Deciding body (English)
Type of body
Type of Court (material scope)
Type of Court (territorial scope)
Outcome of the decision
This was an appeal based on the interpretation of contractual provisions contained within an insurance policy. It was ultimately a matter of definition of whether COVID-19 was considered a “catastrophe” within the meaning of the insurance policy. The Applicant/Appellant claimed their freedom to conduct their business was interrupted by the government response to curtailing the spread of Covid-19 and that this was covered under their insurance policy. The Applicants sought a declaration that their interpretation of their insurance policy covered their financial loss as a result of State and Federal Government mandated lockdowns and restrictions in response to the COVID-19 pandemic. The appeal was dismissed.
The Applicants sought special Leave to Appeal to the High Court of Australia. The basis of their appeal related to the Federal Court’s interpretation of two memoranda of the insurance policy. The application was dismissed without hearing from the Respondents.
Facts of the case
The Applicant/Appellant is an organization that runs casino, hotel and hospitality venues. The Applicants were appealing against a decision that they were not entitled to indemnity under its business interruption insurance policy with the Respondents to cover their loss incurred from business interruption caused by government orders put in place to prevent or restrict the spread of COVID-19. The case concerned issues of contractual interpretation surrounding 2 memoranda attached to the insurance policy namely Memorandum 7 and Memorandum 9. There were 3 grounds of appeal:
- That the word “loss” in Memorandum 7 was not restricted to physical loss but “includes loss of use, loss of custom and/or financial loss”;
- That the words “or other catastrophe” in Memorandum 7 included the COVID-19 pandemic and the response to it (by State and Federal governments); and
- That the trial judge should have found that the Insurers were obliged under the indemnity contained in the policy to indemnify the Applicants for economic loss sustained due to the pandemic lockdowns initiated by the government
The Court determined in relation to Ground 1 that “loss” was extended to “consequential loss” and not restricted to physical loss. In that regard, the Applicants were successful. In relation to Ground 2, the Court held that the COVID-19 pandemic and the Government’s response to it was not a “catastrophe” for the purposes of Memorandum 7. Finally, the Court held that there was no obligation on the Respondents to indemnify.
In terms of definition, it was noted (and argued by the Applicants) that the Trial Judge did at paragraph  refer to the COVID-19 pandemic as a “global catastrophe with at least an incipient existence in Australia”. His Honour then went onto state “while the incidence of COVID-19 in Australia may not have been as physically great as it was globally, it nonetheless reached the level of a catastrophe, if only as a consequence of the way in which the Federal, State and Territory authorities approached and responded to it”. However, the Appeal Judges found that it was the actions taken in response to COVID-19 that demonstrated its catastrophic effect. They did not interpret the statements made by the Trial Judge as “suggesting that there was no catastrophe other than that brought about by some form of unjustifiably extreme response by the relevant authorities.” It was the capacity for the initial spread of COVID-19 to become uncontrolled is what made it an imminent catastrophe.
The appeal was dismissed with costs.
The Applicant sought special leave to further appeal to the High Court of Australia. The grounds of appeal were based on two main findings of the Federal Court. The Federal Court held that when construing the policy as a whole, memorandum 9 covered the field for losses attributable to all human diseases and government measures taken in response to them, thereby displacing the operation of all of memorandum 7. Secondly, the Federal Court held that the expression “conflagration or other catastrophe” was to be construed so as to only cover loss arising from lawful action taken to retard a catastrophe by physical means and that this did not extend to the steps taken to retard COVID. The Applicant argued that memoranda 7 and 9 covered different risks and both applied to the COVID-19 pandemic, and that the Federal Court’s interpretation had been in error.
Edelman J summarized the overall argument as “So, that would mean that if you had a catastrophe that fell within 9 and involved an exclusion under the special provisions of 9 so that 9 was prima facie activated, but then an exclusion applied, one could avoid that exclusion by then relying on 7.” The High Court rejected the application for Special Leave to Appeal on the basis that it did not involve “...resolution of any principle of general importance” and dismissed the appeal with costs.
Type of measure challenged
- National government measure
- Federal government measure
Measures, actions, remedies claimed
Individual / collective enforcement
Nature of the parties
Type of procedure
Reasoning of the deciding body
In reaching its conclusion on the terms of the insurance policy, the Court applied well established principles of commercial instrument interpretation. These involved interpreting the language used by the parties objectively by considering what the language used would mean to a “reasonable businessperson” in the position of the parties. The language was considered in the context of the surrounding circumstances known to the parties at the time of the transaction. The Court identified that it was not what each of the parties meant to say but rather what the objective meaning to be given to the words they used to express what it was they agreed to. The Court approached the interpretation of the policy on the basis that the parties’ intention was a commercial result. As the policy of insurance was a commercial contract, it was determined to give it a “businesslike interpretation” in accordance with the principles of commercial instrument interpretation. Despite the Application concerning 2 particular Memoranda, the Court approached the interpretation of the policy as a whole and considering all of its terms and not just those contained within the 2 Memoranda.
The Application for Special Leave to Appeal was refused on the basis that the Applicants did not raise any “...resolution of any principle of general importance.”
Conclusions of the deciding body
Insurer’s claim/appeal was substantially upheld. There were 3 grounds of appeal and the Insurer was successful on grounds 2 and 3.
Applicants/the Insured party’s Application for Special Leave to Appeal to the High Court was refused with costs.
Fundamental Right(s) involved
Rights and freedoms specifically identified as (possibly) conflicting with the right to health
General principle applied
Balancing techniques and principles (proportionality, reasonableness, others)
The Court approached the dispute using well established principles of commercial contract negotiation with reference to the “reasonable business person”.
On "type of court": The High Court exercises original and appellate jurisdiction on matters specified within Australia’s Constitution.
Other notes: This case represented the first of 6 appeals to the Full Court of the Federal Court of Australia which raised issues concerning business interruption insurance policies and the COVID-19 pandemic. These appeals were heard together over a period of five days in November 2021. Star Entertainment was the first appeal. The other five appeals were brought by five insureds being LCA Marrickville, Meridian Travel, theTaphouse Townsville, Market Foods and the liquidator of Educational World Travel. These were contained in the judgment LCA Marrickville Pty Limited v Swiss Re International SE  FCAFC 17.
These cases were considered test cases concerning the application and operation of policies of insurance for business interruption or interference in the circumstances of the effects of COVID-19, including government actions which were taken to control the spread of COVID-19.
The Full Court of the Federal Court substantially agreed with the conclusions of the Trial Judge at first instance in each of the five matters in that the insuring clauses did not apply to cover the insured companies for losses incurred as a result of the effects of COVID-19 and the government steps taken to contain the pandemic in the wider community.
In refusing the Insured’s Application for Special Leave to Appeal, the High Court upheld the decision of the Full Court of the Federal Court of Australia.