Last year, we wrote about the Federal Court’s decision in Star Entertainment Group Limited v Chubb Insurance Pty Ltd  FCA 907 on business interruption insurance claims resulting from COVID-19 lockdowns. The decision was appealed by Star Entertainment Group Limited and on 21 February 2022, the Full Court of the Federal Court of Australia handed down its decision in Star Entertainment Group Limited v Chubb Insurance Australia Ltd  FCAFC 16.
The Star Entertainment Group (the Star) and its subsidiaries held an insurance policy with Chubb Insurance Australia (Chubb) and various other Australian and international insurers. The Star made a claim with Chubb for business interruption losses as a result of the COVID-19 related government restrictions across Australia. Chubb denied the Star’s claim on the basis that the policy did not cover for the losses claimed. In response, the Star sued Chubb and the other insurers for breach of contract.
The primary judge, Chief Justice Allsop, found in favour of the insurers, holding that the policy did not extend to indemnifying the Star to loss of use, or custom or financial loss resulting from the government restrictions related to the pandemic.
Issues on appeal
The Star appealed this decision on the following grounds:
- The word ‘loss’ in memorandum 7 (see below) is not confined the physical loss and includes loss of use, loss of custom and/or financial loss;
- The words ‘or other catastrophe’ in memorandum 7 includes the COVID-19 pandemic and the response thereto; and
- The primary judge ought to have found that the insurers were obliged to indemnify the Star for economic loss under the policy, as extended by memorandum 7.
As a reminder, memorandum 7 of the policy essentially states that for the purpose of the policy, ‘damage’ extends to losses resulting from or caused by an authority for the purpose of preventing or restricting any catastrophe.
The Court held that read in context, the reference to ‘catastrophe’ in the policy does not apply to loss resulting from the actions of an authority to prevent or restrict the spread of human disease. Rather, ‘catastrophe’ refers to a physical phenomenon.
The Court also held that memorandum 9 dealt with matters related to human infectious and contagious diseases, and that memorandum 7 is to be read as to as avoid inconsistency with this.
The Full Court dismissed the Star’s appeal, agreeing with the primary judge’s decision in favour of the insurers.
It is important to remember that the Court has emphasised that each case will be determined on its own circumstances and merits. The operative insuring clause of the policy and applicable exclusions should be carefully considered when determining how a policy may respond to COVID-19 business interruption losses.
If you believe you hold an insurance policy which may respond to losses arising from the COVID-19 pandemic and/or government restrictions, get in touch with our team today.