Business Interruption Insurance and the Lingering Quarantine Act

Last year, Lavan reported on a NSW Supreme Court of Appeal decision (HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296) concerning “business interruption” in insurance policies (see here).  

By way of brief summary, some insurers had not updated the reference from Quarantine Act to Biosecurity Act when the Quarantine Act was repealed. Those insurers had argued they were not liable to cover “business interruption” losses arising as a result of the COVID-19 pandemic because the insurance policies excluded from the definition of business interruption cover “diseases declared to be quarantinable disease under the Quarantine Act 1908 (Cth) and subsequent amendments”.  The issue arose because the Quarantine Act had been repealed and had therefore not applied since 16 June 2016, when the Biosecurity Act 2015 (Cth) (Biosecurity Act) came into place (which, aside from being a different piece of legislation, does not contain a definition of “quarantinable disease” but rather, refers to “a listed human disease”).  The insurance companies claimed that the policies should be read to mean/include “a listed human disease” under the Biosecurity Act. 

The Court stated that an insurance policy is a commercial contract which is to be given a business-like interpretation and that, in relation to the words “Quarantine Act 1908 (Cth) and subsequent amendments” used in the insurance policies, the correct construction was that the words did not anticipate a reference to an entirely new replacement Act.  Accordingly, policies worded in this way did not include “a listed human disease” under the Biosecurity Act.  As such, that otherwise automatic blanket exclusion did not apply.

This case opened the door for a suite of claims to be made for business interruption under insurance policies which referred to the Quarantine Act and had failed to update their terms.

The insurance companies filed an application for special leave to appeal to the High Court of Australia against that ruling.  On 25 June 2021, the application for special leave was dismissed.

Lavan comment

This case is an important reminder to both insurers and insureds to seek legal advice on a regular basis to ensure that policies remain current and applicable.  It is also important to point out that just because the application for special leave was dismissed, this does not mean that insureds will automatically have a claim under any policy referring to the Quarantine Act in the context of business interruption insurance.  It is likely that certain other more specific exclusions and conditions may apply, such the cause of any loss and whether there has been a governmental order that the company cannot trade or whether the company elected not to trade for commercial reasons.

As the special leave application was dismissed, the insurers now have no further recourse to limit their liability under such insurance contracts.  Whilst this does not mean that all insurers will need to pay out all claims made under business interruption insurance policies referencing the Quarantine Act, it is a timely reminder for organizations to check their insurance policies and seek legal advice if they feel they may have a viable claim.  Likewise, it is important for insurers to seek legal advice with respect to their insurance policies and the interpretation of such policies.

Please contact Iain Freeman or Lorraine Madden for more information with respect to insurance liability or if you have any questions.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.