

LCA MARRICKVILLE PTY LIMITED V SWISS RE INTERNATIONAL SE – NSD 1079 OF 2021

259    The insured in this matter, LCAM, sought indemnity pursuant to several limbs of a business interruption clause in a policy issued by Swiss Re. Its claim was dismissed at first instance and, on appeal, was confined to an alleged indemnity arising under either a catastrophe clause or a prevention of access clause. Before the primary judge, LCAM had also sought indemnity under a hybrid clause. While no appeal is made in respect of that claim, its existence is acutely relevant to the issues on appeal and, in particular, the proper construction of the catastrophe clause and the prevention of access clause. LCAM’s appeal and Swiss Re’s cross-appeal also raised more generic issues being, (a) whether, in the assessment of its loss, the insured was required to account for third party payments and benefits which it received and (b) whether the insured was entitled to interest pursuant to s 57 of the Insurance Contracts Act.

The relevant facts

260    There was no dispute as to the facts relevant to the issues to be determined by the Court.

261    LCAM is an insured, being an “Additionally Named Insured”, under a “Vertex Industrial Special Risks” policy P23089.04-00 placed with Swiss Re (the LCAM policy).

262    It conducts business as a laser therapy clinic offering services such as laser hair removal, cosmetic injectables, and skin treatments from its premises at Marrickville Metro Shopping Centre in the inner west of Sydney. Its premises comprised six treatment rooms, a reception and waiting room, and a storage space. Of the premises’ total area of 98 square metres, 77 square metres is open to the public.

263    The LCAM policy comprised a policy schedule with attached Endorsements dated 17 July 2019, and the standard “Vertex Industrial Special Risks 8018” wording dated August 2018. It was issued to LCAM on 17 July 2019, and the period of cover was from 30 June 2019 to 30 June 2020, 4:00 pm local time.

264    In 2020, the New South Wales Government made certain orders which negatively impacted LCAM’s business. They were as follows:

(a)    on 26 March 2020, the Public Health (COVID-19 Gatherings) Order (No 2) 2020 (NSW) (NSW Public Health Order (No 2)) came into effect;

(b)    on 1 June 2020, the Public Health (COVID-19 Restrictions on Gathering and Movement) Order (No 3) 2020 (NSW) (NSW Public Health Order (No 3)) came into effect; and

(c)    on 7 December 2020, the Public Health (COVID-19 Restrictions on Gathering and Movement) Order (No 7) 2020 (NSW) (NSW Public Health Order (No 7)) came into effect.

265    LCAM made its claim on the policy on 3 July 2020. Its receipt was acknowledged by Swiss Re on 9 July 2020.

266    On 29 September 2020, Swiss Re declined to indemnify LCAM. LCAM subsequently requested Swiss Re to reverse its declinature, however Swiss Re reaffirmed its determination that the policy did not respond to the claim.

267    On 26 October 2020, LCAM filed a complaint with AFCA in respect of Swiss Re’s declinature.

268    Although Swiss Re further considered LCAM’s claim for indemnity under its internal dispute resolution review process, it ultimately confirmed its position on 27 November 2020.

Policy wording

269    The structure of the LCAM policy is common to many forms of Industrial Special Risk policies. Section 1 is headed “Property Insurance” which, as the name suggests, is concerned with property damage and provides cover for damage occurring to the “Property Insured” during the “Period of Insurance”, with the indemnity being in the nature of all-risks cover. That is, cover is provided for damage to property, subject to the exclusion of certain items of property identified in cl 5 and the exclusion of certain causes of damage specified in cl 6 (i.e. the “perils” exclusions).

270    Next appears Section 2, headed “Interruption Insurance”, which deals with “loss” resulting from the “interruption of or interference with the Business” caused by “Damage” to property occurring during the “Period of Insurance” (cl 9.1.1), and a limited extension which provides cover for “loss” resulting from the “interruption of or interference with the Business” in consequence of certain events occurring during the Period of Insurance which are “deemed to be loss caused by Damage” (cl 9.1.2). It is this clause which is the main subject of disputation.

271    “Damage” is defined in the policy as meaning “physical loss, damage or destruction” and the expression “Property Insured” is defined as meaning:

all tangible property both real and personal of every kind and description belonging to the Insured or for Damage to which property the Insured is legally responsible or for which the Insured has assumed responsibility to insure prior to the occurrence of any Damage

(Original emphasis).

272    By the perils exclusions in cl 6, it is provided that Section 1 does not “cover Damage to any Property Insured caused directly or indirectly by or in connection with or arising from or occasioned through” certain specified matters and, relevantly, cl 6.1.2 specifies:

any order of any government, public or local authority involving the confiscation, nationalisation, requisition or Damage of any property, except acts of destruction at the time and for the purpose of preventing the spread of fire or any other cause not excluded from cover by Clause 6, unless such order involves the demolition of property deemed unsafe following Damage not occurring in circumstances which are excluded from cover by Clause 6;

(Original emphasis).

273    However, it is stipulated immediately thereafter that indemnity under Section 1 is extended for:

Damage caused by the action of a civil authority during a conflagration or other catastrophe for the purpose of retarding same and/or for the reasonable cost of removal of Property Insured at the Situation for the purpose of preventing or diminishing imminent Damage by, or inhibiting the spread of, fire or any other cause not excluded under this Policy and for Damage resulting from removal carried out in those circumstances.

(Original emphasis).

274    By cl 6.2.4, it is provided that the indemnity in Section 1 of the policy does not cover “Damage to any Property Insured caused by or occasioned through … disease”.

275    The insuring clause in relation to business interruption in Section 2 is cl 9.1 which, for present purposes, relevantly provides:

9.    Extent of Cover

9.1    The Insurer will indemnify the Insured in accordance with the provisions of Clause 10 (Basis of Settlement) against loss resulting from the interruption of or interference with the Business, provided the interruption or interference:

9.1.1    is caused by Damage occurring during the Period of Insurance to:

9.1.1.1    any building or any other property or any part thereof used by the Insured at the Situation for the purposes of the Business;

9.1.1.2    any property belonging to the Insured or for Damage to which the Insured is responsible, while such property is at any storage premises within Australia or at any situation within Australia where the Insured has any work or process carried out by others;

9.1.2    is in consequence of:

9.1.2.1    closure or evacuation of the whole or part of the Situation by order of a competent public authority as a result of an outbreak of a notifiable human infectious or contagious disease or bacterial infection or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease or consequent upon vermin or pests or defects in the drains and/or sanitary arrangements at the Situation but specifically excluding losses arising from or in connection with highly Pathogenic Avian Influenza in Humans or any disease(s) declared to be a listed human disease pursuant to subsection 42(1) of the Biosecurity Act 2015;

9.1.2.2 murder or suicide or attempted suicide or violent crime or armed robbery occurring at the Situation;

9.1.2.3 injury, illness or disease arising from or likely to arise from or traceable to foreign or injurious matter in food or drink provided from or on the Situation;

9.1.2.4 any of the circumstances set out in Sub-Clauses 9.1.2.1 to 9.1.2.3 (inclusive) occurring within a 5 kilometer radius of the Situation;

9.1.2.5     the action of a civil authority during a conflagration or other catastrophe for the purpose of retarding same;

9.1.2.6 the action of any lawful authority attempting to avoid or diminish risk to life or Damage to property within 5 kilometres of such Situation which prevents or hinders the use of or access to the Situation whether any property of the Insured shall be the subject of Damage or not,

occurring during the Period of Insurance. Such events shall be deemed to be loss caused by Damage covered by Section 2 of this Policy. Furthermore Clauses 12 and 13 shall not apply to the cover provided by this Clause 9.1.2.

(Original emphasis).

276    In these reasons, cl 9.1.2.1 is referred as a “hybrid clause” requiring causation from both the existence of a disease and the conduct of a public authority. Clause 9.1.2.5 is referred to as a “catastrophe clause”, and cl 9.1.2.6 is a “prevention of access clause”.

277    The word “Situation” is defined by the policy as being:

the Situation or Situations shown in the Schedule. Where the Situation specified in the Schedule is other than a single address, each separate address at which the Property Insured is located shall be one Situation for the purposes of this Policy, particularly in relation to the Limit of Liability and Sub-Limits of Liability.

(Original emphasis).

278    The Schedule specified the “Situation” to be:

Head Office Units 20 & 21, 39 Herbert St, St Leonards NSW 2065

and elsewhere in Australia including contract sites where the Insured has property or carries on business, has goods or other property stored or being processed or has work done.

279    In the present case, the relevant “Situation” was LCAM’s store located at Shop 45, Marrickville Metro Shopping Centre, 20 Smidmore Street, Marrickville NSW 2204.

280    The amounts expressed under the heading “Limit of Liability” in the Schedule were varied by an endorsement which provided:

The amount(s) set out hereunder represent the Insurer(s) maximum Limit(s) of Liability [sic: for] any one loss or series of losses arising out of any one event at any one Situation used by the Insured, subject to any lesser Limit(s) of Liability specified elsewhere in this Policy. The Policy Limit(s) and Sub Limit(s) are to apply in excess of the relevant deductible(s).

Section 1 & 2 Combined $25,000,000 in respect of the Laser Clinics and Skinstut Head Office - Units 20 & 21, 39 Herbert Street St Leonards NSW 2065;

Section 1 & 2 Combined $10,000,000 in respect of each other locations

281    That “Limit of Liability” was subject to the various sub-limits set out in the Schedule which, relevantly for the issues which were the subject of this appeal, included a sub-limit of $500,000 in the aggregate in respect of a claim under cl 9.1.2.1 (the hybrid clause).

The decision at first instance

282    In order to address the numerous issues raised by the appeal, cross-appeal and notice of contention, it is necessary to reiterate the primary judge’s reasons in some detail.

283    As her Honour correctly identified (PJ [201]), the interpretation of contracts and policies of insurance alike requires the Court to consider the words used by the parties in the context of the document as a whole and an attempt should be made to read the document as a coherent and integrated whole. Her Honour recognised that policies may include clauses which have overlapping operation and sometimes potentially inconsistent provisions. It was also observed that, as Allsop CJ said in Star first instance (at [166]), “overlap between different clauses of a policy does not require the business person to give meaning to the different clauses to eliminate their overlap with refined precision”.

The operation of cll 9.1.2.1 and 9.1.2.4 – the hybrid clause

284    The major issue in relation to LCAM’s claim for indemnity under the hybrid clause (cl 9.1.2.1) was the effect of the exclusion relating to losses arising from or in connection with any disease(s) determined to be a listed human disease pursuant to s 42(1) of the Biosecurity Act. As to its operation, her Honour held that:

(a)    cl 9.1.2.1 distinguishes between a disease which is a notifiable disease (in respect of which there may be cover) and a disease which is a listed human disease under the Biosecurity Act (which will be within the exclusion). It was observed (PJ [209]) that the types of diseases capable of being notifiable diseases under the Public Health Act 2010 (NSW) (Public Health Act (NSW)) were far more extensive than those capable of being determined to be listed human diseases under the Biosecurity Act;

(b)    as matter of construction, the expression “notifiable disease” referred to a “notifiable disease” for the purposes of the Public Health Act (NSW) and not a “national notifiable disease” listed under the National Health Security Act 2007 (Cth) (PJ [210]);

(c)    for the purposes of the exclusion, it was not a requirement that the disease in question be determined to be a listed human disease under the Biosecurity Act as at the date of the policy’s inception and it operated upon diseases determined to be a listed human disease arising during the Period of Insurance (PJ [212] – [213]);

(d)    the exclusion applied to an order made as a result of, relevantly, an infectious or contagious disease determined to be a listed human disease under s 42 of the Biosecurity Act, rather than losses arising directly from the occurrence of the disease (PJ [214] – [215]); and

(e)    in the present case, the orders which interrupted LCAM’s business each resulted from COVID-19, being a disease that had been determined to be a listed human disease pursuant to the Biosecurity Act, with the consequence that the exclusion in cl 9.1.2.1 operated to deny indemnity (PJ [206], [215]).

285    This aspect of her Honour’s decision was not subject to any appeal.

Section 54 of the Insurance Contracts Act

286    LCAM also did not appeal from her Honour’s determination (PJ [216]ff) that s 54 of the Insurance Contracts Act did not apply to the making of determinations under s 42 of the Biosecurity Act that a disease is a “listed human disease”. It had been submitted that the making of such determinations amounted to “some act of the insured or of some other person”, by reason of which the insurer was unable to rely to deny cover. Her Honour’s analysis correctly identified that the act of the Director of Human Biosecurity in making legislative instruments, by which diseases were determined to be listed human diseases, were not the acts of a person relevantly connected to or associated with the insured, the insurer, or the LCAM policy which was a necessary element for the operation of s 54.

The effect of exclusion in cl 9.1.2.1 on cll 9.1.2.5 and 9.1.2.6

287    A central issue in the primary judge’s decision was the extent to which the exclusion in cl 9.1.2.1 had the consequence of excluding diseases from cover provided by other clauses. Swiss Re had submitted that losses resulting from any disease determined to be a “listed human disease” could not be within the scope of cl 9.1.2.5 (the catastrophe clause) or cl 9.1.2.6 (the prevention of access clause). This was primarily founded upon the proposition that the policy had to be read as a whole so as to give a congruent operation to the insuring promise in cl 9.1.2.1. That clause, it was submitted, was the extent of the parties’ agreement as to the basis on which cover would be provided for business interruption consequent upon orders by public authorities in response to disease and should be accorded priority over the more general provisions (cll 9.1.2.5 and 9.1.2.6) which followed. Were it otherwise, cl 9.1.2.1 and the specific $500,000 sub-limit would be rendered substantially redundant or nugatory.

288    Her Honour agreed and concluded (PJ [240]ff) that, reading the policy as a whole, the existence of cl 9.1.2.1 had the consequence that other clauses did not apply to losses arising from or in connection with diseases within the scope of the exclusion, being those declared to be listed human diseases under the Biosecurity Act. Her reasons for that conclusion were as follows:

(1)    Clauses 9.1.2.1 and cl 9.1.2.4 (which extends the scope of cl 9.1.2.1) exclusively provide for loss as a result of an outbreak of a notifiable human infectious or contagious disease or bacterial infection or a discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease (in circumstances where cl 9.1.2.3 does not apply) (PJ [241]). Although the cover in cl 9.1.2.3 was of a different nature from that in cl 9.1.2.1, it was possible that occasions might exist where the cover overlapped or where losses excluded from cl 9.1.2.1 were within cl 9.1.2.3.

(2)    Whilst cll 9.1.2.5 and 9.1.2.6 generally deal with the same subject matter as cll 9.1.2.1 and 9.1.2.4, in that they all cover loss resulting from the actions of an authority, it is cl 9.1.2.1 which operates in respect of the actions of a public authority consequent upon the outbreak of the specified types of disease (PJ [242]). The broader cl 9.1.2.5, if construed as being capable of applying in relation to disease, would be inconsistent with the specific provision of cl 9.1.2.1 because it would not:

(a)    be confined to notifiable diseases;

(b)    require an order of a public authority;

(c)    require the order to involve closure or evacuation of the whole or part of the Situation;

(d)    exclude “Highly Pathogenic Avian Influenza in Humans” or any disease determined to be a listed human disease pursuant to s 42(1) of the Biosecurity Act; or

(e)    be subject to a sub-limit on liability in aggregate of $500,000.

(3)    The same conclusion applied to cl 9.1.2.6 for similar reasons (PJ [243]).

(4)    Further, were cl 9.1.2.5 and 9.1.2.6 to apply to diseases, they would expunge the careful distinction drawn in cl 9.1.2.1 between notifiable diseases and listed human diseases as well as the requirement for an order of a competent public authority requiring closure or evacuation of a premises (PJ [244]). These matters would render the inconsistency between the provisions to be profound and would not result in a reasonable or commercial operation of that part of the policy.

(5)    It was also important to recognise that, as cl 9.1.2.1 applied to an authority responding to an outbreak of disease and cl 9.1.2.6 applied to a risk to life, the latter had a potentially wider field of operation when it came to actions by an authority as a result of a disease (PJ [245]). However, if the latter did apply to a risk to life from a disease, the incongruities referred to above would remain. Further, as cl 9.1.2.6 would operate where there was a mere risk of an outbreak of a disease, it would mean the authority’s actions in relation to a risk of disease would have a greater impact than would a perceived actual outbreak of disease.

289    Her Honour further noted (PJ [246]) that, as a matter of construction, cl 9.1.2 was a compendious and structured provision rather than having the appearance of a patchwork of “bolted on” provisions. This indicated that the relevant sub-clauses should have a consistent and coherent application and negated the suggestion that cll 9.1.2.5 and 9.1.2.6 were applicable to the actions of an authority in respect of a disease which would have the consequence that the limitations in cll 9.1.2.1 or 9.1.2.3 could be circumvented. As a result, cll 9.1.2.5 and 9.1.2.6 ought to be construed as not extending to the subject matter covered by cll 9.1.2.1 and 9.1.2.3.

290    Her Honour rejected LCAM’s arguments to the contrary (PJ [247]) because:

(a)    the existence of the exclusion in cl 9.1.2.1 in relation to listed human diseases was, of itself, sufficient to indicate that cll 9.1.2.5 and 9.1.2.6 were not intended by the parties to apply to diseases;

(b)    the existence of the sub-limit on liability for diseases also indicated that to be so;

(c)    cl 9.1.2.3 is specific and self-contained and operates according to its terms;

(d)    cl 9.1.2.1 is more specific than cll 9.1.2.5 and 9.1.2.6;

(e)    whilst there can be an overlap between cll 9.1.2.1 and 9.1.2.3, that is not possible with respect to cll 9.1.2.5 and 9.1.2.6 on the one hand and cl 9.1.2.1 on the other;

(f)    the interpretative presumption (arising from giving precedence to specific clauses over more general ones) is not weak; and

(g)    the insured peril in cl 9.1.2.1 identifies the extent to which cover is provided for disease other than in cl 9.1.2.3, being a notifiable disease resulting in an order as described but not within the exclusion.

291    Her Honour seemed to accept (PJ [248]) that in the process of construction there is a difference between, on the one hand, mere tautology or redundancy which is common in insurance policies and legal documents of all kinds: Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266 at 274; and, on the other, incoherence and incongruence. In this matter, the construction advanced by LCAM would result in there being a profound incoherence and incongruence in the policy and, given its careful structuring, that could not have been intended. Indeed, her Honour reached the conclusion (PJ [251]) that reading cll 9.1.2.5 and 9.1.2.6 as applying to diseases would, given the text, context and purpose of the policy, result in commercial absurdity. That conclusion did not depend on LCAM’s preferred construction giving the clauses an overlapping operation, but depended on that construction rendering the relevant clauses incongruent (PJ [252]).

292    As a result, her Honour concluded that if the LCAM policy responded to the circumstances at all, it would be via cl 9.1.2.1 (as expanded by cl 9.1.2.4) or cl 9.1.2.3 (PJ [253]).

293    Her Honour added the additional justification for her construction that the hybrid clauses, including that in the LCAM policy, require a “closure or evacuation” of premises or situations in the case of an order resulting from a human infectious or contagious disease (PJ [254] – [255]). Her Honour observed that this requirement made commercial sense because it reflected the intention that persons who would otherwise ordinarily be entitled to enter and remain on the premises are precluded from doing so, thereby achieving the object of restricting the spread of the disease. Conversely, the mere prevention or restriction of access to premises consequent upon damage or threat or risk of damage to persons or properties was logical. The damage or threat of damage contemplated is not of a kind that would spread, such as a human infectious or contagious disease, with the result being that the appropriate measure is the prevention of persons accessing the premises. The awkwardness of the concept of “damage or threat of damage to persons” applying to the risk presented by disease further suggests that the contemplated damage or risk involves physical injury or death, not the kind of harm which might result from disease.

The operation of cll 9.1.2.1 and 9.1.2.4

294    Her Honour construed the words “at the Situation” in cl 9.1.2.1 to qualify “outbreak of a notifiable human infectious or contagious disease” and the entire expression, “discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease” and not merely the words, “discovery of an organism” (PJ [256]). It follows that, if an organism was discovered, whether or not “at the Situation”, and was likely to result in the occurrence of a notifiable human disease or contagious disease “at the Situation” (or, under cl 9.1.2.4, within five kilometres of the situation), the clause would be triggered.

295    Her Honour then considered (PJ [258]ff) the issue of whether any of the orders which were made and which resulted in the interruption of or interference with LCAM’s business were the result of an “outbreak of a notifiable human infectious or contagious disease” or the “discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease” at or within a five kilometre radius around the Situation. Of particular concern was the issue of whether an insured would be required to identify and establish those matters which actuated the making of the orders or would be entitled to rely upon the recitations on the face of the orders.

296    In accordance with the reasoning in the early part of her judgment, her Honour concluded (PJ [261] – [262]) that clauses of this nature operated such that if, on the face of an instrument, an explanation was provided as to the reason for its making, there would need to be a good reason to attempt to go behind it for the purposes of ascertaining some additional or alternative foundation. Such an occasion would rarely arise and it is unlikely that any relevant evidence could be suitably obtained. On this basis, her Honour held (PJ [263]) that the insured was not required to objectively prove the existence of the relevant disease in order for a provision such as cl 9.1.2.1 to operate. The question of its actual existence was said to be mediated through the authority’s order in that the only relevant objective facts were the existence of the order and whether it resulted from the specified circumstances. In this way, an authority might issue an order in the mistaken belief of an outbreak, but the requirements of cl 9.1.2.1 may nevertheless be satisfied. This construction, her Honour held (PJ [267]), made far more commercial sense than requiring the parties to ascertain and potentially dispute the existence or non-existence of the identified circumstances, including by reference to matters that were not known or considered by the authority. As her Honour observed (PJ [268]), the parties had evinced a common intention that the objective actions of the authority determined the availability of cover and that they were “stuck with the actions of the authority taken in the circumstances known to the authority at the time as the determinant of cover”.

297    Returning to the essential issue of whether the orders causing the closure or evacuation resulted from the specified circumstances, her Honour held (PJ [270]) that the starting point in most cases must be the terms of the orders made and any accompanying contemporaneous explanatory material. After examining the several orders made pursuant to s 7 of the Public Health Act (NSW), none were capable of being seen as resulting from anything happening at or within a five kilometre radius of the insured Situation. Rather, they were all based on the Minister’s concern as to the public health risk that COVID-19 presented to the State of New South Wales as a whole (PJ [275]). To have concluded otherwise would have rendered the required causal connection between the orders and the five kilometre radius around the Situation to be meaningless. On a textual approach, the orders were not the result of an outbreak of a disease at or within five kilometres of the Situation or the discovery of an organism likely to result in an occurrence of the disease within that area. The circumstances within the radius were not a proximate or any other kind of cause of any of the orders (PJ [279]). Further, proof that there were cases of COVID-19 within the five kilometre radius did not prove that the orders resulted from an outbreak or occurrence of that disease in that area. Although a different approach had been adopted in FCA v Arch and Hyper Trust (No 1) (PJ [281] – [282]), the insured peril in cl 9.1.2.1 was an order made consequent upon the fact of an outbreak or discovery of an organism, rather than the risk or threat of COVID-19. Further, on the evidence, there was nothing to suggest that the orders were in response to anything which had occurred within the five kilometre radius.

298    Her Honour then went on to consider whether there was an “outbreak” of COVID-19 within the five kilometre radius which might have caused the making of the public health orders. She concluded (PJ [287]) that cl 9.1.2.1 treated the word “outbreak” as being synonymous with “occurrence”, being an “event” of such a disease and “something which happens at a particular time, at a particular place, in a particular way”: Axa Reinsurance (UK) plc v Field [1996] 1 WLR 1026 at 1035. However, her Honour was construing the word “outbreak” in the context of 9.1.2.1 and had recognised that the concept of “outbreak” was disease dependent. In this respect, if the question was whether there was an outbreak of COVID-19, her Honour concluded, in accordance with the reasons referred to previously, that those circumstances would be satisfied by the presence of a person within the community (being a non-controlled setting) with the disease. After considering the evidence adduced by the parties, her Honour concluded that there was nothing capable of supporting a rational inference that, at the relevant times, there was any person with COVID-19 in a non-controlled setting and capable of transmitting that disease within the relevant radius. Therefore, even if the clause was conditioned upon there being an actual outbreak, as opposed to the authority’s perception, there was no such outbreak (PJ [310], [314]).

Closure or evacuation by order

299    Her Honour then considered the meaning of the expression “closure or evacuation” and rejected Swiss Re’s submission that those words required that the Situation be unable to be accessed or occupied in any way (PJ [317]). At the very least, the inability to access part of the Situation would satisfy the requirement. Whether a restriction imposed by an order is capable of constituting a closure of the whole or part of the Situation will depend upon the nature of the restriction imposed, the nature of the premises, and the nature of the business being conducted (PJ [318]).

300    In LCAM’s case, its business required access by the public for beauty treatment. That Situation could be closed (and was closed) by an order which in substance prevented the public from accessing the business premises (PJ [319]): cf. Cat Media Pty Ltd v Allianz Australia Insurance Ltd (2006) 14 ANZ Ins Cas 61-700 at 75,433 [59] – [60] (Cat Media). As her Honour noted, the NSW Public Health Order (No 2) required the business premises to be closed to the public which necessarily involved the closure of the Situation (PJ [320]). That conclusion did not change even though a person or persons might still access the office component of the Situation.

301    Her Honour then concluded (PJ [321] – [326]) that it was not until LCAM was entitled to admit members of the public (albeit restricted in number) to its premises for treatment that it could be said that they were not subject to closure.

Conclusions as to cl 9.1.2.1

302    Consequent upon the above conclusions, the primary judge held (PJ [327]) that the exclusion in cl 9.1.2.1 applied such that no cover was provided by that clause either by itself or as expanded by cl 9.1.2.4. Moreover, it was apparent from the face of the NSW Public Health Orders that they did not result from an outbreak of a notifiable human infectious or contagious disease either at the Situation or within five kilometres of it, or the discovery of an organism likely to result in the occurrence of such a disease within five kilometres of the Situation (PJ [328]). It was further held that there was no evidence that there was an outbreak of a relevant disease within the radial area or a discovery of an organism likely to result in an occurrence of a relevant disease within that area, as required by the clause (PJ [329]). Even if such an event might be identified, it would not satisfy the requirement that the order or orders resulted from that fact.

303    As noted earlier, there was no appeal from the learned primary judge’s conclusions in relation to the operation of cl 9.1.2.1 either by itself or together with cl 9.1.2.4. However, it was necessary to describe her reasons relating to it in detail given the reliance on its systematic and detailed character as having a major influence on the construction of the other parts of cl 9.1.2.

Clause 9.1.2.5 – the catastrophe clause

304    Her Honour then addressed cl 9.1.2.5 (the catastrophe clause) and immediately observed that, if her conclusion that this clause could not apply to the actions of an authority relating to a disease (by reason of the existence of cll 9.1.2.1, 9.1.2.3 and 9.1.2.4) was wrong, then, in any event, it has nothing to do with disease (PJ [332]). This observation was relied upon by LCAM on appeal as indicating the existence of some error in the primary judge’s reasons on the basis that her conclusion was based only upon the observation that the earlier clauses “covered the field” in relation to disease. That submission should be rejected. As is apparent from her Honour’s reasons (PJ [333], [337]), the additional conclusion that cl 9.1.2.5 would not apply to diseases was based upon the determinations that:

(a)    the words “conflagration or other catastrophe” and “retarding” suggested the existence of a physical event like a conflagration, being a “large and destructive fire”;

(b)    the catastrophe must be an “other catastrophe” and “retarding” means slowing, delaying, hindering or impeding; and

(c)    the linking of “other catastrophe” with “conflagration” indicates that the “other catastrophe” is to be of a kind similar to a conflagration which involves a physical event. In effect, this meant that the maxim noscitur a sociis had some relevance.

305    Her Honour also observed (PJ [338]) that, if she was in error about such matters, then the catastrophe clause did respond in the circumstances of the present case. The primary reason for this conclusion was that “the catastrophe of the COVID-19 pandemic started in Australia by no later than 20 March 2020 when Australia closed its borders to all non-citizens and non-residents” (PJ [339]).

Clause 9.1.2.6 – the prevention of access clause

306    The learned primary judge had earlier concluded that the prevention of access clause did not apply to the actions of an authority consequent upon the existence of a disease (by reason of cll 9.1.2.1, 9.1.2.3 and 9.1.2.4). Like the catastrophe clause, her Honour considered that, if she were in error about that, then the prevention of access clause nevertheless had nothing to do with diseases (PJ [342]). Again, LCAM relies upon this conclusion as being in error as it was said to be based solely on the proposition that prior clauses had “covered the field”.

307    Her Honour identified (PJ [343]) that the actions of the authority required by cl 9.1.2.6 must be to avoid or diminish risk to life within five kilometres of the Situation and that those actions must prevent or hinder the use of or access to the Situation. Her Honour relied upon her earlier conclusions as to the operation of the hybrid clause when concluding that this requirement was not satisfied for the prevention of access clause either.

308    However, her Honour observed (PJ [344]) that were she in error about that, she would have accepted that the making of the orders constituted actions of a lawful authority attempting to avoid or diminish risk to life within five kilometres of the situation. In doing so, she rejected the submission that there needed to be a demonstrable risk to life or “Damage” to “Property” within the relevant limited geographical area or that the relevant action must be targeted to reducing that particular risk. In effect, there was no requirement in the clause that the action must result from the perceived existence of a risk within the five kilometre radial area. Moreover, if the action in question could reasonably be described as an attempt to avoid or diminish such a risk, it was irrelevant that it was also capable of being described as an attempt to avoid or diminish risk to life outside of that area. In that respect, the geographical requirement in cl 9.1.2.6 differed from that in cll 9.1.2.1 and 9.1.2.3.

309    Her Honour then concluded (PJ [346]) that the making of the NSW Public Health Orders by their terms was an attempt to avoid or diminish the risk to life in each and every part of New South Wales and that the threat or risk to each and every life in New South Wales was a proximate or equally effective cause of the making of the orders.

310    Her Honour further observed (PJ [350]) that there was no inconsistency between her approaches to cl 9.1.2.1 and cl 9.1.2.6 because, in the former, the order must result from the specified existing circumstances within the five kilometre radius and, in the latter, the action need not be the result of existing circumstances within that locality, but merely be an attempt to avoid or diminish risk of life there. It was further concluded that the NSW Public Health Order (No 2) prevented and hindered the use of and access to the Situation and that subsequent orders might possibly have hindered the use of the Situation by imposing limits on the number of persons who might be there (PJ [351]). It was observed by her Honour that evidence was required to demonstrate that a hindrance or interference had in fact occurred.

Causation and adjustment

311    On the assumption that the foregoing conclusions as to whether the policy responded to the circumstances had been in error, her Honour then considered the arguments relating to causation and adjustment of claims.

312    First, her Honour rejected Swiss Re’s contention that, even if an insured peril was established to be a proximate cause of the loss, the “trends clause” operated to require the quantification of loss to be adjusted to provide for the fact that the existence of COVID in the community would have prevented LCAM from trading in any event (PJ [379]). In doing so, her Honour adopted the approach of Lords Hamblen and Leggatt JJSC in FCA v Arch to the effect that the trends clause did not require an adjustment for the consequences of an underlying fortuity which was the same fortuity from which the insured peril arose. Her Honour rejected the suggestion that the trends clause could be construed as requiring an adjustment for circumstances involving the same cause of loss as the insured peril. This was because the trends clause could not be taken to have intended that the same underlying cause of insured and uninsured loss would be a circumstance within it. The fact that the trends clause used the expression “but for” was not sufficient to displace the reasoning in FCA v Arch. On the other hand, her Honour recognised (PJ [380]) that such a construction depended upon the nature of the insured peril in that, if there was not sufficient symmetry between it and “all effects of COVID-19 generally”, the uninsured circumstances would need to be taken into account in the application of the trends clause.

Basis of settlement – amounts saved

313    The primary judge then considered whether certain payments and financial relief that LCAM received from third parties would need to be deducted in calculating the amount that it could recover under the policy, on the assumption that her earlier conclusions about cll 9.1.2.1, 9.1.2.5 and 9.1.2.6 were wrong. In particular, the primary judge considered whether the third party payments and relief would be deducted, either as a “sum saved” pursuant to cl 10.1.3 of the LCAM policy, or under general principles applicable to contracts of indemnity. There were several different types of third party payments and relief, namely: (a) JobKeeper payments; (b) NSW Government grants; (c) rental waiver from a landlord; and (d) franchisor relief (see PJ [383] – [412]). The primary judge held that the savings resulting from JobKeeper and the rental waiver from the landlord had to be accounted for under cl 10.1.3 or general principles of indemnity (PJ [417], [420(5)]). It was further held that the franchisor relief had to be accounted for under cl 10.1.3 (PJ [413]). In relation to the NSW Government grants, her Honour held that these were act of grace payments and did not need to be taken into account (PJ [408]).

Interest pursuant to s 57 of the Insurance Contracts Act

314    As discussed previously, her Honour concluded (PJ [415]) that it was not unreasonable in the circumstances for Swiss Re to withhold payment of any amount to which LCAM was entitled pending the resolution of these proceedings, including any final determination on appeal. It followed that interest pursuant to s 57 of the Insurance Contracts Act would not be payable in respect of any earlier period. Necessarily, the significance of this conclusion depended on her Honour being incorrect in much of her earlier analysis.

Answers to questions and relief

315    The learned primary judge’s reasons record her answers to a series of questions posed by the parties in relation to the operation of the LCAM policy (PJ [356] – [362], [416] – [418]). Some, however, did not need to be answered by reason of the conclusions reached. As further evidence could not affect those conclusions, her Honour subsequently made a declaration to the effect that Swiss Re was not liable to indemnify LCAM in respect of its claim.

The appeals

316    LCAM’s appeal from the learned primary judge’s decision relates to a number of the questions answered by the primary judge as well as the declaration as to liability. In summary, the grounds of appeal were that the primary judge had erred in:

(a)    finding that the catastrophe clause (cl 9.1.2.5) and prevention of access clause (cl 9.1.2.6) were incapable of being engaged in the case of disease (Ground 1);

(b)    concluding that the expression “other catastrophe” in cl 9.1.2.5 meant a physical event requiring physical action to be retarded and did not include a pandemic of disease (Ground 2);

(c)    finding that Swiss Re was not obliged to indemnify LCAM pursuant to cl 9.1.2.6 (Ground 3);

(d)    finding that payments received under the JobKeeper scheme should be deducted from any amount payable to LCAM pursuant to the policy and, in particular, ought to have resolved that question by reference to the construction and application of the policy terms rather than any general law principle of indemnity (Ground 4); and

(e)    failing to find that, on any amounts for which Swiss Re was obliged to pay to LCAM, it was obliged to pay interest pursuant to s 57 of the Insurance Contracts Act from the date on which it denied indemnity (Ground 5).

317    Swiss Re filed a notice of contention in LCAM’s appeal by which it sought to uphold the first instance judgment in certain respects, albeit on different grounds. First, it was asserted that if COVID-19 amounted to a “catastrophe” within the meaning of cl 9.1.2.5, it ought to have been concluded that there was no catastrophe as at the date on which the NSW Public Health Order (No 2) came into force. Secondly, that if cl 9.1.2.6 otherwise responded to the claim, the orders relied upon by LCAM did not constitute an attempt to avoid or diminish risk to life within five kilometres of the Situation. Thirdly, that access to or use of the Situation was not prevented or hindered by the NSW Public Health Orders of 1 and 13 June 2020.

318    By a notice of cross-appeal, Swiss Re appealed from a number of matters arising from the primary judge’s decision. It is relevant to note from the outset that some of those matters concerned the operation of cl 9.1.2.1 despite the primary judge’s rejection of that clause as a foundation of any liability of Swiss Re to indemnify LCAM and the latter not appealing from that finding. Otherwise, by its cross-appeal Swiss Re challenged the primary judge’s answers to certain of the questions which had been posed to her.

319    In summary, the grounds of the cross-appeal were that the primary judge erred in:

(a)    concluding that, if cll 9.1.2.1 and 9.1.2.4 (the hybrid clause) otherwise responded to the claim, that a case of active (i.e. infectious) COVID-19 in the community (i.e. in a non-controlled setting) constituted an “outbreak” for the purposes of the hybrid clause (Ground 1);

(b)    determining that, if COVID-19 was a “catastrophe” within the meaning of cl 9.1.2.5 (the catastrophe clause) and that clause otherwise responded, then that catastrophe started in Australia by no later than 20 March 2020 (Ground 2);

(c)    holding that cl 9.1.2.6 (the prevention of access clause), if it otherwise responded, would respond to the orders of the NSW Government as being an attempt to avoid or diminish a risk to life within five kilometres of the Situation (Ground 3);

(d)    failing to conclude that access to or use of the Situation had not been prevented or hindered from 1 June 2020 onwards (Ground 4);

(e)    finding that, for the purposes of cll 8 and 10, no adjustments should be made for the existence and risk of COVID-19 in New South Wales (Ground 5); and

(f)    holding that amounts received by LCAM pursuant to the NSW “Small Business COVID-19 Support Grant” and “Small Business COVID-19 Recovery Grant” schemes would not have to be accounted for in assessing loss (Ground 6).

LCAM’s appeal

The scope of cll 9.1.2.5 and 9.1.2.6 – Appeal, Ground 1

320    This first ground of appeal was, in substance, that full force and effect should be accorded to the words of cll 9.1.2.5 and 9.1.2.6 in which case they would respond to LCAM’s claim, notwithstanding that a claim for indemnity under cll 9.1.2.1 or 9.1.2.4 would fail as a result of the exclusion in respect of diseases determined to be listed human diseases under the Biosecurity Act. Although by its submissions LCAM may be taken as having accepted that a contextual approach to the policy’s interpretation was required, in the application of that approach it sought to substantially limit the impact of the operation of other clauses on the construction of cll 9.1.2.5 and 9.1.2.6. As discussed in the preliminary part of these reasons, an important part of construing a policy as a whole is reconciling the respective operative effects of its provisions.

321    As framed, LCAM’s submission as to the basis of the primary judge’s determination in relation to this issue is slightly misstated. The essence of her Honour’s reasoning was that, whilst each of cll 9.1.2.1, 9.1.2.5 and 9.1.2.6 is concerned with the actions of an authority which adversely impact upon the insured’s business at the Situation, only the former clause relates to any actions consequent upon the occurrence of a disease. Further, as cl 9.1.2.1 limits the types of disease which might cause relevant action by an authority and the extent of indemnity under that clause is limited, it would result in profound incongruence were the consequences of an authority’s conduct resulting from the occurrence of a disease to be alternatively covered under cll 9.1.2.5 and 9.1.2.6.

322    Before dealing with LCAM’s submissions on appeal, it is important to keep in mind the following matters which give context to the issues to be considered. First, LCAM’s submissions were advanced in the absence of any detailed consideration of the operation of cl 9.1.2.1, largely due to the absence of any appeal in relation to the primary judge’s determination that no cover was available under that clause. As identified previously, her Honour had carefully considered the clause’s operation (PJ [200]ff) and especially the exclusion in respect of diseases determined to be listed human diseases under the Biosecurity Act. On the assumption that the exclusion did not apply, her Honour also dealt with particular aspects of the clause concerning whether there had been a “closure or evacuation” of the insured premises (PJ [316] – [326]), and whether any such closure was the result of an “outbreak” of disease or the discovery of an organism likely to result in a relevant occurrence (PJ [258] – [315]). The point to be made here is that the primary judge’s analysis of cl 9.1.2.1 demonstrated it to be a comprehensive provision dealing with the consequences of a governmental authority’s response to an outbreak of specific diseases, which imposed limitations on the circumstances in which cover would arise, and specifically excluded losses arising from significant diseases, some of which are likely to result in pandemic or pandemic-like circumstances. It is in that light that LCAM’s submissions need to be considered and, in particular, because if they are correct, they would have the necessary consequence of rendering the limitations and exclusions of cl 9.1.2.1 nugatory.

323    The second matter to keep in mind is that LCAM’s position is that, notwithstanding that its claim was for loss in consequence of an authority’s response in connection with a “listed human disease” which engaged the specific exclusion in cl 9.1.2.1, the parties should nevertheless be taken as intending that the claim might be covered by an associated extension. With respect, that would result in the more general clause (cl 9.1.2.6) effectively excluding the operation of the more specific (cl 9.1.2.1). The latter is explicitly directed to the occurrence of a disease by identifying the types of disease which might attract coverage (being notifiable human infectious or contagious disease or bacterial infection), and expressly excluding those in respect of which coverage will not extend (including listed diseases under the Biosecurity Act). By it the parties have carefully identified the nature and extent to which coverage will be provided consequent upon the occurrence of a disease. Conversely, cl 9.1.2.6 is broader and directed to the consequences of any type of event which might give rise to a risk to life or Damage to property. Whilst it contains geographical limits relating to the occurrence of the place in respect of which the relevant risk is to occur, the nature of the cause of the risk is untrammelled.

324    For the reasons given previously, LCAM’s submissions cannot be accepted. Ultimately, they do not lead to a construction which results in a coherent or congruent operation of the policy as does the construction reached by the learned trial judge. That is sufficient for the purposes of disposing of LCAM’s appeal as no error was demonstrated in the primary judge’s identification or application of those principles of construction. Further, as Swiss Re submitted, LCAM’s submissions did not seek to attack the primary judge’s constructional analysis in this respect. That is, perhaps, unsurprising given that her Honour adopted an entirely orthodox approach by seeking to ascertain the manner in which the several clauses might each have a relevantly consistent operation. She sought to ascertain whether cll 9.1.2.5 and 9.1.2.6 could apply to losses arising from or in connection with the actions of an authority consequent upon disease, but concluded that they could not as cl 9.1.2.1 (as expanded by cl 9.1.2.4) operated in such circumstances (where cl 9.1.2.3 (relating to diseases traceable to food or drink) was not applicable). Whilst, on the ordinary meaning of its terms, cl 9.1.2.5 and 9.1.2.6 might extend to cover the actions of a governmental authority in response to a disease, it is cl 9.1.2.1 which provides the only available cover for loss consequential upon the action of an authority as a result of any outbreak of a notifiable disease.

325    If LCAM’s submissions were to be accepted, it would have profound consequences for the policy’s operation in relation to the actions of authorities responding to a disease. First, it would negate the restrictions in cl 9.1.2.1 as to the type of diseases which might result in an indemnified loss. It would extend the types of diseases in respect of which the policy responds in that recovery would not be limited to notifiable human infectious or contagious diseases or the discovery of organisms likely to result in them. Similarly, the specific exclusions would be by-passed in that, whilst the consequences of Pathogenic Avian Influenza in humans and diseases determined to be listed human diseases pursuant to s 42(1) of the Biosecurity Act are excluded from the cover provided by cl 9.1.2.1, LCAM would be able to recover in respect of any interruption flowing from them under cl 9.1.2.5. It was not explained why the parties would have intended such a result. Further, under cl 9.1.2.1, the scope of losses flowing from the occurrence of a notifiable disease is limited to the consequences which flow from the actions of a public authority making orders, whereas if cl 9.1.2.5 accorded the scope contended for by LCAM, the indemnified loss would extend to that caused by any actions of a civil authority. Again, no coherent reason was advanced as to why the requirement in the former clause that limits cover to the consequences of the making of orders by an authority, should be avoided by reference to that latter clause. A similar comment can be made in relation to the requirement in cl 9.1.2.1 that the authority’s orders result in a closure or evacuation of the premises. On the wide construction of cl 9.1.2.5 advanced, that necessity is also rendered irrelevant. It would also have the additional consequences that the geographical limitations in cl 9.1.2.1 (as expanded by cl 9.1.2.4) would be avoided, as would the sub-limit on the insurer’s liability of $500,000.

326    The same anomalies would arise were cl 9.1.2.6 to be construed to apply to an authority’s response to disease and, although this clause applies in relation to the actions in response to a risk to life rather than an outbreak of disease and is therefore potentially much broader, that provides no justification for allowing it to effectively negate the requirements and limitations of cl 9.1.2.1. As the primary judge reasoned (PJ [245]), there is no logical reason for the parties to have intended that losses arising from government action as a result of a perceived risk of disease should be more extensive than those resulting from action in response to an outbreak.

327    Apart from the above conclusion that, in order to give the policy coherence and its provisions appropriate operative effect, cll 9.1.2.5 and 9.1.2.6 could not apply to disease, the primary judge also concluded that cl 9.1.2 imposed a confined and structured approach to the extension of cover. This was not a case where it might be thought that the individual extensions were accumulated in the policy without any thought as to the manner in which they would interrelate. “Bolted on” is the expression used to denote the aggregation of provisions in that way. Here, cl 9.1 adopts a methodical and logical structure. It divides loss resulting from business interruption between that consequent upon physical damage to property of the insured (cl 9.1.1), and losses from the other causes stated in cl 9.1.2. In the latter, cll 9.1.2.1 and 9.1.2.4 are concerned with the consequences of an authority’s action in response to a disease resulting in loss from business interruption and cl 9.1.2.2 applies in relation to the specific events of murder and suicide and serious crimes occurring at the Situation. Clause 9.1.2.3 concerns losses arising from the occurrence of diseases contracted through food or drink. Otherwise, cll 9.1.2.5 and 9.1.2.6 have their spheres of operation in relation to the consequences of the actions of civil authorities in respect of the stipulated matters. This structure of cl 9.1 strongly supports the inference that the several subclauses were intended to have independent spheres of operation. It also supports the conclusion that the more specific clauses such as cll 9.1.2.1 – 9.1.2.4 were intended to apply to the circumstances contemplated by them to the exclusion of the more general clauses such as cll 9.1.2.5 and 9.1.2.6.

328    Before this Court, as it did before the primary judge, LCAM submitted that the relevantly specified actions of the authorities, as well as the reasons for them as referenced in the several clauses, differed thereby giving them distinct fields of operation such that the broader clauses should not be read down. However, that difference is a distinction without any relevant meaning in this context. The short point is that if cll 9.1.2.5 and 9.1.2.6 applied to cover for losses consequent upon the actions of authorities due to the existence of notifiable human infectious or contagious diseases, the limits and restrictions on the cover intentionally imposed by cl 9.1.2.1 would effectively be rendered inefficacious for the reasons identified above.

329    It follows that the primary judge was correct to reject the submission that it was not necessary to read down cll 9.1.2.5 and 9.1.2.6 by reason of the existence of mere tautology or redundancy in the policy of the kind referred to in Teele v Federal Commissioner of Taxation (1940) 63 CLR 201 at 207. Quite rightly, her Honour identified (PJ [244], [251]) that, if the policy were construed as suggested by LCAM, it would result in profound incoherence and incongruence and construing cll 9.1.2.5 and 9.1.2.6 as applying to diseases would produce commercially absurd results.

330    Neither her Honour’s reasons nor conclusions were shown to have contained any error. Indeed, they were entirely correct and in accordance with well-established principles of contractual interpretation.

331    LCAM also submitted that the primary judge’s conclusion as to the scope of cll 9.1.2.5 and 9.1.2.6 was in error because it “sacrifices the ordinary meaning of the language used by the parties”, by reading down more general clauses by reference to the more specific hybrid clause (cl 9.1.2.1). There are a number of responses to that submission. First, the primary judge’s approach was to consider the subclauses of cl 9.1.2 together and give each appropriate meaning and operative scope, and it was that analysis which disclosed that cll 9.1.2.5 and 9.1.2.6 did not apply in circumstances where the existence of disease resulted in action by an authority. Secondly, even if it were the case that, on the natural reading of cll 9.1.2.5 and 9.1.2.6 they might apply in relation to government action in response to the existence of disease, there is no error in reading them so as to give other and more specific clauses operative effect. It is the consequential impact on the operation of other clauses which provides the occasion for the application of the principle which requires reading clauses in the context of the agreement as a whole so as to permit both a congruent and coherent operation of the policy and the efficacious operation of all provisions. As the authorities referred to earlier in these reasons establish, where possible, effect should be given to every part of an agreement and none should be treated as redundant. This principle was referred to by the New South Wales Court of Appeal in XL Insurance v BNY Trust Company as follows (at [72]):

The applicable principles with respect to redundancy of words in a contract were summarised by Ball J in AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd [2010] NSWSC 985; (2010) 15 BPR 28,199 at [13], as follows:

The general principle is that the words of a contract should be interpreted in a way which gives them an effect rather than a way in which makes them redundant: North v Marina [2003] NSWSC 64 at [45]; Davuro Pty Ltd v Wilkins [2000] FCA 1902, (2000) 105 FCR 476 at [152], [230]. That principle does not operate as an invariable rule. In some cases, it may be appropriate to interpret words in a way that makes them redundant. That may be appropriate where the alternative construction of the words is inconsistent with other provisions of the contract or where the alternative construction is inconsistent with the commercial purpose of the contract or where it appears that the words have been included out of abundant caution: see Re Strand Music Hall Co Ltd; Ex parte European and American Finance Co Ltd (1865) 35 Beav 153 at 159; 55 ER 853 at 856 per Sir John Romilly MR; Dryden Construction Co Ltd v New Zealand Insurance Co Ltd [1959] NZLR 1336; Beaufort Developments (NI) Ltd v GilbertAsh NI Ltd [1999] 1 AC 266 at 273-4 per Lord Hoffmann

332    Here there are no circumstances which justify a construction by which cll 9.1.2.5 and 9.1.2.6 should be read so as to negate the operative effect of cl 9.1.2.1. Whilst it can be accepted that the scope of separate provisions providing cover in policies of insurance might legitimately overlap, for the reasons given by the primary judge (PJ [202], [252]), the present case is not such an instance. The specific cover in cl 9.1.2.1 regulates the extent to which losses arising from government action consequent upon the existence of a disease (other than a food-borne disease) will be indemnified. The nature and extent of the circumstances on which that cover is conditioned would be rendered meaningless were a broad construction be given to cll 9.1.2.5 and 9.1.2.6, as would the specific limit of the insurer’s liability for loss arising in that way. For all that to be removed by a broad reading of cll 9.1.2.5 or 9.1.2.6 would necessarily result in incoherence and incongruity.

333    It is apt to mention that LCAM proffered limited explanation of how cl 9.1.2.1 or, for that matter, cl 9.1.2.3 would have any operative effect if cll 9.1.2.5 and 9.1.2.6 were to have the scope for which it contended. That issue is especially important here where loss arising from the conduct of government authorities acting in response to COVID-19 would fall within the express exclusion in cl 9.1.2.1. The simple answer is that they would have little or no operative effect and, for that reason, LCAM’s proposed construction tends towards commercial absurdity. For instance, it would follow that loss arising from government action consequent upon the outbreak of an infectious disease outside of the five kilometre radius of the Situation would be covered by cll 9.1.2.5 or 9.1.2.6, even though it would fall outside the specific cover in cl 9.1.2.1. Indeed, even if government action was caused by an excluded disease within that radial area, LCAM submits that any loss would nevertheless be covered by the broader provisions. In the course of submissions, Mr Finch SC submitted that the limitations in cl 9.1.2.1 were “self-contained” in the sense that they applied only to circumstances where that clause applied. However, that was merely another way of rendering them meaningless, because almost any claim under cl 9.1.2.1 could be brought under cll 9.1.2.5 or 9.1.2.6 by which those limitations could be by-passed. Conversely, the construction proposed by Swiss Re and accepted by the primary judge was capable of giving the policy a sensible and rational operation. The hybrid clauses cover losses arising from the actions of authorities in relation to the identified diseases, leaving a wide scope for cll 9.1.2.5 and 9.1.2.6 to operate according to their terms in relation to the actions of authorities consequent upon other occurrences and events.

334    Mr Finch SC also submitted that the reasonable reader of the policy would not understand that the limitations in cl 9.1.2.1 would apply to other extensions in cl 9.1.2 and, particularly so, because the tailpiece of that clause specifically referred to cll 12 and 13 not applying to it. Clause 12 excluded losses arising from business interruption consequent upon damage to the property identified in cl 5 of Section 1 other than specifically identified property, and cl 13 excluded losses arising from certain specified circumstances. So the submission went, the reasonable reader would assume that any operative exclusion to the scope of cll 9.1.2.5 and 9.1.2.6 would arise from other identified clauses rather than by way of implication of the exclusion in cl 9.1.2.1 being diseases determined to be listed human diseases under the Biosecurity Act. A similar submission was made in relation to that part of the policy which identified exclusions applying to all parts of the endorsement. These submissions should not be accepted. On the construction adopted by the primary judge, it is not the exclusion in cl 9.1.2.1 which operates beyond the scope of that clause but that the policy, read as a whole, has the effect that losses consequent upon the action of an authority caused by the occurrence of infectious diseases are solely dealt with by cll 9.1.2.1 and 9.1.2.4, and no other parts of cl 9.1.2. In this respect LCAM’s submission mischaracterised the basis on which the primary judge found the policy operated.

Clauses 9.1.2.5 and 9.1.2.6 are not concerned with disease

335    Mr Finch SC further submitted that the primary judge erred in reaching a conclusion that cll 9.1.2.5 and 9.1.2.6 do not apply to disease at all. Her Honour held (PJ [332]) that if her conclusion that cl 9.1.2.5 cannot apply in relation to the actions of authorities relating to disease (by reason of cll 9.1.2.1, 9.1.2.3 and 9.1.2.4) was in error, then she considered that the clause had nothing to do with disease in any event. A similar determination (PJ [342], [343]) was made in relation to cl 9.1.2.6. Mr Finch SC submitted that the primary judge’s reasoning erred in the latter conclusion because she had identified no additional reasoning in support of it. However, that submission is founded upon a misunderstanding of her Honour’s decision. In the paragraphs referenced, her Honour was simply identifying that if she was wrong in her conclusions with respect to cl 9.1.2.1 being the only one which responds to loss in consequence of the actions of an authority resulting from the occurrence of a disease, by the same reasoning, it (together with cll 9.1.2.3 and 9.1.2.4) were the only ones which responded to loss occurring as a consequence of a disease. The difference between the two being one was concerned with actions by authorities and the other concerned with diseases.

336    Again, no error has been shown with respect to the primary judge’s reasons in this respect.

Conclusion on the impact of cll 9.1.2.1, 9.1.2.3 and 9.1.2.4 on cll 9.1.2.5 and 9.1.2.6

337    It follows that the primary judge’s conclusion that when the policy is read as a whole, losses arising from business interruption consequent upon the actions of an authority due to the occurrence of an infectious disease are indemnified, if at all, within the scope of cll 9.1.2.1 and 9.1.2.4, and that cll 9.1.2.5 and 9.1.2.6 do not respond to LCAM’s claim. It was accepted by LCAM that its claim under the policy was not met by cll 9.1.2.1, 9.1.2.3 and 9.1.2.4, such that, if cll 9.1.2.5 and 9.1.2.6 did not apply to diseases, Swiss Re was entitled to the declaration that the policy does not respond to its claim in the circumstances before the Court.

338    The necessary consequence of the dismissal of Ground 1 of LCAM’s appeal is that Ground 3 must also be dismissed.

Clause 9.1.2.5 – the catastrophe clause – Appeal, Ground 2

339    LCAM submitted that if it were successful in overturning her Honour’s conclusions on the general construction issue, such that cll 9.1.2.5 and 9.1.2.6 might be construed according to their terms, its claim fell within cl 9.1.2.5 because the business interruption losses were in consequence of “the action of a civil authority during a conflagration or other catastrophe for the purposes of retarding same”. Specifically, it was submitted that the occurrence of COVID-19 in Australia was a “catastrophe” in respect of which the clause responded. Although LCAM did not succeed on that initial issue such that it is not strictly necessary to deal with Ground 2, given the nature of these proceedings as test cases and that the ground was fully argued by both parties, it is not inappropriate to address the submissions made.

340    In summary, the primary judge had concluded that cl 9.1.2.5 did not respond to the claim because: (a) the words “conflagration or other catastrophe” and “retarding” suggested that the clause was concerned with a “physical event” (PJ [333]); and (b) the linking of the “other catastrophe” with a “conflagration” indicated that the “catastrophe” was to be of a kind similar to a “conflagration”, involving a “physical event” capable of being retarded (PJ [333], [336]).

341    A similar issue as to the construction of a “catastrophe clause” arose in the Star appeal, but it is important to record that the evidence before the Chief Justice in that matter differed from that before the primary judge. As the Chief Justice observed (at [26]):

The applicant led a significant body of evidence in support of the proposition that the sudden and unexpected emergence, escape from China and rapid spread throughout the world of a highly infectious and potentially fatal novel pathogen was a catastrophic biological event with potential and actual drastic human and economic consequences.

(Original emphasis).

342    Further, Star had submitted that it was the rigor, breadth and intrusiveness of the government intervention and the impact of that intervention which was aptly described as a catastrophe. Ultimately, the Chief Justice accepted (at [202]) that “COVID-19 was, at the relevant time, a global catastrophe with at least an incipient existence in Australia. On Star’s submission, for the purpose of characterisation, the pandemic and the response thereto could not be disentangled.”

343    LCAM submitted that the primary judge ought to have given the word “catastrophe” its ordinary meaning which, on the assumptions made, she had accepted would include a “pandemic” (PJ [333] citing Star first instance [172]) as that would be the meaning given to it by a reasonable person in the position of the prospective insured.

The meaning of “catastrophe”

344    That submission raises the issue of the meaning of the word “catastrophe” which the parties disputed on several levels. It is useful to first consider a number of dictionary definitions. The Oxford English Dictionary (online) provided the following:

3.    

b.    esp. in Geology. A sudden and violent change in the physical order of things, such as a sudden upheaval, depression, or convulsion affecting the earth’s surface, and the living beings upon it, by which some have supposed that the successive geological periods were suddenly brought to an end.

4.    A sudden disaster, wide-spread, very fatal, or signal. (In the application of exaggerated language to misfortunes it is used very loosely.)

345    Although LCAM acknowledged that many definitions identify suddenness as a characteristic of the word, it submitted that its ordinary usage extends much further and that an earlier version of the Oxford English Dictionary included an additional meaning, being an “event causing great damage or suffering”.

346    The Macquarie Dictionary (online) gives the following meanings:

noun    1. a sudden and widespread disaster.

2. a final event or conclusion, usually an unfortunate one; a disastrous end.

3. (in a drama) the point at which the circumstances overcome the central motive, introducing the close or conclusion; the denouement.

4. a sudden violent disturbance, especially of the earth’s surface; a cataclysm.

347    It is difficult to deny that common to a number of these definitions is the suddenness and magnitude of the event constituting the catastrophe as well as the implicit characteristic of a physical phenomenon. On the other hand, such temporal matters are relative and depend upon the circumstances. In the case of a novel disease which is highly contagious and virulent, it is possible that, at least, its initial appearance and spread amongst the population could be sufficiently sudden to satisfy any such requirement.

The meaning of the expression “or other catastrophe”

348    Although the foregoing gives an indication of the nature of the meaning of the word “catastrophe”, it is necessary to consider the context of the policy. In cl 9.1.2.5, the word used in conjunction with “conflagration” and as part of the composite phrase “or other catastrophe”. It can be accepted that in this context the word “conflagration” may colour and give character to “other catastrophe” by the application of the maxim nocitur a sociis. It can also be accepted that if there were a number of categories of events identified followed by the words “or other catastrophe”, a stronger inference would have arisen that the parties intended to use the word “catastrophe” ejusdem generis with any genus so formed. Here, where there is only one comparator mentioned, it may be that the inference to be drawn is less strong. However, the High Court’s decision in Telstra Corp Ltd v Australasian Performing Right Association Ltd (1997) 191 CLR 140 indicates that a presumption may nevertheless be formed. There, the question was whether the playing of music on hold for the purposes of a telephone service was the transmission of a work for the purposes of the Copyright Act 1968 (Cth). That Act provided that “the transmission of a work ... to subscribers to a diffusion service shall be read as a reference to the transmission of the work ... in the course of a service of distributing broadcast or other matter”. The question before the Court was whether the words “or other matter” were wide enough to cover a case where music was transmitted to a telephone caller who was waiting on hold. McHugh J (albeit in dissent) observed (at 166 – 167) that the words cannot be at large or else they would be wide enough to include every combination of words, signs, symbols, sounds or pictures, whatever their source and, unless it was given a restricted meaning, it would render the word “broadcast” effectively redundant. After referring to the ejusdem generis rule, his Honour noted there were numerous cases (which were identified in a footnote) where courts have read the word “other” to mean “other like” even where the specified genus comprises only one category. In his Honour’s view, the preferred construction was that “other matter” must be read ejusdem generis with “broadcast matter” which thereby limited its scope: at 167. Although the outcome in that case is not especially important, the approach to the particular formulation of words carries weight in the current appeals. It was exemplified in the decision of Stag Line Ltd v Foscolo, Mango & Co Ltd [1932] AC 328, which had been referred to by McHugh J, where a charterparty gave liberty to a vessel “to call at any ports in order, for bunkering or other purposes”. In that case Lord Buckmaster said (at 334):

The word “bunkering” must have some demonstrative and limiting effect, and the phrase “or other purposes” following it cannot be so construed as to disregard the effect of the first example and assume that any purpose is thereby permitted. If that were so, the word “bunkering” might be left out.

349    The same interpretive approach was adopted in Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207, a decision referred to by the learned primary judge in this matter. There Spigelman CJ expressed the general principle in the following way (at [30] – [31]):

30    The general principle of the law of interpretation that the meaning of a word can be gathered from its associated words – noscitur a sociis – has a number of specific sub-principles with respect to the immediate textual context. The most frequently cited such sub-principle is the ejusdem generis rule. The relevant sub-principle for the present case is the maxim propounded by Lord Bacon: copulatio verborum indicat acceptationem in eodem sensu – the linking of words indicates that they should be understood in the same sense. As Lord Kenyon CJ once put it, where a word “stands with” other words it “must mean something analogous to them”. (Evans v Stevens (1791) 4 TR 224; 100 ER 986 at 987. See also W J Byrne (ed) Broomes Legal Maxim (9th ed) Sweet and Maxwell, London (1924) pp373-374.)

31    However, as Lord Diplock put it in Letang v Cooper [1965] 1 QB 232 at 247:

“The maxim noscitur a sociis is always a treacherous one unless you know the sosietas to which the socii belong.”

350    Here, the words are used in a policy of insurance intended by the parties to identify the matters which, if they cause business interruption losses, will result in indemnity and, as such, ought to be given, if possible, a definite rather than diffuse meaning.

351    It was suggested that the ejusdem generis rule cannot apply where there exists only one comparator or thing to create the relevant genus: Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 at 143 [126]; Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd (2012) 87 ATR 880 at 897 [54]: however, that does not foreclose the existence of other principles of construction which might aid in the delimitation of a word’s meaning.

352    In the context of the particular policy, the words “or other” sufficiently connect the word “catastrophe” with “conflagration” with the result that “catastrophe” should be given a meaning which requires that the things within it have the essential characteristics of a conflagration, being a physical event of some magnitude causing widespread physical destruction or loss of life as a result of the unleashing of destructive forces. No error was shown to exist in this approach which was adopted by the primary judge.

The meaning of “catastrophe” in the context of the policy

353    In cl 9.1.2.5, the structure of words used by the parties to express their agreement indicate that the words, “or other catastrophe”, ought to be read ejusdem generis with “conflagration”, so as to limit the scope of the expression to catastrophes which have similar characteristics to a conflagration. The primary judge held these would include a physical event requiring physical action to retard it. There is much force in that conclusion. Here, the insured peril requires the action of an authority in “retarding” the catastrophe which suggests that it must do something or undertake some action for that purpose. In addition, it is not any action of the authority in relation to the catastrophe which is required, it is action for the purpose of retarding the catastrophe. Necessarily, that assumes that the catastrophe itself has commenced and is ongoing, and the responsive action to the physical event involves a physical act which restrains its continued occurrence, direction or expansion. The reasonable business person would not construe the expression “action of a civil authority” as including the making of directions, orders or regulations but rather as the deployment of the physical resources for the purposes of impeding the continuation of the catastrophe. The implementation of measures such as orders or directions imposing travel restrictions, restriction of access to premises, or limits to the number of persons gathering in the one place are not readily regarded as physical action by an authority.

354    LCAM submitted that the primary judge erred in construing “catastrophe” as requiring that the event in question cause or be capable of causing physical damage. It submitted that this was an erroneous reading down of the word and resulted in a tautology because the tailpiece to cl 9.1.2 deemed the losses to be “Damage” under the policy which was defined as “physical loss, damage or destruction”. It was further submitted that this deeming provision would be ineffective if “catastrophe” was already subject to an implicit limitation of “physical” damage. However, this submission is misconceived. As her Honour correctly identified, it was the relevant actions of the authorities which were, “deemed to be loss caused by Damage”, for the purposes of the policy’s operation. LCAM’s submissions to the effect that the tailpiece of cl 9.1.2 deems the catastrophe to be damage misstates the effect of the clause. Secondly, all of the subclauses in cl 9.1.2 are subject to the same deeming provision as was necessary because, as written, the policy provides for the calculation of recoverable loss under the Basis of Settlement clause on the assumption of the suffering of “Damage”. Thirdly, as Swiss Re submitted, the primary judge did not determine that physical damage be caused by the catastrophe, but rather that it be a physical event. Finally, LCAM sought to support its submission on the basis that Section 2 of the policy was not concerned with damage to property, but that is incorrect. Clause 9.1.1, which is in Section 2, is concerned solely with business interruption loss arising from damage to the insured property, and cll 9.1.2.5 and 9.1.2.6 extend that to cover loss arising as a result of conflagration or other catastrophe or when the property or life of third parties is being damaged or threatened.

355    A number of parties submitted that it was not necessary that in order for an event to be characterised as a catastrophe it must involve an element of suddenness. That submission sits quite uncomfortably with the above dictionary definitions and those matters which might ordinarily be regarded as catastrophes: volcanic eruption, substantial explosion, earthquake, conflagration, tidal wave, a major deadly gas leak from a factory, cyclone, or hurricane. These examples support the necessity for a catastrophe to be sudden or, at the very least, for it to have a commencement which is relatively certain in time and tend to eschew the inclusion of a state of affairs which emerges relatively slowly or progressively over time.

356    Given the foregoing, the occurrence of a widespread outbreak of a disease, even if it amounts to a pandemic, does not necessarily fall within the concept of a “catastrophe” for the purposes of cl 9.1.2.5.

The construction of cl 9.1.2.5 in the context of the policy

357    The nature of the test cases under consideration somewhat distorts the issues and occasionally leads to some artificiality in the issues posed for consideration. The manner in which the parties addressed cl 9.1.2.5 is a good example. As it could become only truly relevant if LCAM was able to overcome the fundamental construction issue and the impact of cll 9.1.2.1 and 9.1.2.3, the submissions made in relation to its interpretation to both the primary judge and this Court tended to ignore the operative effect of those earlier provisions. Such an approach is problematic. In any event, even if the impact of the presence of cll 9.1.2.1 and 9.1.2.3 is removed, cl 9.1.2.5 should nevertheless be construed as applying only to actions by lawful authorities in response to significant and sudden physical events capable of causing substantial harm. This is confirmatory of the construction arising from reading the policy as a whole that cover for any loss arising from government action in relation to disease or the consequences of the disease is limited to that provided by cll 9.1.2.1 and 9.1.2.3.

Conclusion as to cl 9.1.2.5

358    It follows that whether the expression “other catastrophe” is construed only in the context of cl 9.1.2.5 or, as would be appropriate, in the context of the whole of the policy, it did not extend to cover the consequences of a disease pandemic. The expression “catastrophe” requires the sudden onset of a physical event of substantial magnitude which results in widespread destruction or loss of life and necessitates physical action to retard it.

Whether account needs to be taken of third party payments – Appeal, Ground 4; Cross-Appeal, Ground 6

359    By Ground 4 of its appeal, LCAM challenged the primary judge’s conclusion that the JobKeeper payments it received had to be taken into account in calculating the amount that it could recover under the policy, on the basis that the payments were either a sum saved for the purposes of cl 10.1.3 of the policy or under general principles applicable to contracts of indemnity. Conversely, Swiss Re appealed from her Honour’s conclusion to the contrary in relation to grants that LCAM received from the NSW Government. In light of the conclusion that LCAM is not entitled to indemnity under the policy, it is not necessary to consider the issues raised by these grounds. It is preferable not to express a view on them, as they involve making assumptions that are contrary to our reasoning set out above, and it is not necessarily clear which contrary assumptions should be made for the purposes of addressing these issues. In circumstances where the primary judge’s conclusions on third party payments and relief are challenged in this cross-appeal, the appropriate course is to set aside the primary judge’s answer to the relevant question and substitute the response “Unnecessary to answer”.

Whether interest is payable under s 57 of the Insurance Contracts Act – Appeal, Ground 5

360    The issues raised by this ground of appeal are addressed earlier in these reasons. For the reasons discussed there, although the primary judge erred in construing s 57 of the Insurance Contracts Act, it does not apply unless an insurer is liable to pay an amount pursuant to the policy of insurance or that Act. Had LCAM been successful in its appeal and established its entitlement to an indemnity, interest would be payable from that point in time from when it was unreasonable for Swiss Re to refuse to pay the claim. In that analysis, neither Swiss Re’s bona fide belief that it was entitled to refuse to pay the claim nor the bare fact that these proceedings are in the nature of a test case would be relevant to whether it had acted unreasonably. The primary judge’s answers to the relevant question should be amended to “Unnecessary to answer”.

Swiss Re’s cross-appeal

The meaning of “outbreak” – Cross-Appeal, Ground 1

361    By this ground of its cross-appeal, Swiss Re contested the primary judge’s determination that, if cl 9.1.2.1 (the hybrid clause) applied in respect of LCAM’s claim, an “outbreak” would be constituted by a single case of active (i.e. infectious) COVID-19 in the community (in a non-controlled setting). The difficulty here is that LCAM did not appeal the primary judge’s conclusion in relation to the operation of cl 9.1.2.1, and it follows that there is no present dispute between the parties that the clause operates to resolve the controversy between them. There is a very real risk that by responding to this ground of the cross-appeal, this Court would be engaging in the provision of an advisory opinion, being something it is not empowered to do. In circumstances where the primary judge’s answer to the relevant questions are challenged in the cross-appeal in this matter, the appropriate course in this matter is to amend the primary judge’s answers to the relevant questions to: “Unnecessary to answer”.

Did a catastrophe occur in Australia and when? – Cross-Appeal, Ground 2

362    Although her Honour concluded that cl 9.1.2.5 did not respond to LCAM’s claim because, inter alia, a catastrophe needed to be a physical event and the outbreak of a disease did not satisfy that criterion, she nevertheless went on to consider whether, if she was in error in the above respect, the clause respond to the occurrence of COVID-19 in Australia. In that scenario, she concluded (PJ [338]) that the NSW Public Health Orders on which LCAM relied were “actions of a civil authority during a catastrophe (the COVID-19 pandemic) to retard that catastrophe so that cl 9.1.2.5 applies” and (PJ [339]) that “on the evidence, the catastrophe of the COVID-19 pandemic started in Australia by no later than 20 March 2020 when Australia closed its borders to all non-citizens and residents”.

363    As a result of the conclusions reached above, it is neither necessary nor appropriate to deal with this ground which has been rendered distinctly hypothetical. It follows that the question posed in relation to this ground be answered, “Unnecessary to answer”.

Did cl 9.1.2.6 (the prevention of access clause) respond? – Cross-Appeal, Ground 3

364    As mentioned, the primary judge concluded that cl 9.1.2.6 (the prevention of access clause) did not apply to government action taken in response to the occurrence of diseases nor in relation to diseases generally. However her Honour held (PJ [344]) that if those conclusions were in error, then it would have responded to LCAM’s claim consequent upon the orders of the New South Wales Government which were an attempt to avoid or diminish a risk of life within five kilometres of the Situation. Swiss Re challenged this conclusion.

Swiss Re’s main submission

365    Swiss Re’s primary submission was that the relevant action by a lawful authority contemplated by cl 9.1.2.6 must be action which was targeted in the sense that it was undertaken to only “avoid or diminish risk to life or Damage to property within 5 kilometres of the Situation”. Mr Williams SC submitted that the order made by the NSW Health Minister on 26 March 2020 did not meet this requirement because it is clear that it was made for the purposes of protecting against the risk to health of persons across the whole of New South Wales. That order provided, inter alia:

4 Grounds for concluding that there is a risk to public health

It is noted that the basis for concluding that a situation has arisen that is, or is likely to be, a risk to public health is as follows-

(a)    public health authorities both internationally and in Australia have been monitoring international outbreaks of COVID-19, also known as Novel Coronavirus 2019,

  (b)    COVID-19 is a potentially fatal condition and is also highly contagious,

(c)    COVID-19 have now been confirmed in New South Wales, as well as other Australian jurisdictions.

366    The primary judge accepted that the Minister was attempting to avoid or diminish risk to every life across New South Wales and, indeed, that the threat to each and every such life was a proximate or equally effective cause of the order’s making. Her Honour held (PJ [347]) that the attempt to protect lives across the State was sufficient to satisfy cl 9.1.2.6 because it necessarily included an attempt to avoid or diminish the risk to life within the five kilometre radius of the Situation.

367    The essential question was whether cl 9.1.2.6 would respond only where the authority’s action was directed to an attempt to diminish a risk to life only within five kilometres of the Situation. If so, the corollary was that the clause would not respond where the relevant action, although taken in an attempt to diminish the risk to life within that area, also attempted to prevent the same or similar risks outside of that area. In support of the substantially narrower construction, Mr Williams SC submitted that the primary judge’s approach was inconsistent with her earlier observations in relation to the requirement in cl 9.1.2.1 that there be an outbreak of a relevant disease at the Situation or within five kilometres of it or the discovery of an organism which was likely to result in an occurrence in that area. He further submitted that the learned primary judge erred in her conclusion that (PJ [344]) that there is “no causal requirement between the risk to life within 5 kilometres of the Situation and the action, at least not in the sense that the action must result from the perceived existence of the risk within 5 kilometres of the Situation”, because that failed to give proper effect to the relevant nexus. It was said that this conclusion led her Honour to wrongly determine that a state-wide order of the kind made in this case was sufficient to engage its operation.

368    In Swiss Re’s written submissions, the following matters were relied upon in support of the above contentions:

(a)    that the critical feature of cl 9.1.2.6 was the suffering of loss consequent upon events within the geographical area of a five kilometre radius of the Situation which is the clause’s focus;

(b)    that the essential geographical limitation in the clause has the consequence that its operation is limited to those actions which are only taken in respect of a “risk to life or damage to property” in the area specifically nominated and there is no textual support for a suggestion that the clause is concerned with the consequences of actions directed to risks anywhere in the world;

(c)    as the regulatory response is linked to particular circumstances within the limited area, in that the attempt is to avoid or diminish risk to life within the radius, there must be a link between the localised risk (either real or perceived) and the authority’s response; and

(d)    that the targeted nature of the authority’s response applies to both risk to life and “Damage” to property within the relevant radial area and this highlights the geographical nexus required for the clauses’ operation and the requirement for targeted action to a particular localised risk.

The correct operation of cl 9.1.2.6

369    The above submissions should be rejected. As the primary judge determined (and which is not challenged), it is the authority’s action which prevents or hinders use of or access to the Situation that is the focus of cl 9.1.2.6 (PJ [278]). Whilst it is a necessary characteristic of that action that it is done with the intention of attempting to diminish risk to life or Damage to property within five kilometres of the Situation, that is a limitation on the types of action which trigger the cover. Importantly, there is nothing in the clause which requires that there be a demonstrable risk to life or Damage to property within the five kilometre radius. That is supported by the fact that the clause operates when an authority seeks to avoid a risk to life within the area and, for those purposes, the clause can be seen to operate prior to any relevant risk arising. The clause clearly accommodates pre-emptive action by a lawful authority which is intended to avoid circumstances in which persons within the defined area are put at risk. This is an important element in the present analysis because an attempt to avoid a relevant risk occurring in the relevant area suggests that events have occurred outside of it which give rise to the possibility of the risk extending there. On this basis alone, the learned primary judge was correct to conclude (PJ [344]) that there is no causal requirement in the clause between the existence of a risk to life within the five kilometres and the action, in the sense that the action does not have result from such a risk.

370    On the plain reading of the clause, the requirement is that the action is undertaken to avoid or diminish risk to life in the area specified. It does not contain any words which might suggest that it would respond only if the risks were isolated to that area or the remediating action was confined to that location. The submission that it would operate in an unduly wide manner if the authority’s actions were also referable to an attempt to avoid or diminish the relevant risks beyond the radial area is erroneous. First, the actions must include an attempt to avoid or diminish the risk within the area and, secondly, the actions must prevent or hinder the use of or access to the Situation. These constraints limit the nature of the action that might trigger the clause.

371    Nor is there any reason to think that the primary judge’s reasoning lacked consistency as Swiss Re submitted. There is nothing in her Honour’s earlier reasons which suggests that, for the purposes of cl 9.1.2.1, a relevant outbreak or the likely occurrence needs to be confined to the five kilometres radial area. So long as the events appropriately relate to that area and the authority’s orders are directed to it, it would not matter that they also relate to and result from other outbreaks or likely occurrences beyond the boundaries of the identified area. It would be well within the contemplation of the parties to the policy that when a clause, which has at its centre the outbreak of an infectious disease, is triggered by an outbreak within a defined area, the outbreak will not be confined to that area.

372    With respect, the construction advanced by Swiss Re would impose an unduly narrow operation on cl 9.1.2.6 for which there is no commercial rationale. It would be commercially unreal to read the clause as not responding in circumstances where the relevant risk was almost wholly within the five kilometre radius and marginally outside it. So if there were an outbreak of a disease which was nearly entirely within the five kilometre radius and a small number of cases outside it, on Swiss Re’s submissions, the policy could not respond if the authority’s action was to avoid or diminish risk to all persons who might be affected by the disease. It is most improbable that such a result was intended.

373    Similar comments can be applied to the correlative submission that the action of the authority must be targeted to the area within the five kilometre radius and to only that area. Swiss Re submitted that, on the assumption that cl 9.1.2.6 applied to disease, if there were an outbreak of an infectious disease at the Situation or in a neighbouring building, the clause would respond to provide cover for consequential business interruption losses so long as the restrictions imposed were wholly within the five kilometre radial area but, if the restrictions extended marginally beyond that area, it would not. There is no textual or contextual support for that construction and it is contrary to any commercial sense when dealing with the actions of an authority in response to the outbreak of an infectious disease.

374    A slightly more nuanced submission was made to the effect that where the regulatory action related to an area that was greater than the 5 km radius (say, perhaps, the whole State), it nevertheless had to be targeted to deal with a specific concern that related to the 5 km radius area. With respect, that proceeded upon the incorrect assumption that a restriction which might be characterised as being targeted to a wider area than the 5 km radius, is not still targeted at each part of that area. Merely because the concern behind the restriction is not a localised concern, in the sense that it is supported by whole of State, it does not follow that there is no relevant risk within the 5 km radius that is sought to be avoided or diminished.

375    The primary judge was correct to conclude that the geographical requirement of cl 9.1.2.6 was quite different to that in cll 9.1.2.1 (as expanded by cl 9.1.2.4) and 9.1.2.3 and her Honour’s answers to the questions posed ought not to be disturbed.

Was there a hindrance on the use of the situation – Cross-Appeal, Grounds 1 and 4

376    By these grounds of its cross-appeal, Swiss Re submitted that there was inadvertent inconsistency on the face of the primary judge’s reasons between the conclusions expressed and the answer given at PJ [361(c)]. In the course of the reasons, her Honour had expressed the view (PJ [354] – [355]) that certain orders made by the New South Wales Health Minister on 1 and 13 June 2020 potentially hindered the use of the Situation, being LCAM’s business premises. Those orders imposed limitations on the number of persons who might attend the premises at the one time. Her Honour had also earlier observed (PJ [351]) that there was no evidence before the Court that use of the premises was in fact hindered. No doubt it would be a matter for the insured to establish that more people wanted to enter the premises than was permitted at any particular time.

377    However, despite the above, the primary judge answered a question relating to this point in the following manner (PJ [361(c)]):

(c)    Was access to or use of the Situation prevented or hindered?

Yes. The 26 March 2020 order prevented access to and prevented the use of the Situation. The 1 and 13 June 2020 orders hindered use of the Situation.

(Original emphasis).

378    It was the last sentence in the answer which was challenged. Swiss Re did not take objection to the answer in the first sentence in the sense that it accurately reflected the primary judge’s determination and reasoning.

379    Ultimately, LCAM did not dispute that there was an inconsistency between the primary judge’s reasons and the answer given, but it was submitted that the error should have been corrected by the trial judge under the slip rule. That would have been one possible resolution and it certainly appears that an error has occurred. It is likely that in the final preparation of the reasons the word “potentially” has been elided from the last sentence of the answer given which should have read, “The 1 and 13 June 2020 orders potentially hindered use of the Situation”. That alteration to her Honour’s orders does not change the effect of the primary judge’s decision as between the parties. The answer to this question by the primary judge was in the alternative to the conclusion that the clause did not respond to LCAM’s claim in any event; a determination which has been upheld on this appeal. Even if LCAM had succeeded in overturning the other obstacles to recovery under the policy, the proceedings before the primary judge were not completed and it would have been possible for evidence to be called to ascertain whether any hindrance actually occurred and, if so, the extent.

380    For the purposes of the appeal, the primary judge’s answer in relation to the effect of the orders on 1 and 13 June 2020 should be amended accordingly.

The operation of the trends clause – Cross-Appeal, Ground 5

381    By cl 10 of the policy (the Basis of Settlement clause), a number of items of recovery are identified which become available to LCAM on the cover being triggered. In this case, it sought recovery under the Gross Profit section. In that respect, cl 10.1 provides:

The Insured is indemnified with respect to loss of Gross Profit calculated in the following manner, namely:

10.1.1    in respect of reduction in Turnover, the sum produced by applying the Rate of Gross Profit to the amount by which the Turnover during the Indemnity Period shall, in consequence of the Damage, fall short of the Standard Turnover; and

10.1.2     in respect of Increase in Cost of Working, the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the reduction in Turnover which, but for that expenditure, would have taken place during the Indemnity Period in consequence of the Damage, but not exceeding the sum produced by applying the Rate of Gross Profit to the amount of the reduction thereby avoided.

10.1.3     There shall be deducted from the amounts calculated in 10.1.1 and 10.1.2 any sum saved during the Indemnity Period in respect of such of the charges and expenses of the Business payable out of Gross Profit as may cease or be reduced as a consequence of the Damage (excluding depreciation and amortisation).

(Original emphasis).

382    By cl 8.5 of the policy, the “Indemnity Period” is defined as being:

the period beginning with the occurrence of the Damage and ending not later than the number of months specified in the Schedule thereafter during which the results of the Business shall have been affected in consequence of the Damage.

(Original emphasis).

383    It is to be observed that the intent of the policy is to indemnify the insured in respect of a loss of gross profit and that is achieved by focusing upon the reduction in turnover and identifying the extent to which the insured has suffered a loss of gross profit consequent upon that reduction. However, that consideration is subject to other matters which might affect that initially identified loss of gross profit, such as any increased cost of working or the savings which arise as a consequence of the impact of the insured peril. Any amount so calculated is subject to the operation of the trends clause at the foot of cl 8 which provides:

Adjustments shall be made to the Rate of Gross Profit, Standard Turnover, Standard Gross Revenue, Standard Gross Rentals and Rate of Payroll as may be necessary to provide for the trend of the Business and for variations in or other circumstances affecting the Business either before or after the date of the Damage or which would have affected the Business had the Damage not occurred, so that the figures as adjusted shall represent as nearly as may be reasonably practicable the results which, but for the Damage, would have been obtained during the relative period after the Damage occurred.

(Original emphasis).

The primary judge’s determination as to the operation of the trends clause

384    As the primary judge observed (PJ [364]), that part of her reasons dealing with this issue was only relevant if all of her previous conclusions as to the responsiveness of the LCAM policy were wrong. The issue is considered here on a similar basis.

385    Before the primary judge, Swiss Re had submitted that it is only the loss resulting from the insured perils which is covered by the policy and the indemnity did not extend to the losses consequent upon the impact of COVID-19 generally. Therefore, even if the insured peril was a proximate cause of a loss, the trends clause required the quantification of loss to be adjusted to “provide for the trend of the Business and for variations in or other circumstances affecting the Business”. The effect of this was, in general terms, that the policy would not be productive of recovery for LCAM because the general effects of COVID-19 would have prevented it from trading profitably in any event. At the very least, those effects would have substantially reduced its profitability.

386    In considering this issue, the learned primary judge referred at length to the observations of Lords Hamblen and Leggatt JJSC in FCA v Arch as well as the decisions in the Hyper Trust cases (Hyper Trust (No 1) and Hyper Trust Ltd t/as The Leopardstown Inn & Ors v FBD Insurance plc (No 2) [2021] IEHC 279). Her Honour also referred to the discussion of the purpose of such clauses in business interruption insurance by Beach J in Australian Pipe & Tube. His Honour had said (at [114] – [115]):

114     The adjustment subclause [the trends clause] is designed to give purpose to the principle of indemnity under the policy. As stated in Roberts H, Riley on Business Interruption Insurance (10th ed, Thomson Reuters, 2016) at 48:

Without this clause the policy cannot be regarded as fulfilling the basic principle of an insurance that is to indemnify, because the turnover, charges and profits which would have been realised during a period of interruption are hypothetical and never capable of absolute proof. By the use of this clause it is possible to make adjustments in a loss settlement to produce as near as is reasonably possible a true indemnity for an insured’s loss, albeit within a restricted period, i.e. the maximum indemnity period and also limited to the sum insured.

The other circumstances clause seeks to accommodate all such influences on the business that would have occurred but for the incident itself. This may seem like an enormous, if not insurmountable challenge, but to ignore all these factors and merely rely on the previous year’s trading would lead to a lottery in which the insured was either over or under indemnified.

115     Further, as was stated in Honour WB and Hickmott GJR, Honour and Hickmott’s Principles and Practice of Interruption Insurance (4th ed, Butterworths, 1970) at 444:

It is essential to ascertain as accurately as practicable the hypothetical results which the business itself would have produced apart from the fire or other peril happening, as to determine what adjustments to the rate of gross profit, the annual turnover and the standard turnover figures would be equitable.

387    There was no dispute in the course of the hearing as to the validity of these principles.

388    The primary judge accepted that the evidence established that LCAM’s gross profit in 2020 declined dramatically in the months of February to May 2020 when compared to the corresponding periods in the previous year. Her Honour also accepted (PJ [375]) it to be a matter of “common sense that the required closure of the Situation between 26 March 2020 and 1 June 2020 involved interruption of or interference with the Business in consequence of the insured peril.” In that respect, the requirement that LCAM close its premises was a proximate cause of some loss, even if there were other causes such as the effects of COVID-19 generally or orders requiring people to stay at home (PJ [376]).

389    As mentioned, Swiss Re had submitted that, in the application of the trends clause, it was necessary to take into consideration those other causes of the insured’s loss so that what was to be ascertained was the position which the insured would have been in but for the occurrence of the insured peril and nothing more. In relation to that submission, the primary judge held (PJ [380]):

Consistent with [the reasoning in FCA v Arch], I am unable to accept the insurers’ submissions to the effect that, where a provision uses a “but for” requirement (as the adjustments clause in this case does), it would be to re-write the policy to conclude that the Damage only must be disregarded and the effects of COVID-19 generally must be taken into account as a circumstance that would have affected the business if the Damage had not occurred. The parties could not have intended that an uninsured circumstance which is also the same underlying cause of the Damage must be taken into account as a circumstance of the business under the adjustments clause. The emphasis here must be on the sameness of the underlying causes of the insured peril and the uninsured peril. The [sic: That] will depend, in part, on the nature of the insured peril. My point is that, depending on the nature of the insured peril, the concept of “all effects of COVID-19 generally” may not be the same underlying cause as the insured peril. This issue arises, for example, in the Meridian Gravel [sic: Travel] case below.

390    In relation to the same issue, Insurance Australia had submitted that it did not matter whether the Court followed the decision in FCA v Arch or the earlier decision in Orient-Express Hotels Ltd v Assicurazioni Generali SA [2010] Lloyd’s Rep IR 531. Rather, it submitted that what needed to occur was a careful analysis of what might be identified as the “same underlying fortuity” or “same originating cause”. It submitted that under its insured’s policy the insured peril was the outbreak of the COVID-19 or a specific threat to persons within a defined radial area around the insured’s premises. It said that the cause of the government’s action was not in response to those localised matters but to the COVID-19 pandemic generally. It followed, so the submission went, that the trends or circumstances which must be ignored when undertaking the relevant counter-factual analysis were only those that arose from the specific outbreak or threat in the localised area and not the broader impacts of the pandemic. That was rejected by the primary judge who held (PJ [382]) that, on the assumption that the policy was triggered by the occurrence of the events within the defined area, the government action was “caused” by the events occurring within New South Wales generally, including those within that defined area. It followed, so her Honour held, that the effects of COVID-19 generally was a concurrent proximate cause of the government action which arose from the same underlying fortuity. That had the consequence that the reasoning in FCA v Arch would then apply such that the effects of COVID-19 generally would not be taken into account when applying the trends clause.

The issue as developed on appeal

391    Swiss Re advanced substantially the same submissions on appeal as had been made at first instance. It submitted that the trends clause operated to exclude from the assessment of loss any effects of uninsured circumstances which would have impacted the business even if the relevant order or action (within the meaning of cl 9.1.2) had not occurred. It submitted that the evaluative inquiry was to ascertain the “results that the ‘Business’ would have obtained during the relevant period after the occurrence of the ‘order’ or ‘action’ on the hypothesis that the ‘order’ or ‘action’ did not occur.” This would mean that any loss which might have been caused by the adverse economic effects of COVID-19 generally would have to be extracted from any assessment of insured loss. Were it otherwise, so it was submitted, it would inflate the value of the indemnity and it would extend cover to the general effects of the consequences of the existence of a notifiable infectious or contagious disease which is no part of the policy’s coverage. In its written argument, Swiss Re submitted:

Thus, the counterfactual required by the Basis of Settlement and Trends Clause requires a comparison with a hypothetical world in which the only element that is removed is that aspect of the Public Health Orders relied upon by LCAM that actually engage cover. In that sense, the LCAM Policy only provides cover to the extent that the “Damage” that triggers cover has been causative of the “loss” that must have been suffered to engage cl 9.1.2 of the LCAM Policy.

392    Undoubtedly, this submission is inconsistent with the underlying fortuity principle identified by the UK Supreme Court in FCA v Arch which the primary judge accepted. Despite that inconsistency, Swiss Re did not suggest that the underlying fortuity principle was wrong or should not be followed. Instead, it sought to distinguish the circumstances of that case on a number of grounds.

393    Before turning to those alleged points of difference, it is appropriate to recognise that the parties in the appeal were prepared to accept the correctness of the Supreme Court’s reasoning in relation to this issue. The principle requires that, in the assessment of insured damage (including in the application of trends clauses), it is necessary to strip out of the hypothetical counterfactual those causes of loss which arise from the same underlying fortuity and “which the parties to the insurance would naturally expect to occur concurrently with the insured peril”. In relation to an insured peril which operates on, inter alia, the existence of a disease and governmental action in response to it, damage consequent upon the occurrence of the disease or the threat of it is inextricably connected with the insured peril. It both arises from the same underlying fortuity and it is something which the parties would naturally expect to occur concurrently with the existence of the government action. Where the presence, outbreak or threat of a disease is of such significance that government or authority action is taken causing interference with the insured’s business, there is a high probability that the disease’s existence is necessarily adversely impacting the economic conditions in which the insured’s business operates. To construe the cover under a policy as being limited to the loss directly attributable to the effect of the governmental orders and not the coincidental effects of the inextricably connected disease would, as the Supreme Court held, deny the cover of any effect. Further, it would necessarily result in a most impractical and non-commercial operation of the policy.

394    Swiss Re submitted that the principle did not apply in relation to the LCAM policy because the loss which was the subject of the cover incorporated the application of the trends clause. In that sense, contrary to the position in FCA v Arch, the trends clause could not be dismissed as merely a machinery provision providing for the calculation of loss. Swiss Re submitted that the primary judge accepted this point of distinction, but erroneously concluded (PJ [378]) that “the mere fact that the reference to the required quantification is embedded in the insuring clause does not change its essential nature as a method of calculating loss”. It was said that this ignored the express inclusion of words in the insuring clause of “in accordance with the [Basis of Settlement clause]”, which was said to be a powerful indicator that the scope of the cover was carefully calibrated so as not to extend to loss associated with any other perils.

395    This submission cannot be accepted. Firstly, the underlying fortuity principle applies generally to a policy of insurance of the nature under consideration as a process of construing the policy terms in a manner so as to give them a sensible commercial operation. The point articulated in FCA v Arch related generally to those causal issues arising where cover is extended in relation to an insured peril which, if it occurs, has necessarily associated concomitant sequelae. Absent the application of this principle of construction, the cover would be substantially, if not entirely, made redundant. The substance of the Supreme Court’s approach was that a sensible commercial construction of a policy would not construe cover for an insured peril as being limited by the impact of loss causing events which are inherent in the occurrence of the peril itself. That applies when considering whether the insured peril was causative of the insured loss as well as in the assessment of that loss. It cannot matter whether the insuring clause incorporates the operation of a Basis of Settlement clause as occurs in the present case. The effect of not applying the principle of construction will be the same.

396    The second answer is that the principle applies as a process of construction and, in relation to the construction of a trends clause, it is applicable regardless of the connection of that clause to other parts of the policy. In that respect, the distinction which Swiss Re sought to draw between the LCAM policy and those under discussion in FCA v Arch produced no relevant difference to the proper construction of the policy.

397    Swiss Re also sought to rely upon several differences between the insured perils in question in FCA v Arch and those in the LCAM policy. In the former, the insured peril was the occurrence of illness within a defined radius whereas, in the latter, the substance of the peril was the order or actions of a government authority. For that reason, it was submitted that it was not possible to conclude that the underlying fortuity of the insured peril in the LCAM policy was the COVID-19 pandemic itself, which was the conclusion reached in FCA v Arch. This submission is misconceived. In order for the present question to arise, it would be necessary to assume that the previous conclusions which negated the operation of the policy were incorrect. Therefore, it would be necessary to assume that there had been a relevant outbreak of COVID-19 which had the consequence of cl 9.1.2.1 or 9.1.2.6 operating. If that were so, there would exist some relevantly operative outbreak of COVID-19 in the community. On that basis, it would be possible to regard the existence of COVID-19 as arising from the same underlying fortuity. Alternatively, if the assumed circumstances consists of the facts as presently known and the policy being assumed to respond by cl 9.1.2.6, the underlying fortuity would be the threat of COVID-19 to persons rather than the COVID-19 pandemic itself. The underlying fortuity principle would then operate by requiring the stripping out of the counterfactual those other consequences of the threat of the disease which could conceivably include other orders or directions which hindered the insured’s business.

398    It should be observed that, in part, Swiss Re’s submissions proceeded upon an analysis focused upon what was the “underlying cause” of the relevant order or action by the government authority, and that the cause was the outbreak within the identified area. With respect, that unduly narrows the principle developed in FCA v Arch and accepted by the trial judge. The essential issue is ascertaining the “underlying fortuity” of the insured peril, being the events or circumstances which give rise to the occurrence of the peril. That is broader than the concept of the underlying cause of the peril, although it can be acknowledged that different expressions are used in FCA v Arch at 749 [287]. In this respect, it is apparent that the underlying fortuity is fact dependent. The underlying fortuity of an insured peril which has as an element the outbreak of a disease within a defined area, may be an outbreak confined to that area, one extending beyond that area, or one which is epidemic in nature and which merely includes a presence in the defined area. In the present case, and assuming the operation of cl 9.1.2.6, it would have been the threat of COVID-19 which activated the insured peril. Whether that is taken as a threat within five kilometres of the insured premises or within Queensland more generally probably does not matter. It was not shown that the coincidental causes of loss which were sought to be excluded from the counterfactual for the purposes of the trends clause differed depending on which was accepted as being the underlying fortuity. The necessary consequence is that Swiss Re has not established that the contributing causes of loss did not arise from the same underlying fortuity. On the known facts it would appear that they did.

399    It follows that Ground 5 of the cross-appeal also fails.

Conclusion

400    The necessary conclusion from the above is that the appeal and the cross-appeal should be allowed in part but otherwise dismissed. Some of the answers provided by the learned primary judge require some slight amendment.

401    As a result of an agreement between the parties there is no need to make any order with respect to costs.

PROPOSED ORDERS ON THE APPEAL

402    From the foregoing the orders on this appeal should be as follows:

1.    The Appeal be allowed in part.

2.    The Cross-Appeal be allowed in part.

3.    The primary judge’s answers to the questions posed be amended as follows:

1. Disease Clause (9.1.2.1) (page 31):

On the proper construction of the Disease Clause:

(a)    Did the “Authority Response-LCA Marrickville” cause “closure … of the whole or part of the Situation”?

Answer: in respect of the order of 26 March 2020, yes. In respect of the orders of 1 and 13 June 2020, no.

(b)    Was there a closure or evacuation of the whole or part of the Situation?

See 1(a) above.

In assessing:

(i)    “closure”, must there be physical prevention of access to the Situation (or part of it), or is it sufficient there was a restriction of LCA Marrickville’s use of the Situation (or part of it) for its Business and if so, what restriction?

(ii)     “evacuation”, must there be a physical removal of persons from the Situation (or part of it), or is it sufficient if there was a restriction of LCA Marrickville’s use of the Situation (or part of it) for its Business and if so, what restriction?

As to (i), there must be physical prevention of access to the Situation (or part of it) to those who would otherwise be able to obtain access (for example, members of the public).

As to (ii), this does not arise, but the answer would be yes.

(c)    Was there an “outbreak” of COVID-19 at the Situation?

This cannot be answered on the evidence.

(i)    Does a single person infected with COVID-19 entering the Situation constitute an “outbreak”?

Not necessarily. If the person is able to communicate COVID-19 to other people and is within the community (in the sense of not being in a controlled environment such as quarantine, isolation or a hospital) then, given the nature of COVID-19 and the associated probability of transmission including to persons unknown, a single person infected with COVID-19 entering the Situation who is in a non-controlled setting would constitute an “outbreak” of COVID-19.

Unnecessary to answer.

(ii)    With what degree of prevalence do instances of COVID-19 have to occur at the Situation (or elsewhere) in order to constitute an “outbreak” at the Situation?

See (c)(i) above.

(iii)    Does the outbreak have to occur at the Situation or can it occur:

A.    at the Situation and elsewhere and, if so, where?

B.    elsewhere but not at the Situation and, if so, where?

This does not arise. The requirement of cl 9.1.2.1 is an order of a competent public authority as a result of an outbreak of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4) or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4). This depends not on objective facts but on the cause of the making of the order. The required cause must be an outbreak of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4) or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4).

If yes to (c), was the “Authority Response-LCA Marrickville” “a result of” that “outbreak”?

No.

(e)    Was there a “discovery of [SARS-CoV-2] likely to result in the occurrence of [COVID-19] … at the Situation”?

On the current evidence, no. However, this does not arise for the reasons set out at 1B above.

(i)    Does SARS-CoV-2 have to be discovered at the Situation or is it sufficient if it is discovered elsewhere and, if so, where?

No. If SARS-CoV-2 is discovered elsewhere but is likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation or within the 5 kilometre radius that requirement of cl 9.1.2.1/9.1.2.4 will be satisfied. To satisfy the requirement of likelihood, however, evidence of a person with COVID-19 who is capable of communicating the disease to another person within the radius will be required. However, this does not arise for the reasons set out at B above.

(ii)    Does SARS-CoV-2 have to be likely to result in the occurrence of COVID-19 at the Situation or is it sufficient if it is likely to result in the occurrence of COVID-19 elsewhere and, if so, where?

SARS-CoV-2 must be likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation or within the 5 kilometre radius.

(f)    Was the “Authority Response-LCA Marrickville” “a result of” a “discovery of [SARS-CoV-2] likely to result in the occurrence of [COVID-19] … at the Situation”?

No.

(g)    What if any “interruption” or “interference” occurred “in consequence of” any “closure … by order of a competent public authority”?

None.

(h)    What is required for there to be an “occurrence” of COVID-19?

A single case of COVID-19 is an occurrence of COVID-19.

2. Biosecurity Act exclusion (clause 9.1.2.1) (page 31)

(a)    Is COVID-19 a disease “declared to be a listed human disease pursuant to subsection 42(1) of the Biosecurity Act 2015”, in circumstances where it was determined to be a “listed human disease” after the Policy inception date and during the Policy Period?

Yes.

(b)    If yes to (a), does section 54 of the Insurance Contracts Act 1984 (Cth) (ICA) have the effect that the insurer cannot refuse to pay LCA Marrickville's claim by reason only of the determination and can only reduce its liability to the extent that its interests were prejudiced as a result of the determination?

No.

(c)    {Swiss Re version; LCA Marrickville does not agree}: If yes to (b), was LCA Marrickville’s loss caused or contributed to by the determination?

This does not arise.

(d)    {LCA Marrickville version; Swiss Re does not agree}: If yes to (b), could the determination reasonably be regarded as being capable of causing or contributing to LCA Marrickville’s loss?

This does not arise.

(e)    If yes to (c) and/or (d), to what extent is Swiss Re entitled to refuse to pay the claim?

This does not arise.

(f)    If yes to (b) but no to (c) and/or (d), what prejudice, if any, to Swiss Re resulted from the determination and to what extent (if any) should Swiss Re’s liability in respect of the claim be reduced?

This does not arise.

(g)    If the Biosecurity Act exclusion does apply to exclude LCA Marrickville’s loss from cover under the Disease Clause and the Expansion Clause, can such loss be considered for cover under the Catastrophe Clause and/or the Prevention of Access Clause?

No.

3. Expansion Clause (9.1.2.4) (page 31):

On the proper construction of the Expansion Clause:

(a)    Issues 1(a), (b), (g), (h) and (i) and 2, above also arise in the context of the Expansion Clause.

The same answers apply as set out above expanded to the 5 kilometre radius.

(b)    Was there an “outbreak” of COVID-19 within a five kilometre radius of the Situation?

This cannot be answered on the evidence.

In particular:

(i)    Does a person infected with COVID-19 entering, or residing in, the area within five kilometres of the Situation constitute an “outbreak”?

Not necessarily. If the person is able to communicate COVID-19 to other people and is within the community (in the sense of not being in a controlled environment such as quarantine, isolation or a hospital) then, given the nature of COVID-19 and the associated probability of transmission including to persons unknown, a single person infected with COVID-19 entering the Situation who is in a non-controlled setting would constitute an “outbreak” of COVID-19.

Unnecessary to answer.

(ii)    With what degree of prevalence do instances of COVID-19 have to occur within five kilometres of the Situation (or elsewhere), or what other characteristics must such instances have, in order to constitute an “outbreak” within a five kilometre radius of the Situation?

See (b)(i) above.

(iii)    Does the outbreak have to occur within a five kilometre radius of the Situation only or can the outbreak occur outside a five kilometre radius of the Situation as well and, if so, where?

This does not arise. The requirement of cl 9.1.2.1 is an order of a competent public authority as a result of an outbreak of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4) or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4). This depends not on objective facts but on the cause of the making of the order. The required cause must be an outbreak of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4) or any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation (or within the 5 kilometre radius under cl 9.1.2.4).

(c)    Was the “Authority Response-LCA Marrickville” “a result of” an outbreak of COVID-19 within a five kilometre radius of the Situation?

No.

In particular, must the relevant order be made in direct response to the specific outbreak within a five kilometre radius of the Situation or is it sufficient if the relevant order is made in response to, or to prevent, the spread of COVID-19 more broadly (e.g. on a regional, state or nationwide scale)?

This depends on the terms of the order.

(d)    Was there a “discovery of [SARS-CoV-2] likely to result in the occurrence of [COVID-19]” within a five kilometre radius of the Situation?

On the current evidence, no. However, this does not arise for the reasons set out at 1B above.

(i)    Does SARS-CoV-2 have to be discovered within a five kilometre radius of the Situation or is it sufficient if it is discovered elsewhere and, if so, where?

No. If SARS-CoV-2 is discovered elsewhere but is likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation or within the 5 kilometre radius that requirement of cl 9.1.2.1/9.1.2.4 will be satisfied. To satisfy the requirement of likelihood, however, evidence of a person with COVID-19 who is capable of communicating the disease to another person within the radius will be required. However, this does not arise for the reasons set out at 1B above.

(ii)    Does SARS-CoV-2 have to be likely to result in the occurrence of COVID-19 within a five kilometre radius of the Situation, or is it sufficient if it is likely to result in the occurrence of COVID-19 elsewhere and, if so, where?

SARS-CoV-2 must be likely to result in the occurrence of a notifiable human infectious or contagious disease at the Situation or within the 5 kilometre radius.

(e)    Was the “Authority Response-LCA Marrickville” “a result of” a “discovery of [SARS-CoV-2] likely to result in the occurrence of [COVID-19]” within a five kilometre radius of the Situation?

No.

4. Catastrophe Clause (9.1.2.5) (page 31):

On the proper construction of the Catastrophe Clause:

(a)    {Swiss Re version; LCA Marrickville does not agree}: Was the outbreak of COVID-19 a “conflagration or other catastrophe”?

No.

(b)    {LCA Marrickville version; Swiss Re does not agree}: Was COVID-19 and its impact a “conflagration or other catastrophe”?

No.

(c)    When did any such “conflagration or other catastrophe” commence and end?

If COVID-19 is a catastrophe within cl 9.1.2.5 it commenced in NSW no later than 20 March 2020.

Unnecessary to answer.

(d)    Was the “Authority Response-LCA Marrickville” an “action of a civil authority” implemented “for the purpose of retarding” the “conflagration or other catastrophe”?

No.

(e)    What “interruption” or “interference” occurred “in consequence of” any “action of a civil authority”?

None within the meaning of cl 9.1.2.5.

5. Prevention of Access Clause (9.1.2.6) (page 31):

On the proper construction of the Prevention of Access Clause:

(a)    Was there a “risk to life … within five kilometres of [the] Situation”?

This does not arise. The requirement is action of a lawful authority attempting to avoid or diminish a risk to life within 5 kilometres of the Situation. There is no requirement to prove as an objective fact a risk to life within 5 kilometres of the Situation.

(i)    Does the “risk to life” have to exist within five kilometres of the Situation only or can the “risk to life” exist in areas further [than] five kilometres from the Situation as well and, if so, where?

See (a) above.

(ii)    Must the relevant order be made in direct response to the specific “risk to life” within five kilometres of the Situation, or is it sufficient if the relevant order is made as part of an attempt to “avoid or diminish risk to life” of a broader scope (e.g. on a regional, state or nationwide scale)?

There is no requirement in this regard other than action of a lawful authority attempting to avoid or diminish a risk to life within 5 kilometres of the Situation. It does not matter is the authority is also attempting to avoid or diminish a risk to life outside 5 kilometres of the Situation.

(b)    Was the “Authority Response-LCA Marrickville” taken in an attempt to avoid or diminish the identified “risk to life”?

No, because cl 9.1.2.6 does not apply to actions of an authority relating to a disease. If this is wrong, yes.

(c)     Was access to or use of the Situation prevented or hindered?

Yes. The 26 March 2020 order prevented access to and prevented the use of the Situation. The 1 and 13 June 2020 orders potentially hindered use of the Situation.

In particular, must the use of or access to the Situation for any purpose be prevented or hindered or is it sufficient for use of or access to the Situation for the purposes of LCA Marrickville’s Business, to be prevented or hindered?

It is sufficient if use of or access to the Situation for the purposes of LCA Marrickville’s Business, is prevented or hindered.

(d)    What, if any, “interruption or interference” occurred “in consequence of” any “action of any lawful authority”?

None because cl 9.1.2.6 does not apply to an authority’s action in response to a disease.

(e)    {LCA Marrickville presses for the underlined words in this paragraph} To what extent would LCA Marrickville’s access to or use of the Situation have been prevented or hindered, regardless of the lawful authority’s action, and to what extent (if any) does this affect indemnity?

This does not arise.

6. Clause 9.1.2 (page 31):

On the proper construction of clause 9.1.2:

(a)    Is Swiss Re’s obligation to indemnify an “Insured” in respect of loss resulting from the interruption of or interference with the “Business” in consequence of closure or evacuation of the whole or part of the “Situation” by order of a competent public authority as a result of:

(i)    an outbreak of a notifiable human infectious or contagious disease; or

(ii)    any discovery of an organism likely to result in the occurrence of a notifiable human infectious or contagious disease,

confined to the terms of the Disease Clause and the Expansion Clause (as it applies to the circumstances of the Disease Clause)?

Clauses 9.1.2.5 and 9.1.2.6 do not apply to actions of an authority in response to a disease.

7. Causation, Adjustment and Basis of Settlement

If clause 9.1.2 of the Policy responds, on the proper construction of the adjustment clause (being the clause in the last sub-paragraph of Clause 8 on p. 29 of the Policy):

(a)    Was there any interruption of or interference with LCA [Marrickville]’s Business in consequence of the relevant insured perils in the Disease Clause, the Expansion Clause, the Catastrophe Clause or the Prevention of Access Clause?

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, it should follow that there was interruption of or interference with LCA Marrickville’s Business in consequence of the relevant insured perils in the applicable clause. The fact that LCA Marrickville may also have suffered loss generally from the existence and risk of COVID-19 in NSW would not mean that the action of the authority would not also be a proximate cause of LCA Marrickville’s on the facts.

(b)    What adjustment of the Rate of Gross Profit, Standard Turnover, Standard Gross Revenue, Standard Gross Rental and Rate of Payroll is necessary to provide for the “trend” of the Business, “variations” affecting the Business and/or “other circumstances” affecting the Business.

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, the adjustments clause does not require any adjustment to be made for the existence and risk of COVID-19 in NSW as it is an essential cause of the Damage.

(c)    How, if at all, does adjustment take into account the effect that COVID-19 had on the Business (other than the effect of the “Authority Response–LCA Marrickville”).

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, the adjustments clause does not require any adjustment to be made for the existence and risk of COVID-19 in NSW as it is an essential cause of the Damage.

(d)    To what extent should account be made for grants, subsidies, abatements or other benefits received by LCA Marrickville when assessing its entitlement to be indemnified for its loss (if any) including but not limited to JobKeeper, other payments made to it by a Commonwealth or State Government and rental relief or rebates?

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, LCA Marrickville, either under the general law or cl 10.1.3 would have to account for payments received under the JobKeeper scheme, by way of rental relief, and franchisor relief. It would not have to account for the act of grace payments received from the NSW Government.

Unnecessary to answer

If clause 9.1.2 of the Policy responds, on the proper construction of the Basis of Settlement clause (clause 10):

(e)    What is the date of the ‘Damage’?

While the question does not arise I note that, if I am wrong about the proper construction of any of the insuring clauses, the date of the Damage would be the date of the first action by an authority satisfying an insuring clause, which would be 26 March 2020.

(f)    {LCA Marrickville does not agree that issue (f) should be included in this test case because the factual premise for this issue will be the subject of a separate loss assessment process} To the extent interruption of, or interference with, LCA Marrickville’s business was caused by different matters comprising the “Authority Response-LCA Marrickville”, to what extent is the resulting loss (if any) to be aggregated for the purposes of applying a limit, deductible and any other conditions of cover?

Insufficient submissions were made to enable this issue to be answered.

8. Interest

(a)    Is interest payable by Swiss Re pursuant to section 57 of the ICA?

No.

(b)    If yes to paragraph (a), from what date is any such interest payable?

This does not arise. If it did arise, interest would be payable from the date of final determination of this proceeding is Swiss Re is liable to pay under the policy.

Unnecessary to answer.

4.    Otherwise the Appeal and the Cross-Appeal be dismissed.

5.    No order as to costs.

MERIDIAN TRAVEL (VIC) PTY LTD V INSURANCE AUSTRALIA LIMITED – NSD 1080 OF 2021

403    Before the primary judge, Meridian contended that it was entitled to indemnity pursuant to either a disease clause or a hybrid clause in a policy of insurance it held with Insurance Australia. The claim under the latter was rejected at first instance and was not pursued further on appeal. Necessarily, Meridian’s appeal concerns only its claim under the disease clause. The appeal, cross-appeal and notices of contention also raised issues concerning the application of s 61A of the Property Law Act (Vic), accounting for third party payments and benefits that Meridian had received, and whether it was entitled to interest pursuant to s 57 of the Insurance Contracts Act.

The relevant facts

404    Meridian operates a travel agency from premises at 159 Burgundy Street, Heidelberg, in the State of Victoria. It has expertise in arranging cruises, solo travel, tailored independent itineraries, exclusive group tours, and special interest tours for music groups and dance troupes. International travel bookings accounted for approximately 90% of its revenue, of which about 65% was derived from international tours and cruises. Domestic travel bookings accounted for the remaining 10%.

405    Meridian had taken out a policy of insurance with Insurance Australia which was referred to as a “Steadfast Office Pack Policy” with policy number 15T4227893 (the “Meridian policy”). It comprised a Renewal Schedule and the Steadfast Office Pack Policy wording and was issued on 17 February 2020 with the period of cover being from 22 February 2020 to 22 February 2021, 4:00 pm.

406    In March 2020, the Commonwealth Government introduced a ban on cruise ships arriving at Australian ports which commenced to have effect on 15 March 2020 (the “Cruise Ship Ban”).

407    It is not in dispute that from 25 March 2020, Australian citizens and permanent residents were unable to leave Australia without first obtaining an exemption and that this effectively prevented Meridian’s customers or potential customers from leaving the country. The instrument imposing this prohibition was the Biosecurity (Human Biosecurity Emergency) (Human Coronavirus with Pandemic Potential) (Overseas Travel Ban Emergency Requirements) Determination 2020 (Cth) and was made by the Commonwealth Health Minister on 25 March 2020 pursuant to s 477(1) of the Biosecurity Act. The prohibition thereby created is referred to as the “Overseas Travel Ban”.

408    From March 2020, a number of directions were made by Victorian Government officials pursuant to s 200(1)(d) of the Public Health and Wellbeing Act 2008 (Vic) which are relevant to the issues on appeal. These were in force from time to time between March 2020 and February 2021 in all or part of the State and, inter alia, prohibited persons from leaving the premises where they ordinarily resided other than for specified reasons (referred to as “stay-at-home” orders), restricted the size of gatherings, and restricted specified kinds of businesses from operating.

409    Meridian made a claim under its policy with Insurance Australia on 15 July 2020 asserting that there was a relevant outbreak of COVID-19 for the purposes of the disease clause by 1 March 2020 and, further, that the several Commonwealth and Victorian Government orders and directions were insured perils under the hybrid clause of the policy.

410    Insurance Australia denied indemnity on 11 August 2020. A review was undertaken following a request from Meridian, but the declinature was affirmed on 28 August 2020.

411    Meridian lodged a complaint in respect of Insurance Australia’s decision with AFCA on 9 September 2020.

Policy wording

412    The Meridian policy is a composite one, containing distinct parts, each of which provide a particular form of cover. Section 1, headed “Property”, provides cover for property damage. This cover is extended by Section 2, headed “Business Interruption”.

413    The principal insuring clause for the business interruption cover provides:

Cover

If the Business carried on by You is interrupted or interfered with as a result of Damage occurring during the Period of Insurance, to:

[“Property Insured” and “property at the Situation”]

We will, after taking account any sum saved during the Indemnity Period in respect of such charges and expenses of the Business as may cease or be reduced in consequence of the interruption or interference, indemnify You in respect of the loss arising from such interruption or interference in accordance with the settlement of claims clause to the sum insured expressed against the relevant item on the Schedule, where the Schedule notes that cover has been selected.

414    The cover under that section is extended by a later clause headed, “Additional Benefits”. That clause, which in this case was amended by the endorsements, relevantly provides as follows:

Additional benefits

This section is extended to include the following additional benefits.

Unless expressly stated in the additional benefit, additional benefits 1 to 13 inclusive are payable provided that the sum insured expressed against the relevant item in the Schedule is not otherwise exhausted.

For additional benefits 1 to 9 inclusive We will pay You (depending on the part of this section which is applicable to You) for:

a)    ‘Item 1 Gross profit’; or

b)    ‘Item 2 Payroll’; or

c)    ‘Item 6 Gross rentals’; or

d)    ‘Item 7 Weekly income’; or

e)    ‘Item 9 Gross revenue’,

resulting from interruption of or interference with Your Business as a result of Damage occurring during the Period of Insurance to, or as a direct result of:

8.    Murder, Suicide or Disease

The occurrence of any of the circumstances set out in this Additional Benefit shall be deemed to be Damage to Property used by You in the Situation.

(a)    Murder or suicide occurring at the Situation.

(b)    Injury, illness or disease caused by the consumption of food or drink provided and consumed at the Situation.

(c)    The outbreak of a human infectious or contagious disease occurring within a 20 kilometre radius of the Situation.

(d)    Closure or evacuation of Your Business by order of a government, public or statutory authority consequent upon:

(1)    the discovery of an organism likely to result in a human infectious or contagious disease at the Situation; or

(2)    vermin or pests at the Situation; or

(3)     defects in the drains or other sanitary arrangements at the Situation.

Cover under Additional Benefits 8(c) and 8(d)(1) does not apply in respect of Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.

415    Some inconsistency in the numbering in the policy arose by reason of the endorsement, although the parties sensibly agreed that the above represented the policy terms. It is apparent that an amendment in the policy’s endorsement was intended to alter the wording of clause 2 of the “Additional benefits” clause but incorrectly referred to “Additional Benefit 8”. For the purposes of these reasons, it is referred to as “cl 8” and is identified above accordingly. It is useful to note at this point that the quotation of the form of “Additional Benefit 8” in the reasons of the primary judge (at PJ [438]) is not the correct version although, ultimately, nothing turns on that.

416    It should be observed that cl 8(c) is a disease clause. Its operation is not dependent upon the actions of a government authority and, by its terms, it applies where the occurrence of the disease is the proximate cause of loss. That can be compared to the extension in cl 8(d)(1), which is a hybrid clause requiring particular government action consequent upon a specified circumstance in order for it to respond to any claim.

417    The following definitions applicable to all sections of the policy were relevant to the issues raised on appeal:

General definitions

Business means:

all activities stated in the Schedule including:

a)     the ownership and occupation of the Business Premises by the Insured;

Damage (with ‘Damaged’ having a corresponding meaning) means physical loss, damage or destruction.

Property Insured means buildings, contents, specified items, stock, total contents, tobacco, cigars, cigarettes, and items listed on the Schedule and used in Your Business

Situation means the locations set out as the situation in the Schedule

You’, ‘Your’, ‘Yours’, ‘Insured’ means the person or entity named in the Schedule as the insured.

418    The Renewal Schedule identifies the “Business” as being “Travel Agency Services (Excluding Tour Operators)”. The “Situation” is identified as being Meridian’s premises in Heidelberg, Victoria. As the primary judge noted, the radial area of 20 kilometres around those premises covered the majority of metropolitan Melbourne.

419    Other provisions of the policy are referred to as required.

The decision at first instance

420    In general terms, the primary judge held (PJ [449] – [451]) that the agreed facts established that there was a relevant “outbreak” within 20 kilometres of Meridian’s premises by no later than 30 March 2020. This had been accepted by Insurance Australia. The consequence was that from that date cl 8(c) prima facie responded to Meridian’s claim in that the insured peril had occurred because the Victorian Government restrictions which were imposed as a result of the outbreak prevented potential customers from attending at Meridian’s premises. However, her Honour observed (PJ [481]) that 8(c) would only cover losses arising from a decline in business due to the interference of those potential walk-in customers. A reduction in business transacted by telephone or internet would not be caused by the outbreak. Whilst her Honour observed that on the presently available evidence she was unable to infer that the peril was a proximate or any other cause of Meridian’s loss, the possibility that Meridian would be able to establish some insurable loss covered by cl 8(c) arising from the diminution of domestic travel was left open. Nevertheless, her Honour had found (PJ [487] – [489]) that the Commonwealth Government’s measures which imposed the Overseas Travel Ban and the Cruise Ship Ban had not arisen from the same “underlying fortuity” as the insured peril for the purposes of cl 8(c) (the disease clause). It followed that, in ascertaining whether the insured peril in cl 8(c) was a proximate cause of the insured loss, it was not possible to ignore the effect of Commonwealth Government’s measures, which had the necessary conclusion that the insured peril in cl 8(c) was not a proximate cause of Meridian’s loss of income from overseas travel bookings.

421    Her Honour also held (PJ [478]) that cl 8(d)(1) (the hybrid clause) did not respond to Meridian’s claim. That clause required closure or evacuation of the business “by order” of a relevant authority, which was not the same thing as the order having the consequence that premises were closed (PJ [459] – [460]). In particular, the Overseas Travel Ban did not close any part of Meridian’s business, nor did it impose on any obligation on Meridian to do so (PJ [463]). Rather, it imposed travel restrictions on Australian citizens and permanent residents with the practical consequence that they could not make use of Meridian’s business to book international travel. The Victorian Government directions also lacked the requisite operative character because they did not require the closure of Meridian’s business (PJ [466] – [468]). Her Honour further concluded (PJ [472]) that the Commonwealth Government actions were not consequent upon “the discovery of an organism likely to result in a human infectious or contagious disease at the Situation”, irrespective of which of several possible constructions was given to that clause. For those reasons, cover under the hybrid clause was not available.

422    As previously mentioned, the primary judge had elsewhere concluded that:

(1)    Section 61A of the Property Law Act (Vic) did not apply (PJ [125]). It followed that the words, “Quarantine Act 1908 and subsequent amendments”, which appeared in the Meridian policy in the exclusion in relation to quarantinable diseases under the repealed Quarantine Act could not be read as referring to listed human diseases under the Biosecurity Act and, consequently, the exclusion did not apply (PJ [440])

(2)    The liability of an insurer to indemnify its insured was reduced by the amount of any JobKeeper payments and rental relief it had received either pursuant to the relevant “sums saved” clause in the policy or under general principles applicable to contracts of indemnity (PJ [385] – [405], [621] – [624]). This reasoning was extended by reference to Meridian’s receipt of JobKeeper and a rental waiver (PJ [509]). However, her Honour also held that the amounts it had received pursuant to the “Federal COVID-19 Consumer Travel Support Program” and from the Victorian Government “Support Fund” were in the nature of mercy payments which did not need to be taken into account either as sums saved or payments which reduced its loss (PJ [514] – [515]).

(3)    It was not unreasonable for the purposes of s 57 of the Insurance Contracts Act for an insurer to withhold any amount to which its insured was entitled pending the outcome of the test cases, including any final determination on appeal (PJ [415], [631]). It followed that, if Meridian was entitled to be paid any amounts under the policy, Insurance Australia would not be liable to pay interest on such amounts at least until judgment was delivered (PJ [516]).

423    The learned primary judge’s reasons also recorded her answers to the separate questions posed by the parties in relation to the operation of the Meridian policy (PJ [519] – [521]).

424    Both Meridian and Insurance Australia appealed from those answers. Each party also filed a notice of contention identifying grounds on which it sought to uphold aspects of her Honour’s decision from which the other party appealed. In summary, these gave rise to the following issues (set out in the order in which they are addressed below):

(a)    whether the Overseas Travel Ban and the Cruise Ship Ban were caused by the same underlying fortuity as the insured peril (appeal, Ground 1);

(b)    whether third party payments received by Meridian would have to be accounted for in assessing its loss (appeal, Ground 2; cross-appeal, Ground 4);

(c)    whether interest was payable by Insurance Australia pursuant to s 57 of the Insurance Contracts Act (appeal, Ground 3);

(d)    whether s 61A of the Property Law Act (Vic) applied such that cover under cll 8(c) and 8(d)(1) did not apply in respect of COVID-19 (Insurance Australia’s notice of contention, Grounds 1 and 2; cross-appeal, Ground 1; Meridian’s notice of contention, Ground 1);

(e)    the proper construction of the word “outbreak” in the disease clause (cross-appeal Ground 2);

(f)    the proper construction of the phrase “at the Situation” in cl 8(d)(1) (the hybrid clause) (cross-appeal, Ground 3); and

(g)    the proper construction of the phrase “closure or evacuation of Your Business” in the hybrid clause (Insurance Australia’s notice of contention, Ground 3).

Meridian’s appeal

Whether the Overseas Travel Ban and the Cruise Ship Ban were caused by the same underlying fortuity as the insured peril – appeal, Ground 1

425    The central issue of the first ground of appeal was whether the primary judge erred in concluding that the Overseas Travel Ban and the Cruise Ship Ban did not involve the same “underlying fortuity” as the insured peril in cl 8(c), being the outbreak of COVID-19 within 20 kilometres of Meridian’s premises which, it was accepted, had occurred by no later than 30 March 2020. Her Honour noted (PJ [491]) that the significance of this issue of the “underlying fortuity” depended on Meridian establishing that the insured peril was a proximate cause of its loss. In other words, her Honour seemed to say that it was necessary first to ascertain whether the insured peril was a proximate cause of the loss before applying the “underlying fortuity” principle. As appears in the previous discussion of FCA v Arch earlier in these reasons, there is some difficulty with this proposition. It is only by stripping out from the hypothetical counterfactual scenario those additional causes of loss which derived from the same underlying fortuity and which the parties naturally expected would occur concurrently with the insured peril, that the efficiency of the insured peril as a cause of the loss could be assessed. It was in this precise way that Hamblen and Leggatt JJSC (733ff [217]ff) deployed the underlying fortuity principle in answer to the insurers’ claims that the causative effect of the insured peril had been negated by the overwhelming impact of COVID-19 generally. Returning to the present case, if on any view of the circumstances some unrelated cause of the loss was so overwhelming as to render any consideration of the causative impact of the insured peril irrelevant, her Honour’s comments would be entirely correct.

426    Before this Court, each party assumed the applicability of the “underlying fortuity principle” as identified by the UK Supreme Court in FCA v Arch and no submissions were made as to its correctness or as to the manner in which it applied. The parties merely addressed the issue at a general level and focused upon the factual determination by the primary judge as to the connection between the Commonwealth Government travel bans and the outbreak of COVID-19 in Victoria or, at least, within 20 kilometres of the insured’s Situation.

The reasons at first instance in more detail

427    Her Honour concluded (PJ [481]) that she was unable to infer from the available evidence that the relevant outbreak of COVID-19 was a proximate or any other kind of cause of Meridian’s loss. It was not possible to know what part of the business was attributable to walk-in customers (those who would be affected by the restrictions on movement) and customers who booked by telephone or online (who would be unaffected). Meridian could not claim that the restrictions on access to its premises or on movement would have inhibited telephone bookings from occurring and thereby caused its loss, as any assessment of loss had to be confined to the “those activities of the business which were interrupted by the operation of the insured peril”: FCA v Arch [281] – [286]. Given the lack of focus on the issue during the hearing below, her Honour was prepared to receive further evidence and hear the parties further about it if appropriate.

428    Her Honour also concluded (PJ [482]) that, as 90% of Meridian’s business was international travel, the Overseas Travel Ban must have been “a, if not the sole, proximate cause” of its losses in relation to that aspect of its operations. Conversely, as 10% of its business was domestic travel, the Victorian Government lockdown directions must have been “a, if not the sole, proximate cause” of any losses in that respect.

429    The primary judge then considered whether Meridian could recover any losses of which there were concurrent proximate causes, one being the insured peril (to the extent this was shown to be the case) which arose from the outbreak of the disease within the 20 kilometre radial area and the Victorian Government actions, and the other being the Commonwealth imposed travel bans. In relation to this issue, her Honour accepted (PJ [484]) that the “underlying fortuity” principle identified in FCA v Arch was apposite and described its rationale as being:

To exclude cover where the insured peril is a proximate cause of the loss merely because another proximate cause of loss arising from the very same circumstances exists makes no sense provided that the other proximate cause of loss is not itself clearly excluded from cover.

(Emphasis added).

430    If the underlying fortuity was characterised as being the presence and the risk of the spread of COVID-19 in Victoria, there was no difficulty with the proposition that the Victorian Government restrictions had the same underlying cause as the other effects of the presence and risk of the spread of COVID-19 in the State, including the outbreak within the specified radial area of Meridian’s premises (PJ [486]).

431    However, the same could not be said of the Commonwealth Government’s Overseas Travel Ban and the Cruise Ship Ban which were concerned with the “presence of COVID-19 overseas and the risk that an overseas traveller coming to Australia may bring COVID-19 into any part of Australia”, as distinct from the “presence of COVID-19 in the State and the associated risk of the spread of COVID-19 through the State (including the area within the radius…)” (PJ [487] – [488]). In that context, it was not “artificial, contrived and commercially irrational to distinguish between the insured and uninsured perils” (PJ [489]). Her Honour also refused to characterise the underlying fortuity as being “COVID-19 generally”.

Meridian’s submissions as the underlying fortuity

432    The essence of Meridian’s submissions was that her Honour had drawn a false distinction between the “presence of COVID-19 overseas and the risk that an overseas traveller coming to Australia may bring COVID-19 into any part of Australia” and the “presence of COVID-19 in the State and the associated risk of the spread of COVID-19 throughout the State (including the area within the radius or at the insured situation)”. It submitted that both the Commonwealth and Victorian Government actions were caused by the presence and the associated risk of the spread of COVID-19 including within Victoria.

433    In support of this submission, reference was made to the Explanatory Statement accompanying the instrument effecting the Cruise Ship Ban which stated that “[t]his Determination is in response to the COVID-19 pandemic, which continues to represent a severe and immediate threat to human health in Australia and across the globe.” It was further submitted that, in accordance with the requirements of the Biosecurity Act, the Overseas Travel Ban was made because, as the Explanatory Statement identified, the Minister had been advised and was satisfied that, “the outbound travel restriction is necessary to prevent or control the entry, emergence, establishment or spread of COVID-19 in Australian territory and abroad.” Meridian also noted that, by 23 March 2020, there were at least 215 instances of COVID-19 in the 20 kilometre radial area of its premises, which amounted to over 10% of the total number of COVID-19 cases in Australia.

434    In oral submissions, Mr Finch SC for Meridian also analysed the issue in terms of whether the Commonwealth and Victorian Government actions arose from the same underlying fortuity. The apparent logic was that if those actions arose from the same underlying fortuity, then the Commonwealth Government actions and the insured peril arose from the same underlying fortuity, because her Honour had accepted (PJ [486]) that the insured peril and the Victorian Government actions arose from the same underlying fortuity. In this respect, the essence of his submission was that the Commonwealth Government actions had, as at least one of their focuses, the presence of COVID-19 in the State and the associated risk of the spread of COVID-19 throughout Victoria.

Insurance Australia’s submissions

435    Insurance Australia supported the primary judge’s reasoning that the Commonwealth Government actions in imposing the Overseas Travel Ban and the Cruise Ship Ban did not arise from the same underlying fortuity as the insured peril. In its submission, the fortuity underlying the insured peril, being the outbreak of COVID-19 within 20 kilometres of the insured’s premises, did not extend beyond the presence of COVID-19 in Victoria. It further submitted that, as the Commonwealth Government’s actions were taken for the purpose of preventing persons bringing further cases of COVID-19 into the country, they did not involve that same underlying fortuity as the insured peril.

Conclusion as to the fortuity underlying the Commonwealth Government actions

436    No error has been demonstrated in the primary judge’s conclusion that the imposition of the Overseas Travel Ban and the Cruise Ship Ban did not relevantly derive from the same underlying fortuity as the State Government’s directions. Her Honour had found (PJ [486]) that the underlying fortuity of the insured peril, being the outbreak of COVID-19 in the relevant area, was the presence of the disease in the State and the associated risk of it spreading throughout the State. Conversely, the Commonwealth Government actions which then prevented Australian citizens and residents from leaving Australia and cruise ships from arriving were not motivated by that fortuity, but by the presence of the disease overseas and the risk that additional cases might be brought into the country (PJ [487]). The correctness of that finding is not contradicted by Mr Finch SC’s submission which referenced the Minister’s power under s 477(1) of the Biosecurity Act as being exercisable “to prevent or control: (ii) the … spread of a declaration listed human disease in Australian territory”. That is merely one condition on which the power may be exercised. It may also be exercised to prevent or control the “entry” of such a disease into Australia. The pursuit of the latter goal was the obvious motivation for the Overseas Travel Ban and the Cruise Ship Ban. As her Honour found (PJ [488]), the fortuity underlying the Commonwealth Government actions had only the most tenuous connection with the insured peril. It is also relevant to observe that it seems those bans were maintained despite a decrease in the presence and risk of the spread of COVID-19 domestically during the term of the policy.

437    As the primary judge also recognised (PJ [487]), the Commonwealth Government actions were substantively different measures to those taken by the Victorian Government. The latter’s stay-at-home orders, restrictions on the size of gatherings, and restrictions on the operation of certain businesses were measures which prevented the inhabitants of the State from interacting and, therefore, minimising the occasions on which COVID-19 may spread. The Commonwealth Government actions were, on the other hand, self-evidently directed to preventing the entry of additional cases into the country and were imposed because of the existence of cases of COVID-19 overseas rather than because of the cases in Victoria.

438    The substantive difference in the underlying fortuity of the different measures is supported by the evidence before the primary judge. Of particular relevance was the Prime Minister’s statement on 16 March 2020, announcing the Cruise Ship Ban which indicated that it, “will help avoid the risk of a cruise ship arriving with a mass outbreak of the virus”. That underscores that the main purpose of its introduction was to prevent the entry of further cases of the virus into Australia rather than to retard its existing proliferation here.

439    Although not presently necessary to decide, characterising the underlying fortuity as being the global COVID-19 pandemic seems to go too far: cf. FCA v Arch at 739 [240]. Indeed, on the appeal, Meridian did not press the argument that “COVID-19 generally” was the underlying fortuity. If that was the underlying fortuity, no distinction could be drawn between the insured and uninsured perils in this matter.

440    The necessary conclusion is that the primary judge was correct to determine that, on the one hand, the Victorian Government actions and the insured peril and, on the other, the Commonwealth Government actions, were not derived from the same underlying fortuity.

441    Neither party addressed the issue raised in FCA v Arch in relation to the underlying fortuity principle that, in order for a concurrent cause to be ignored in the consideration of whether the insured peril was a proximate cause of the loss, it had to be characterised as one which the parties might naturally expect to occur concurrently with the insured peril. Had they done so, the issue would have been more readily resolved. Here, the insured peril was the outbreak of a disease within 20 kilometres of the insured’s Situation. It may well be expected that when such a circumstance arises, the authorities will require businesses to close their doors and restrict the free movement of residents. That being so, each of those events, if not otherwise part of the insured peril itself, can be ignored as competing causes of the insured loss. However, the imposition of nationwide international travel restrictions is not something which the parties would naturally expect to occur concurrently with the localised outbreak of a disease. That is consistent with the primary judge’s findings that those restrictions were motivated by factors other than the outbreak of the disease in Victoria. They, therefore, do not have the necessary characteristics to be causes arising from the same underlying fortuity such that their causative impacts cannot be set up against the insured peril. As the Commonwealth Government travel bans effectively curtailed or destroyed Meridian’s business (PJ [463]) by detrimentally impacting that 90% of its business related to international travel, it could not be said that the insured peril was a proximate cause of those losses. Accordingly, there is no basis on which to upset the primary judge’s reasons in this respect.

Whether third party payments had to be taken into account – appeal, Ground 2; Cross-appeal, Ground 4

442    On the assumption that Meridian was entitled to indemnity under cll 8(c) or 8(d)(1) of the policy, the primary judge considered whether certain payments and financial relief received by it from third parties ought be deducted when calculating the amount recoverable. In particular, her Honour considered whether those amounts ought be deducted, either as a “sum saved” pursuant to the provisions of the Meridian policy, or under general principles applicable to contracts of indemnity. In doing so she considered several different types of third party payments and relief, namely: (a) JobKeeper payments; (b) Federal COVID-19 Consumer Travel Support Program payments; (c) the Victorian Government’s Support Fund; and (d) a rental waiver from its landlord. Her Honour held that the savings resulting from JobKeeper and the rental waiver from the landlord had to be accounted for under the “sum saved” provision or general principles of indemnity (PJ [509]). In so holding, she adopted her reasoning in relation to the LCAM and Taphouse policies (PJ [385] – [405], [621] – [624]). However, her Honour held that the Federal COVID-19 Consumer Travel Support Program payments and the Victorian Government’s Support Fund payments were both in the nature of mercy payments and did not reduce Meridian’s insured loss (PJ [514] – [515]).

443    By Ground 2 of its appeal, Meridian challenged the primary judge’s conclusion in relation to the JobKeeper payments. By Ground 4 of its cross-appeal, Insurance Australia challenged the primary judge’s conclusion in relation to the Federal COVID-19 Consumer Travel Support Program payments and the Victorian Government’s Support Fund payments. There was no issue on appeal regarding the rental waiver.

444    In light of the conclusion that Meridian is not entitled to indemnity under cl 8(d)(1) of the policy, it is not necessary or appropriate to consider these issues on the assumption that it is entitled to recovery under that clause. However, given the possibility that Meridian may be entitled to indemnity under cl 8(c), it is appropriate to address them, on the assumption that it is able to produce further evidence to satisfy the causal nexus for recovery under that clause.

The relevant policy terms

445    The “sum saved” provision of the Meridian policy appears immediately after the description of the “Cover” for business interruption in Section 2 of the policy. This section of the policy is set out above, but it is convenient to restate it here:

Cover

If the Business carried on by You is interrupted or interfered with as a result of Damage occurring during the Period of Insurance to:

[“Property Insured…” or “property at the Situation” or “property insured by You”]

We will, after taking into account any sum saved during the Indemnity Period in respect of such charges and expenses of the Business as may cease or be reduced in consequence of the interruption or interference, indemnify You in respect of the loss arising from such interruption or interference in accordance with the settlement of claims clause to the sum insured expressed against the relevant item on the Schedule, where the Schedule notes that cover has been selected.

(Emphasis added).

446    Immediately after those provisions, the policy set out a series of definitions relevant to the cover provided by Section. The following definitions are relevant to the present issues:

Annual Revenue means the Revenue earned during the twelve (12) months immediately before the date of the Damage.

Revenue means the money paid or payable to You for services provided (and stock in trade, if any, sold), in the course of operation of Your Business at the premises.

Standard Revenue means the Revenue earned within that period during the twelve (12) months immediately before the date of the Damage which corresponds with the Indemnity Period.

447    Further, the Meridian policy defines the word “Damage” for the purposes of all sections of the policy. It is set out above, but for convenience is restated here:

Damage (with ‘Damaged’ having a corresponding meaning) means physical loss, damage or destruction.

448    Next, there is a section headed, “Settlement of claims”, which contains a number of items which provide different bases of settlement. The Renewal Schedule to the Meridian policy specifies that business interruption cover is taken on the “Annual Revenue Basis”, with cover of $510,000. The Renewal Schedule also specifies that cover of $25,000 is provided for “Additional increased cost of working”. The relevant items under “Settlement of claims” are therefore items 3 and 9, which provide:

Item 3 – Additional increased cost of working

The cost of further expenditure not otherwise payable under this section, necessarily and reasonably incurred during the Indemnity Period in consequence of the Damage, for the purpose of avoiding or minimising a reduction in Gross Profit, Revenue, Payroll, Gross Rentals, Actual Average Weekly Income or resuming or maintaining the normal operation of the Business.

Item 9 – Gross revenue

This item is limited to loss of Revenue and increase in cost of working. The amount payable as indemnity under this item will be:

a)    in respect of loss of Revenue, the amount by which the Revenue earned during the Indemnity Period falls short of the Standard Revenue in consequence of the Damage; and

b)    in respect of increase in cost of working, the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the loss of Revenue which, but for the additional expenditure, would have taken place during the Indemnity Period in consequence of the Damage. However, Our payment will not exceed the amount of reduction in Revenue thereby avoided, less any sum saved during the Indemnity Period in respect of such charges and expenses of Your Business payable out of Revenue as may cease or be reduced in consequence of the Damage.

(Emphasis added).

449    It may be observed that the gross revenue item contains within it a form of “sum saved” provision. The focus of the submissions was on the “sum saved” provision in the last paragraph under the heading, “Cover”. It is sufficient for present purposes to focus on that provision, as the same issues arise in relation to both “sum saved” provisions.

450    The next part of Section 2 is headed, “Additional benefits”. As noted above, Additional benefit 2 (“Murder, suicide or disease”) is replaced by a clause set out in the Renewal Schedule. Relevantly, that Additional Benefit 8 (“Murder, Suicide or Disease”) states:

The occurrence of any of the circumstances set out in this Additional Benefit shall be deemed to be Damage to Property used by You at the Situation.

(c)    The outbreak of a human infectious or contagious disease occurring within a 20 kilometre radius of the Situation.

JobKeeper payments

451    The first issue is whether, on the assumption that Meridian is entitled to indemnity under cl 8(c), the JobKeeper payments that it received are to be taken into account under general principles applicable to contracts of indemnity.

452    The primary judge’s findings about the JobKeeper program (PJ [388] – [393]) were not controversial below and are not challenged on appeal. These were as follows:

(1)    The Commonwealth payment known as JobKeeper was introduced as part of a package of four Acts: (a) the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth); (b) the Coronavirus Economic Response Package Omnibus (Measures No 2) Act 2020 (Cth); (c) the Appropriation Bill (No 5) 2019-20 (Cth); and (d) the Appropriation Bill (No 6) 2019-20 (Cth).

(2)    An entity was eligible to participate if, as at 1 March 2020: (a) the entity carried on business in Australia or was a non-profit body that pursued its objectives principally in Australia; and (b) the entity’s turnover has reduced by a relevant percentage ((i) 15 per cent – where the entity is a registered charity (other than certain educational institutions), (ii) 30 per cent – where the employer’s aggregated turnover is less than $1 billion, or (iii) 50 per cent – where the employer’s aggregated turnover is at least $1 billion): Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) ss 7 – 8.

(3)    To be eligible to receive the JobKeeper payment, an employer was required to pay an eligible employee a total of $1,500 (pre-tax) in each fortnight for which the employer was claiming the entitlement during the period March to September 2020. The $1,500 could include amounts that were salary sacrificed into superannuation as well as amounts dealt with in any other way on behalf of the employee as a substitute for their salary and wages (e.g. other salary packaging arrangements such as certain fringe benefits). Payments were then made to the employer monthly in arrears. During the extension phase of JobKeeper (28 September 2020 – 28 March 2021), the payment was tapered and targeted to those businesses that continued to be significantly affected by the economic downturn. Businesses were required to reassess their eligibility with reference to their actual turnover: Coronavirus Economic Response Package (Payments and Benefits) Rules ss 10, 15, 13, 7(c) and 8B.

(4)    The object of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) in s 3 “is to provide financial support … to entities that are directly or indirectly affected by the Coronavirus known as COVID-19”.

(5)    The Explanatory Memorandum that accompanied the Coronavirus Economic Response Package (Payments and Benefits) Bill 2020 and Coronavirus Economic Response Package Omnibus (Measures No. 2) Bill 2020 stated (p 12):

The Government’s consolidated package of $320 billion represents fiscal and balance sheet support across the forward estimates of 16.4 per cent of annual Gross Domestic Product. The support is designed to help businesses and households through the period ahead. This significant action has been taken in the national interest and has been updated in the light of the broader and more prolonged impact of the Coronavirus outbreak.

The package provides timely support to workers, households and businesses through a difficult time. Building on the previous measures, this package will support those most severely affected. It is also designed to position the Australian economy to recover strongly once the health challenge has been overcome.

453    The Explanatory Memorandum continued (p 34):

2.8    Under the JobKeeper Payment, businesses significantly impacted by the Coronavirus outbreak will be able to access a subsidy from the Government to continue paying their employees. This assistance will help businesses to keep people in their jobs and re-start when the crisis is over. For employees, this means they can keep their job and earn an income – even if their hours have been cut.

2.9    The JobKeeper Payment is a temporary scheme open to businesses impacted by the Coronavirus. The JobKeeper Payment will also be available to the self-employed. The Government will provide $1,500 per fortnight per employee for up to six months. The JobKeeper Payment will support employers to maintain their connection to their employees. These connections will enable business to reactivate their operations quickly – without having to rehire staff – when the crisis is over.

454    Having regard to the terms of the Meridian policy, and on the assumption that Meridian is entitled to indemnity under cl 8(c), the JobKeeper payments are not to be taken into account pursuant to general principles applicable to contracts of indemnity. The express terms of the policy foreclose any application of those principles as the parties have agreed that the loss that is the subject of indemnity is any loss demonstrated by undertaking the agreed calculation in accordance with the settlement of claims clause. The settlement of claims clause records the agreement of the parties both as to the kind and extent of loss the subject of the indemnity. This is the effect of the Cover being an indemnity in respect of a “loss … in accordance with the settlement of claims clause”, with the various items of that clause limiting the loss to that which is in consequence of the Damage (which includes the outbreak of a human infectious or contagious disease occurring within a 20 km radius, which is deemed to be Damage). It is not simply a calculation provision. Its application requires an assessment as to whether particular items of loss have been incurred in consequence of the Damage.

455    In Mobis Parts Australia Pty Ltd v XL Insurance Company SE (2018) 363 ALR 730, one of the issues before the New South Wales Court of Appeal concerned the treatment of depreciation charges under an insurance policy providing cover, in section 2, for business interruption. The policy contained an indemnity in respect of “gross profit” and provided, in cl 7.1.1, a formula for the assessment of such loss: at 770 – 771 [139] – [140]. That formula included the words: “less any sum saved during the Indemnity Period in consequence of the Damage in respect of such of the charges and expenses of the Business payable out of Gross Profit”. The issue was whether a depreciation expense that would otherwise have been recorded was an expense payable out of Gross Profit that had been “saved” for the purposes of cl 7.1.1: at 771 – 772 [142] – [143]. In that context, Meagher JA (with whom Beazley P and Leeming JA agreed) stated (at 772 [143]) that the question “must be resolved in accordance with the proper construction of the relevant provisions of the [policy]”. His Honour stated (at 772 [146]):

As the general object of section 2 of the policy is to indemnify Mobis Australia against loss of its gross profit, the prospect of under- or over-indemnification may colour the meaning of the language used: see Castellain v Preston (1883) 11 QBD 380 at 386 (Brett LJ).

456    His Honour continued (at 772 – 773 [147] – [149]):

147    But the indemnity under section 2 is not simply against “actual loss”, unlike that in business interruption wordings generally adopted in the United States, discussed in Riley at paras 1.10 and 12.14, and in the “hybrid” policy considered by this Court in Coalex Pty Ltd v Commercial Union Assurance Co of Australia Ltd (1988) 5 ANZ Ins Cas 60-858 at 75,381 (Coalex v Commercial Union) (col 2). Rather, the Local Policy contained a formula for the assessment of the insured loss of gross profit, which (as noted at [122] above) qualifies the application of the principle of indemnity insofar as it might be said to depart from perfect indemnification in some contingency: see also Coalex v Commercial Union at 75,380 (col 2). In Henry Booth & Sons v The Commercial Union Assurance Co Ltd (1923) 14 Lloyds LR 114 at 114 (col 2), Greer J explained the object of such a formula thus:

It is the common practice in policies of this sort, in order to prevent lengthy disputes, that there should be an agreed method of ascertaining the loss. Sometimes the assessment of the loss is in favour of the assurance company and sometimes the assured, but it is nevertheless good sense to have a method which can be readily applied without difficulty and without raising a great number of points for dispute.

148    It is by reference to these considerations that the reasoning of Flaux J in Synergy Health at [251]–[260] must be evaluated. Having found that the insured would “recover an indemnity for more than its actual loss in respect of business interruption” if depreciation was not deducted, his Lordship concluded “that, in principle, that saving should be off-set against any claim under the business interruption section of the policy, unless the wording of the policy requires some different conclusion”; indeed, he justified a construction that admittedly “stretche[d]” language in the policy solely by this “principle”— that a court should only conclude that “something in excess of a full indemnity” was intended if “no other conclusion is possible”: Synergy Health at [258].

149    In my respectful opinion, that reasoning gives the indemnity principle unwarranted effect in the face of the language of the policy, and the specific object of the provisions for the assessment of loss. A reasonable businessperson seeking to understand these lengthy clauses would not begin by assuming that they mean nothing more than the expression “full indemnity for actual loss to gross profit”, and then proceed to enquire whether anything in the language required otherwise. His or her attention would remain fixed on the sense of the language describing the method for ascertaining the loss as coloured by its immediate and commercial context: see Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; 325 ALR 188; [2015] HCA 37 at [46]–[52] (French CJ, Nettle and Gordon JJ).

(Bold emphasis added.)

457    There is no reason to disagree with these observations and they ought to be applied in the present case. The purpose of the “Settlement of claims” provisions in Section 2 of the Meridian policy is to provide an agreed method of ascertaining the loss and to thereby avoid lengthy disputes. The reasonable businessperson considering the policy from the point of view of the parties to it would understand them to have agreed upon this methodology as the basis for determining both whether there is a loss as well as the quantum of any loss. The question whether or not there is a loss, as well as the extent of any loss, may otherwise be contestable. The provisions avoid this controversy by setting out the methodology to be used. In light of these detailed provisions, there is simply no room for general principles applicable to contracts of indemnity to operate in relation to these issues.

458    Insurance Australia relied on Insurance Australia Ltd v HIH Casualty & General Insurance Ltd (in liq) (2007) 18 VR 528 in support of the proposition that its promise is to hold Meridian harmless against loss, and not simply to make a payment referable to a basis of settlement: at 555 [159]; (see also PJ [401] – [403]). However, that case is distinguishable. It did not concern a “basis of settlement” or “settlement of claims” provision. Further, the issue in it was far removed from the issue in the present issue. For these reasons, the loss that Insurance Australia promised to hold Meridian harmless against is loss of the kind and extent determined according to the agreed basis of settlement.

459    The primary judge also referred (PJ [402]) to Worth v HDI Global Specialty at 137 – 138 [179], which in turn referred to Globe Church Incorporated v Allianz Australia Insurance Ltd (2019) 99 NSWLR 470 (Globe Church). In fact, Globe Church supports the approach taken above: see, in particular, Globe Church at 498 [127], 514 [209].

460    The next question is whether, on the assumption that Meridian is entitled to indemnity under cl 8(c), the JobKeeper payments are to be taken into account under the “sum saved” provision. There are two aspects to this. First, the sum saved provision refers to “charges and expenses of [the] Business … as may cease or be reduced”, which necessitates determining whether the JobKeeper payments had the effect that charges or expenses ceased or were reduced. Secondly, assuming that such charges or expenses ceased or were reduced, it is necessary to determine whether that occurred “in consequence of the interruption or interference”.

461    It is convenient to start with the second aspect. The requirement is that the cessation or reduction of charges or expenses be in consequence of “the” interruption or interference. This takes the reader back to the beginning of the “Cover” section, where reference is made to the insured’s business being interrupted or interfered with “as a result of Damage”. It is that interruption or interference that is being referred to in the “sum saved” provision. The word “Damage” is given an extended meaning by cl 8. Relevantly for present purposes, the “outbreak of a human infectious or contagious disease occurring within a 20 kilometre radius of the Situation” is deemed to be Damage to Property used by the insured at the Situation. Thus, the reference (at the beginning of the “Cover” section) to the insured’s business being interrupted or interfered with “as a result of Damage” is to be read as including the insured’s business being interrupted or interfered with as a result of the insured peril described in cl 8(c). Returning, then, to the “sum saved” provision, the concern is with “the” interruption or interference earlier identified, that is, the interruption or interference resulting from the insured peril in cl 8(c). The question, then, is as follows: assuming that Meridian is able to establish on evidence that the insured peril in cl 8(c) is a proximate cause of its loss (as to which, see PJ [481], [485] – [498]), were the JobKeeper payments made and received “in consequence of” the interruption or interference (that is, the interruption or interference resulting from the insured peril in cl 8(c))? As a matter of the application of the policy’s provisions, they were not. The criteria for eligibility for JobKeeper payments were financial ones; they did not depend on whether or not there had been an outbreak within 20 km of the premises of the business. Meridian was entitled to the JobKeeper payments regardless of whether or not there was an outbreak within 20 km of its premises. Conversely, had Meridian not met the financial tests for JobKeeper, it would not have been entitled to JobKeeper payments, even if the insured peril in cl 8(c) occurred. Accordingly, the second aspect of the “sum saved” provision (the causal requirement) is not satisfied. It is therefore not necessary to consider the first aspect of the provision.

462    The primary judge was of the view that the JobKeeper payments reduced the insured’s loss and expenses in the form of saved wages payments and were therefore to be taken into account (see PJ [509] in the context of Meridian, and PJ [623] – [624] in relation to Taphouse). However, the primary judge did not analyse in detail whether the JobKeeper payments were made and received “in consequence of” the interruption or interference (that is, the interruption or interference resulting from the insured peril in cl 8(c)). In the section of the reasons dealing with causation in the context of the Meridian policy, the primary judge relied on FCA v Arch. Her Honour considered that, by parity of reasoning, the JobKeeper payments were to be taken into account under the “sum saved” provision (PJ [623]; see also PJ [395])). However, it is necessary for the purposes of the causal requirement in the “sum saved” provision to focus on the criteria for the JobKeeper payments, rather than the general underlying policy of the JobKeeper scheme. Approaching the matter this way, the causal requirement is not satisfied.

463    It follows that the JobKeeper payments are not to be taken into account under the “sum saved” provision.

Federal COVID-19 Consumer Travel Support Program payments

464    The issue here is whether, on the assumption that Meridian is entitled to indemnity under cl 8(c) of the policy, the Federal COVID-19 Consumer Travel Support Program payments that it received are to be taken into account either under general principles applicable to contracts of indemnity or under the “sum saved” provision.

465    The primary judge made the following findings about the Federal COVID-19 Consumer Travel Support Program based on a summary prepared by Meridian and Insurance Australia (PJ [510] – [513]):

(1)    The program was introduced by the Industry Research and Development (COVID-19 Consumer Travel Support Program) Instrument 2020 (Cth), made under the Industry Research and Development Act 1986 (Cth).

(2)    The program provided travel agents and tour arrangement service providers with funding to help them remain viable. The grant was intended to provide funding for expenditure that assisted them to continue to trade and process refunds and credits to Australian consumers for travel they were unable to undertake due to the impacts of COVID-19. There have been two rounds of this program, with the first launched on 14 December 2020 and closed on 13 March 2021, and the second launched on 2 May 2021 and closed on 12 June 2021. Each round of the program involved a one-off grant of between $1,500 and $100,000 in the first round, and a subsequent grant of between $7,500 and $100,000 in the second round.

(3)    To be eligible, a travel agent or tour operator had to meet a number of requirements including having an annual turnover starting from $50,000 up to a maximum of $20 million, and having received a JobKeeper payment. Applicants were also required to declare that they would make best endeavours to retain staff and meet their obligations to process refunds and travel credits to Australian consumers.

(4)    The instrument provides that the “purpose of the program is to alleviate the negative economic impacts of the coronavirus known as COVID‑19 on the travel industry by providing immediate, short‑term financial support to travel agents, and tour arrangement service providers, that qualify for the ‘JobKeeper’ scheme”: s 5(2).

466    For the same reasons as set out above in relation to the JobKeeper scheme, these payments are not to be taken into account under general principles applicable to contracts of indemnity or under the “sum saved” provision. On that basis, there is no reason to interfere with the primary judge’s conclusion with respect to these payments.

Victorian Government’s Support Fund

467    The issue is whether, on the assumption that Meridian is entitled to indemnity under cl 8(c) of the policy, the Victorian Government’s Support Fund payments that the insured received are to be taken into account either under general principles applicable to contracts of indemnity or under the “sum saved” provision.

468    The primary judge made findings about the Victorian Government’s Support Fund based on a summary prepared by Meridian and Insurance Australia (PJ [515]). These payments were part of the “Economic Survival Package to Support Businesses and Jobs” announced by the Victorian Government on 21 March 2020, and were made by way of payroll tax refunds for the 2019-20 financial year. The grants were made “to help Victorian businesses and workers survive the devastating impacts of the coronavirus pandemic”.

469    Again, for the same reasons as set out above in relation to the JobKeeper scheme, these payments are not to be taken into account under general principles applicable to contracts of indemnity or under the “sum saved” provision. There is no basis on which to disturb the primary judge’s conclusion with respect to these payments.

Whether interest is payable under s 57 of the Insurance Contracts Act – appeal, Ground 3

470    The principal issue raised by this ground of appeal has been resolved earlier in these reasons. For the reasons discussed there, although the primary judge erred in construing s 57 of the Insurance Contracts Act, it does not apply unless an insurer is liable to pay an amount pursuant to the policy of insurance or that Act. It has not yet been determined whether Insurance Australia is liable to pay any amount to Meridian with the consequence that it cannot be concluded that s 57 applies. If it did, further submissions would be required in order to ascertain the date from which any interest is payable pursuant to s 57(2). In these circumstances the answer given by the primary judge on this issue can be amended by adding:

If Meridian is entitled to cover, further evidence and submissions would be required in relation to interest.

Insurance Australia’s cross-appeal

471    Insurance Australia’s cross-appeal and Meridian’s notice of contention concern several matters which, in the light of the discussion earlier in these reasons, can be addressed relatively briefly. The issues raised by Insurance Australia’s notice of contention are also addressed here.

The application of s 61A of the Property Law Act (Vic) – cross-appeal, Ground 1

472    The main issues raised by this ground of the cross-appeal have also been resolved earlier in these reasons. As was explained, s 61A of the Property Law Act (Vic) only applies to references to Acts passed by the Victorian Parliament and, furthermore, the Biosecurity Act is not a re-enactment with modification of the Quarantine Act. For each of those reasons, the words, “Quarantine Act 1908 and subsequent amendments”, in the exclusion in cl 8 of the Meridian policy cannot be read as referring to the Biosecurity Act, and thus the exclusion does not apply in the circumstances. It follows that this ground of Insurance Australia’s cross-appeal, as well the grounds in its notice of contention which depended upon the acceptance of its preferred construction of s 61A, must be dismissed. It is also not necessary to consider Meridian’s notice of contention, the sole ground of which concerned whether s 61A applied in the circumstances if it was given the insurer’s preferred construction.

The construction of the word “outbreak” in the disease clause – cross-appeal, Ground 2

473    By this ground of its cross-appeal, Insurance Australia challenged the primary judge’s construction of the word “outbreak” (PJ [450]). Her Honour’s conclusion as to its usual meaning in relation to COVID-19 has been identified above and accepted as being correct. There is nothing in the text and context of the Meridian policy which suggests a different meaning ought to be given to that word and none was identified in the course of submissions. For those reasons, this ground of the cross-appeal should be dismissed.

The construction of the phrase “at the Situation” in the hybrid clause – cross-appeal, Ground 3

474    By this ground of its cross-appeal, Insurance Australia sought to challenge the primary judge’s conclusion (PJ [454]) that cl 8(d)(1) (the hybrid clause) did not require the relevant organism to be discovered “at the Situation”.

475    This ground of the cross-appeal is also afflicted by the jurisdictional difficulty discussed at the commencement of these reasons. Her Honour concluded (PJ [478]) that the hybrid clause did not respond to Meridian’s claim, a conclusion from which the insured did not appeal. It follows that, as between the parties to this appeal, the point is moot and there exists no dispute between them that Meridian is not entitled to recover under that clause of the policy. However, Insurance Australia submitted that her Honour’s conclusion as to this point of construction was incorporated into an answer to one of the separate questions and thus constituted an order against which it might appeal. Meridian made no substantive submissions in opposition to that proposition. In the circumstances, the appropriate course is to replace the primary judge’s answer to the relevant questions with “Unnecessary to answer”. Also, the following observations are made in relation to the issue.

476    The primary judge recognised (PJ [445]) that the more grammatical construction was that the words “at the Situation” qualified the whole of the preceding phrase and not merely the words “discovery of an organism”. However, for the reasons set out below, the preferable construction of the clause, in its context, is that it is the discovery of the relevant organism which must be “at the Situation”.

477    First, the most grammatical construction is not necessarily to be determinative in the construction of policies of insurance. Many provisions, such as cl 8(d), seek to accommodate a number of different concepts in the one clause, resulting in a less than perfect wording or sentence structure. Here, there is at least some support for the view that the expression “at the Situation” qualifies all that precedes it, because the phrase “likely to result in a human infectious or contagious disease” is adjectival and describes the particular type of organism.

478    Secondly, there is substance to the proposition that cl 8(d) is concerned with events occurring “at the Situation” such as vermin or other pests (cl 8(d)(2)) or defects in the drains or other unsanitary arrangements (cl 8(d)(3)). Clauses 8(a) – (c) support that conclusion in that their focus is on events which actually take place by reference to the Situation, being either at it or proximate to it. Whilst this is not an overly weighty indicator, it is consistent with the notion that the cover is in respect of hindrance to the insured’s business as a result of events which have a degree of proximity to those operations. The learned primary judge’s construction of cl 8(d)(1) is less consistent with those other clauses.

479    Thirdly, the requirement for something to be “at the Situation” is more consistent with the discovery of “an organism”, as compared to the organism being likely to “result in a … disease at the Situation”. The construction that the discovery must be likely to result in a disease at the Situation is awkward compared to the alternative construction requiring the discovery of the organism at the Situation. It is unclear how a disease might “result” at the Situation.

480    Fourthly, the construction which triggers cover consequent upon the actions of a relevant authority as a result of the discovery of a disease anywhere in the world will necessarily give rise to difficult questions of causation. It is likely to generate substantial debate about the extent to which the authority’s actions were based upon an organism, wherever discovered, and the extent to which that organism was likely to have the consequence of the occurrence of a relevant disease at the Situation. Whilst it can be accepted that this might be resolved by the authority’s articulation of the reasons for its actions.

481    Fifthly, although Meridian suggested this construction would result in an uncommercial outcome because it would mean that discovery of an organism at neighbouring premises which causes interruption to the insured’s business would not be covered, there is nothing particularly unusual about that result. The same consequences would apply to the other parts of cl 8(d). It is foreseeable that the unsanitary arrangements at neighbouring premises might cause the premises to be closed even though any resulting loss is not covered by the policy. Further, many clauses have geographical or temporal limits such that the non-coverage of claims which fall slightly short of those requirements may appear arbitrary.

482    Meridian further submitted that if the clause were intended to be read as Insurance Australia proposed, the words, “at the Situation”, would have followed “discovery of an organism”. It is true that the policy could have been as explicit as the Market Foods’ policy which refers to, “an occurrence … at the premises of … the discovery of an organism likely to cause Notifiable Disease”. Similarly, it may have been worded in the same way as the cognate clause policy in Star which refers to, “Any discovery of an organism at the Premises likely to result in the occurrence of a Notifiable Disease”. Meridian’s submission was that if Insurance Australia intended that it was to be the discovery of the organism which was to occur at the Situation, then similar wording could have been adopted. However, the question is not whether the meaning could have been expressed in clearer terms. It is, what is the meaning of the words actually used. Here, the issue is finely balanced, but the above factors favour Insurance Australia’s preferred construction. Although there is some ambiguity in cl 8(d), in this instance, whatever grammatical superiority the construction adopted by the primary judge might have, it should give way to the more consistent interpretation advanced by Insurance Australia.

483    As indicated, given the previous conclusions it is not necessary to determine the cross-appeal on this issue and the learned primary judge’s answers to the relevant questions should be amended to, “Unnecessary to answer”.

The construction of the phrase “closure or evacuation of Your Business” in the hybrid clause – Insurance Australia’s notice of contention, Ground 3

484    In its notice of contention, Insurance Australia sought to uphold the primary judge’s conclusion that the hybrid clause did not respond to Meridian’s claim on the additional basis that it was not sufficient that only part of the insured’s business was closed or evacuated by the relevant order (cf. PJ [461]). As the primary judge’s conclusion as to the hybrid clause was not the subject of any part of Meridian’s appeal, this ground of the notice of contention was misconceived. It is, therefore, not necessary to deal with this ground of contention.

Conclusion

485    Meridian is entitled to succeed on Grounds 2 and 3 of its notice of appeal and the answers to the questions posed should be modified accordingly. Otherwise the appeal is dismissed.

486    Insurance Australia has not succeeded on any grounds in its notice of cross-appeal, but certain answers to questions should be modified in light of the matters it raised. In these circumstances, it is appropriate to order that the cross-appeal be allowed in part, and to amend the primary judge’s answers to questions to the extent indicated above. Otherwise, the cross-appeal should be dismissed.

PROPOSED ORDERS ON THE APPEAL

487    From the foregoing the orders on this Appeal should be as follows:

1.    The Appeal be allowed in part.

2.    The Cross-Appeal be allowed in part.

3.    The primary judge’s answers to the questions posed by the parties be amended as follows:

9. Disease extension (policy schedule, paragraph (c) of the “Murder, Suicide or Disease” clause (page 5)):

(a)    Did an occurrence of an outbreak of COVID-19 occur within a 20 kilometre radius of the Situation? If so, when?

Yes. The outbreak occurred by no later than 30 March 2020. Further evidence may prove that the outbreak occurred earlier, by 1 March 2020.

10. Evacuation and Closure extension (policy schedule, paragraph (d)(1) of the “Murder, Suicide or Disease” clause (page 5)):

(a)    Was Meridian’s Business closed or evacuated by order of a government, public or statutory authority by reason of the “Authority Response-Meridian”?

No

(b)    If yes to (a), were those orders consequent upon the discovery of an organism likely to result in a human infectious or contagious disease at the Situation?

This does not arise but, if it did, the answer would be no.

Unnecessary to answer.

(c)    {CGU disputes the inclusion of issues (c)-(f)} Did the discovery have to occur at the Situation or could it have occurred elsewhere and, if so, where?

Clause 8(d)(1) requires only that the order be consequent on discovery of an organism (anywhere) likely to result in a human infectious or contagious disease at the Situation.

Unnecessary to answer.

(d)    If the outbreak or discovery had to occur at the Situation, did it so occur at the Situation?

There is no requirement that the outbreak occur at the Situation - see cl 8(c). There is no requirement that the organism be discovered at the Situation - see cl 8(d)(1). It is agreed that there was no outbreak of COVID-19 or discovery of the SARS-CoV-2 organism at the Situation.

Unnecessary to answer.

(e)    What is required for there to be an “occurrence” of an outbreak [of] COVID-19?

The “occurrence” of an outbreak of COVID-19 means any event of that kind. An “outbreak” of COVID-19 is the occurrence of a single case of COVID-19 while a person is in the community (that is, not in a controlled environment such as quarantine, isolation or a hospital) and who is capable of communicating COVID-19 to another person.

Unnecessary to answer.

(f)    What is required for there to be the “discovery” of SARS-CoV-2?

A “discovery” means finding or ascertaining the existence of SARS-CoV-2. It can be inferred that SARS-CoV-2 has been “discovered” at a location if a person with SARS-CoV-2 is found or ascertained to have been at that location during an infectious period.

11. Causation, adjustments and loss (page 21):

If it is found that the Disease extension and/or the Evacuation and Closure extension responds to Meridian’s claim:

(a)    Was there any interruption of or interference with Meridian’s Business which was a direct result of the relevant insured perils?

There is no evidence as yet from which I would infer that the insured perils were a proximate cause of any interruption of or interference with Meridian’s business.

(b)    If yes to (a), what losses claimed by Meridian resulted from that interruption of or interference with its Business?

This question cannot be answered on the current evidence.

(c)    {CGU disputes the inclusion of this issue (c)} Is the term “Adjustment” in the Business Interruption section of the policy applicable to the calculation of Meridian’s claim, having regard to the definitions used in the “Settlement of Claims” clause in the Business Interruption section of the policy.

No.

(d)    {CGU version; Meridian does not agree}: Should any adjustment be made to Meridian’s business interruption loss by reference to uninsured events relating to the COVID-19 pandemic?

Adjustments should not be made to Meridian’s business interruption loss by reference to uninsured events caused by the same underlying fortuity as the insured peril. The fortuity underlying the insured peril is not “COVID-19 generally” but the presence and risk of COVID-19 in Victoria”. Adjustments should otherwise be made to Meridian’s loss.

(e)    {Meridian version; CGU does not agree}: Should any adjustment be made to Meridian’s business interruption loss by reference to events (other than the insured perils) relating to the COVID-19 pandemic?

Adjustments should not be made to Meridian’s business interruption loss by reference to uninsured events caused by the same underlying fortuity as the insured peril. The fortuity underlying the insured peril is not “COVID-19 generally” but the presence and risk of COVID-19 in Victoria”. Adjustments should otherwise be made to Meridian’s loss.

(f)    What loss is payable in accordance with the terms of the policy?

This question cannot be answered on the current evidence.

(i)    Are JobKeeper or other government subsidies to be taken into account in the assessment of any loss and, if so, in what way?

JobKeeper - yes.

JobKeeper - no.

Federal COVID-19 Consumer Travel Support Program - no.

Victorian Government Support Fund - no.

Meridian would have to account for the full amounts paid to it under these schemes as operating to reduce its loss.

(ii)    Should rental abatements be taken into account in assessing recoverable loss?

Yes.

(iii)    On what dates did the indemnity period/s start and end?

The indemnity period starts on the occurrence of the Damage (which must mean the insured peril) and ends when the results of Meridian’s business cease to be affected as a consequence of the damage, such period not exceeding 12 months.

(iv)    Further quantum issues may be raised when Meridian provides the information that has been requested by CGU.

Noted.

(g)    {Meridian disputes the inclusion of subparagraph (f), as those issues should not be included in this test case in circumstances where CGU has denied indemnity and because the factual premise for these issues will be the subject of a separate loss assessment process} Has Meridian:

(i)    provided sufficient information for CGU to determine any amount payable under the policy; and/or

Not to my knowledge.

(ii)    failed to respond to reasonable requests for information from CGU?

Not to my knowledge.

(h)    If it is found that the policy responds and CGU is liable to pay an amount to Meridian, from what date is interest under section 57 of the ICA payable?

The issue whether Meridian can establish that the insured peril in 8(c) was a proximate cause of any of its loss remains unanswerable on the current state of the evidence. On the current state of the evidence, Meridian has not proved that to be the case. As a result, s 57 has not yet been engaged. If Meridian is entitled to cover, further evidence and submissions would be required in relation to interest.

4.    Otherwise the Appeal and the Cross-Appeal be dismissed.

5    No order as to costs.

THE TAPHOUSE TOWNSVILLE PTY LTD V INSURANCE AUSTRALIA LIMITED – NSD 1081 OF 2021

488    In this matter, the learned primary judge concluded that Taphouse was not entitled to indemnity pursuant to either a prevention of access clause or a hybrid clause in the policy of insurance it held with Insurance Australia. Taphouse appealed from those conclusions, as well as her Honour’s conclusions that any assessment of its loss had to account for the JobKeeper payments it received, and that interest pursuant to s 57 of the Insurance Contracts Act would only be payable from the date of the final determination of these proceedings. By a notice of contention, Insurance Australia sought to uphold the primary judge’s conclusions in relation to the prevention of access and hybrid clauses on additional grounds.

The relevant facts

489    The essential facts of this appeal can be briefly stated.

490    At the relevant times Taphouse operated a craft beer bar and restaurant located in Townsville, Queensland.

491    From 23 March 2020, the Queensland State Government promulgated several directions which had the effect of closing, preventing or restricting access to Taphouse’s business premises. They are summarised at PJ [546] and there is no need to refer to them further, save to the extent that it becomes necessary to do so in the discussion below.

492    Taphouse made a claim on its policy by email on or about 24 March 2020. This was ultimately denied on 17 June 2020.

493    Taphouse later sought a review of the declinature, but it was confirmed on 10 July 2020.

Policy wording

494    At the relevant times Taphouse held a “Business Insurance Policy” number 15T8202892 (Taphouse Policy) placed with Insurance Australia. For the purposes of this appeal it can be identified as comprising the three Renewal Schedules issued on 24 September 2019, 28 February 2020, and 26 March 2020, as well as a “Business Insurance Policy” wording issued under the brand name of CGU.

495    The period of insurance under the policy was from 23 September 2019 to 23 September 2020 at 4:00 pm, and the insured “Situation” was identified as Lot 4, City Lane, 373 Flinders Street, Townsville, Queensland 4810, being the site of the craft beer bar and restaurant.

496    The Taphouse policy is a comprehensive business insurance policy containing a number of sections providing cover for property damage and public liability, as well as other specialist forms of cover.

497    Section 1 (“Property”) provides indemnity for physical loss or destruction of any real or personal property at the insured premises. This is extended by Section 2 (“Business Interruption”) to cover business interruption in certain circumstances.

498    The primary insuring clause in the “Business Interruption” section provides:

Cover

If the business carried on by you is interrupted or interfered with as a result of insured damage occurring during the period of insurance, we will after taking account any sum saved during the indemnity period in respect of such charges and expenses of the business as may cease or be reduced in consequence of the interruption or interference, indemnify you in respect of the loss arising from such interruption or interference in accordance with the Basis of settlement clause, where the schedule notes that cover has been selected.

499    The words in italics are defined terms in the policy. Relevantly, “Insured Damage” means:

1.    In relation to your property, insured damage means damage to your property when both the property that is damaged and the cause of the damage are covered by:

a)    your policy under one or more of the following cover sections:

    

b)    another insurance policy that insures your property and names you as the insured.

    Provided that:

500    “Damage” means:

…accidental physical damage, destruction or loss. Damaged has a corresponding meaning to damage.

501    The structure of this policy is typical of Industrial Special Risk policies in that it primarily provides indemnity for business interruption losses consequent upon the destruction or loss of the insured’s property that is otherwise covered under the policy, most likely by the “Property” section or some other policy. That primary coverage is then extended by a part of the policy headed “Extensions of cover”. The relevant extension wording for the purposes of the appeal is as follows:

This section is extended to include the following additional benefits. Additional benefits 1 to 11 inclusive are payable provided that the sum insured expressed against the relevant item(s) in the schedule is not otherwise exhausted.

We will pay you (depending on the part of this section which is applicable to you) for:

a)    item 1 Gross profit, or

b)    item 2 Payroll, or

c)    item 6 Gross rentals, or

d)    item 7 Weekly income, or

e)    item 8 Gross revenue,

resulting from interruption of or interference with your business as a result of insured damage occurring during the period of insurance to, or as a direct result of:

7. Prevention of access by a public authority

We will pay for loss that results from an interruption of your business that is caused by any legal authority preventing or restricting access to your premises or ordering the evacuation of the public as a result of damage to or threat of damage to property or persons within a 50-kilometre radius of your premises.

8. Murder, suicide & infectious disease

We will pay for loss that results from an interruption of your business that is caused by:

a)    any legal authority closing or evacuating all or part of the premises as a result of:

i.    the outbreak of an infectious or contagious human disease occurring within a 20-kilometre radius of your premises, however, there is no cover for highly pathogenic Avian Influenza or any disease declared to be a quarantinable disease under the Quarantine Act 1908 (as amended) irrespective of whether discovered at the location of your premises, or out-breaking elsewhere

ii.     vermin or other animal pests at the premises, or

iii.     hygiene problems associated with drains or other sanitary arrangements at the premises

iv.     bomb threat at or to the premises.

b)    poisoning directly caused by the consumption of food or drink provided on the premises, and

c)    murder or suicide occurring at or near the premises.

The decision at first instance

502    There is no need to detail the reasoning of the primary judge at this juncture. More detailed reference to her Honour’s reasons is made in the discussion below. For present purposes, an identification of the following conclusions is sufficient to provide context to the issues raised on appeal.

503    The primary judge concluded (PJ [561]) that cl 7 of the extensions (the prevention of access clause) did not apply in relation to the effects of the Queensland Government’s COVID-19 restrictions. Consistently with her Honour’s previous approach, it was held that only cl 8, which specifically provided cover in relation to the deleterious consequences of disease, might respond in the circumstances.

504    However, her Honour also determined that, if her initial conclusion about cl 7 was wrong and it could apply in respect of a disease, it would respond in the circumstances of Taphouse’s claim because:

(a)    all of the relevant directions were made as a result of a threat of damage to persons within a 50 kilometre radius of the premises as required by cl 7 (PJ [572]);

(b)    other than the direction of 29 March 2020, each of the directions made by the Queensland State Government prevented or restricted access to the premises (PJ [584] – [586]); and

(c)    the directions caused an interruption to Taphouse’s business which resulted in loss (PJ [609]).

505    Her Honour concluded that cl 8 of the extension (the hybrid clause) did not apply on the basis that the directions which caused the closure or evacuation of the insured’s premises were not made as a result of the outbreak of an infectious human disease occurring within a 20 kilometre radius of the premises (PJ [588]ff). However, she considered that if she were in error about that conclusion and the Queensland Government’s direction of 23 March 2020 did result in the closure of all or part of the premises, cl 8 would apply to provide indemnity for the consequential interruption to Taphouse’s business which caused it loss (PJ [604], [609]).

506    In accordance with her Honour’s reasons in other matters, it was also concluded that any JobKeeper payments received by Taphouse needed to be taken into account in the assessment of Insurance Australia’s liability to indemnify.

507    The learned primary judge had already concluded that:

(1)    The liability of an insurer to indemnify its insured was reduced by the amount of any JobKeeper payments it had received either pursuant to the “sums saved” clause in its policy or under general principles applicable to contracts of indemnity. Her Honour’s reasoning in relation to this conclusion was reiterated in part in relation to Taphouse (PJ [621] – [624]). However, her Honour also concluded that the Queensland Government’s COVID-19 Grants neither reduced Taphouse’s loss, nor did it represent a “sum saved” (PJ [628] – [630]).

(2)    It was not unreasonable for the purposes of s 57 of the Insurance Contracts Act for an insurer to withhold any amount to which its insured was entitled pending the outcome of the test cases, including any final determination on appeal (PJ [415]). The basis for this conclusion is expressed differently in relation to Taphouse, but its essential nature remained the same (PJ [631] – [632]). It followed from that, if Taphouse was entitled to be paid any amounts under the policy, Insurance Australia would not be liable to pay interest on such amounts until its liability to make the payment was determined.

508    Taphouse has appealed from several of her Honour’s conclusions. In summary, its notice of appeal and Insurance Australia’s notice of contention gave rise to the following issues (set out in the order in which they are addressed below):

(a)    whether cl 7 (the prevention of access clause) is capable of applying to interruptions from disease (Appeal, Ground 1);

(b)    whether any threat of damage to persons within a 50 kilome