Australia, High Court of Australia, 14 October 2022, Star Entertainment v Chubb Insurance Aus [2022] HCATrans 173

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:

1. 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”;
2. 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
3. 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 [202] 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.