NSW Court of Appeal Considers COVID-19 in the Context of Business Interruption Insurance Policies
December 1, 2020
The recent decision of the NSW Court of Appeal in the test case of HDI Global Specialty SE v Wonkana No. 3 Pty Ltd  NSWCA 296 considered whether an exclusion clause contained in insurance policies for business interruption was enlivened by COVID-19.
The relevant insurance policies included an exclusion clause which provided that cover did not apply in circumstances involving diseases declared to be ‘quarantinable diseases’ under the Australian Quarantine Act 1908 (Cth) (the Quarantine Act) and subsequent amendments.
Relevantly, the Quarantine Act was repealed in 2016 (some 4 years before the relevant periods of cover commenced) and replaced by the Biosecurity Act 2015 (Cth) (the Biosecurity Act). The Biosecurity Act does not provide for declarations of quarantinable diseases. Instead, under the Biosecurity Act a disease may be determined to be a ‘listed human disease’ and in January 2020 COVID-19 was determined to be a listed human disease.
The insureds made claims under their respective policies for business disruption caused by COVID-19, which the insurers’ declined on the grounds that the words “declared to be a quarantinable disease under the Quarantine Act and subsequent amendments” should be read as “determined to be a listed human disease under the Biosecurity Act”. As such, the pandemic exclusion clauses in the policies were enlivened. Subsequently, the insurers commenced proceedings seeking declarations to this effect.
The insurers argued that:
- the Biosecurity Act should be construed as a “subsequent amendment” to the Quarantine Act;
- it would be absurd to construe the reference to ‘the Quarantine Act and subsequent amendments’ as a reference only to that Act because the parties intended the exclusion clause to refer to ‘the Biosecurity Act’; and
- reference to ‘the Quarantine Act’ is an obvious mistake which can and should be corrected to give effect to the objective intention of the parties.
The Court of Appeal unanimously dismissed the summons and held that:
- on their proper construction, the ordinary meaning of the words ‘subsequent amendments’ did not include a reference to an entirely new replacement enactment such as the Biosecurity Act;
- the objective intention of the parties did not reflect a mistake in including a reference to the Quarantine Act and a mistake can only be corrected when the meaning of the language is inconsistent with the parties’ intention;
- while it would have made better commercial sense for the parties to have referred to the current Act, the literal meaning of the words used in the exclusion clauses was not a clear mistake and was not absurd, therefore, a departure from the actual words agreed by the parties was not justified; and
- the summons was dismissed and declarations made to the effect that COVID-19 is not a disease declared to be a quarantinable disease under the Quarantine Act and the exclusions clauses contained in the insurance policies are not enlivened.
This decision has significant implications for business interruption insurance claims arising from COVID-19 and will likely be appealed by the insurers to the High Court of Australia. More generally, this decision serves as a reminder that parties need to carefully consider the wording utilised in contracts to ensure that their intentions are accurately conveyed including, when referring to legislation, the parties’ intention should that legislation be amended or repealed and replaced.
A full version of the decision can be found here.