Business Interruption and a COVID-19 Exclusion Clause

Rockment Pty Ltd was the owner of a cafe and restaurant, ‘Vanilla Lounge’. Vanilla Lounge’s business was impacted by the lockdown laws imposed by Victoria in response to COVID-19. Rockment made a claim with its insurer, AAI Limited trading as Vero Insurance (Vero), with respect to business interruption losses. Vero denied cover under the policy, relying on an exclusion clause. Rockment then brought the current proceedings saying that the exclusion clause did not apply. The Federal Court was engaged to rule on the interpretation of the clause.

The relevant clause excluding cover was:

We will not pay any claim that is directly or indirectly caused by or arises from, or is in consequence of or contributed by:

(a)     cleaning, repairing or checking your premises; or

(b)     highly pathogenic Avian Influenza or any biosecurity emergency or human biosecurity emergency declared under the Biosecurity Act 2015 (Cth), its subsequent   amendments or successor, irrespective of whether discovered at the premises or the    breakout is elsewhere.

            (emphasis added)

The Federal Court had to decide whether the trigger for the exclusion clause was, separately:

  1. a declaration under the Biosecurity Act 2015 (Cth) (Declaration);
  1. an emergency; or
  1. the human disease underlying the emergency.

Rockment says that from a reading of the exclusion clause, the clause can only be triggered by losses caused from a declaration under the Biosecurity Act 2015 (Cth) (Biosecurity Act) and that the clause would not be triggered because the lockdown laws in Victoria were imposed by a state law (Health and Wellbeing Act 2008 (Vic)), not the federal Biosecurity Act.

Vero says that the clause is triggered by an emergency or the state of affairs that prompted the Declaration.

The Court, inter alia, considered the meaning of ‘emergency’ and ‘declared’; the exclusion clause as a whole; the surrounding provisions in the insurance policy; and the Biosecurity Act.

In refusing Rockment’s interpretation, the Court determined that the loss did not need to be caused by the Declaration itself; however, that the loss needed to be caused by an emergency that is serious enough to warrant a declaration under the Biosecurity Act. In summary, the Court’s interpretation was closer to Vero’s wider interpretation than Rockment’s more narrow interpretation.

However, not all pandemic exclusion clauses are the same and not all facts of a claim are the same. Each case needs to be considered on its own facts and circumstances, giving consideration to the various details in the practice of both contractual and statutory interpretation.

The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.