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Determination
Case number | 12-00-804141 |
Financial firm | AAI Limited |
Case number: 12-00-804141 30 August 2024
The complainant held a Business Insurance policy with the financial firm (insurer) covering its market research company (the business) based in the City of Kingston local government area (LGA), about 25 kilometres south-east of central Melbourne, in the State of Victoria. In late 2020 it lodged a claim for loss of gross profit as a result of the closure of the whole or part of its insured premises by order of a competent government, public or statutory authority as a result of the outbreak of a notifiable human infectious or contagious disease occurring within a 20-kilometre radius of the premises. The complainant says:
The insurer, whilst acknowledging the business lost gross profit due to COVID-19, has denied the claim. It says the insured premises were not closed by order of a competent authority. Moreover, it says the complainant has not established the closure of the insured premises, and subsequent loss of gross profit, was ‘as a result of’ an outbreak of COVID-19 within the prescribed radius of the premises.
Was the closure of the premises ordered by a competent authority?
No. The exchanged material shows the closure of the insured premises was not by order of a competent government, public or statutory authority. The orders and directions made by the Victorian State Government did not close the premises, either in whole or in part. Rather, I am satisfied the complainant closed its business because people were unable to travel to the insured premises during pandemic-related restrictions.
Is the loss following the March 2020 orders ‘as a result of’ an outbreak?
No. I am not satisfied the complainant has shown the closure of the insured premises by order of a competent authority in March 2020 and the subsequent loss was ‘as a result of’ an outbreak of a notifiable human infectious or contagious disease occurring within a 20-kilometre radius of the insured premises.
Is the loss following the July 2020 orders ‘as a result of’ an outbreak?
No. I am not satisfied the complainant has shown the closure of the insured premises by order of a competent authority in July 2020 and the subsequent loss was ‘as a result of’ an outbreak of COVID-19 occurring within a 20-kilometre radius of the premises.
Why is the outcome fair?
AFCA agreed to test cases to obtain clarification of the issues associated with various policy wordings. The Federal Court considered policy wordings similar to that which are considered in this complaint. AFCA has been guided by the interpretation of the policies as applied by the Federal Court.
I am satisfied:
It follows it is fair for the insurer to rely on the terms and conditions of the policy to deny liability for the claim.
This determination is in favour of the insurer.
The insurer is entitled to rely upon the terms and conditions of the policy to refuse payment of the claim.
The insurer is not required to take any further action in relation to this complaint.
No. The exchanged material shows the closure of the insured premises was not by order of a competent government, public or statutory authority. The orders and directions made by the Victorian State Government did not close the premises, either in whole or in part. Rather, I am satisfied the complainant closed its business because people were unable to travel to the insured premises during pandemic-related restrictions.
Complainant has onus to establish its claim falls within terms of the policy
It is established insurance law that the complainant first has the onus to establish the claimed loss is a result of an event covered under the policy. This must be established on the balance of probabilities, meaning that it is more likely than not. This is sometimes called a valid claim.
If the complainant is able to establish a valid claim, the onus shifts to the insurer to show, on the balance of probabilities, it is entitled to rely on an exclusion under the policy or is otherwise entitled to decline the claim.
The complainant is a market research company established in 2014. Its main office/warehouse and insured premises are located in the City of Kingston LGA, in the State of Victoria.
The business provides market research services to industry and the CSIRO regarding meat quality. The services are mainly undertaken at the complainant’s warehouse but, in addition, it is sometimes provided via a mobile tasting unit that travels across the Melbourne metropolitan area. A comprehensive description of the activities undertaken by the business is set out at page 20 of the complainant’s submissions dated 3 June 2023.
The complainant’s business insurance policy includes cover for various insured events, including loss of gross profit by reason of ‘business interruption’. In December 2020, the complainant lodged a claim for loss which, it says, was caused by the closure of all or part of its insured premises by order of a competent government, public or statutory authority as a result of the outbreak of COVID-19 (being a notifiable human infectious or contagious disease) occurring within a 20-kilometre radius of the insured premises.
Specifically, the complainant says:
Policy includes cover for loss by reason of ‘business interruption’
The terms and conditions of the complainant’s policy are set out in policy documents, including, but not limited to, the Product Disclosure Statement (PDS) and the Policy Schedule (otherwise known as the Certificate of Insurance).
The parties agree the insurer provided a copy of the policy documents to the complainant. The insurer is therefore entitled to rely upon the provisions of the documents.
As mentioned, the policy covers, amongst other things, business interruption loss caused by a series of insured events. Relevantly, under the heading ‘Additional Benefits’, pages 57 to 58 of the PDS state:
Infectious diseases, murder, suicide extension
We cover
We will cover you for loss of gross profits or loss of gross rentals resulting from an interruption or interference with your business due to the closure or evacuation of the whole or part of the situation by order of a competent government, public or statutory authority as a result of:
[…]
c. the outbreak of a notifiable human infectious or contagious disease occurring within twenty (20) kilometres radius of the situation…
[…]
during the period of insurance.
We do not cover
We will not cover you under this additional benefit for:
a. any costs arising from cleaning, repairing or checking the situation;
b. any loss of gross profit or loss of gross rental directly or indirectly caused by or arising from, or in consequence of, or contributed by:
i. any Quarantinable Disease, as that term is defined in the Quarantine Act (Cth) 1908 and any similar legislation; or
ii. Highly Pathogenic Avian Influenza
Decisions of the courts state that ‘Situation’ can be read as meaning ‘insured premises’.
Thus, in this matter, the complainant says its business was ‘interrupted’ and its ‘Situation’ forced to close during various periods because of orders made by the State Government of Victoria. The complainant says the Victorian State Government made the orders due to, amongst other things, the outbreak of COVID-19 within a 20-kilometre radius of the premises. In other words, the circumstances inside the 20-kilometre radius of insured’s premises were a cause of the State Government orders.
March 2020 Orders
There has been debate between the parties about the relevant operative orders made by the Victorian State Government. However, I am of the opinion the primary orders and directions that affected the complainant in March 2020 are, firstly, the Non-Essential Business Closure Directions made under the Public Health and Well Being Act 2008 (Vic) on 23 March 2020. These directions stated:
A person who owns, controls or operates a non-essential business or undertaking in the State of Victoria must not operate that business or undertaking between noon on 23 March 2020 and midnight on 13 April 2020.
The directions also provided a definition of non-essential business and undertakings, as follows:
A non-essential business or undertaking means any of the following, whether operated on a for profit or not-for-profit basis:
a. a business characterised as a pub, bar or club that supplies alcohol under a general licence, an on-premises licence or a club licence, but not including any part of the business constituted by a bottleshop;
b. a hotel, whether licensed or unlicensed, but not:
i. to the extent that it provides accommodation, takeaway meals or a meal delivery service; or
ii. any part of the hotel constituted by a bottleshop;
c. a gym;
d. an indoor sporting centre;
e. a casino;
f. a cinema, nightclub or entertainment venue of any kind;
g. a restaurant or cafe, other than to the extent that it provides takeaway meals or a meal delivery service;
h. a place of worship, other than for the purposes of a wedding or funeral.
The directions made on 23 March 2020 were then replaced by the Non-Essential Activities Directions made on 25 March 2020, the preamble of which states:
Relevantly, the following additions were made to the list of non-essential businesses and undertakings set out in the previous directions:
Non-essential retail facilities
(1) A person who owns, controls or operates a non-essential retail facility in Victoria must not operate that facility between midnight on 25 March 2020 and midnight on 13 April 2020.
(2) A non-essential retail facility means the following:
(a) a beauty and personal care facility;
(b) an auction house, other than for the purpose of conducting auctions remotely;
(c) a market stall, whether indoor or outdoor, other than a market stall the predominant business of which is the provision of food and drink for consumption off the premises of the market.
In addition, these directions imposed a density quotient, and signage and cleaning requirements, on open retail facilities. The directions also defined an open retail facility and a retail facility as follows:
(1) For the purpose of this clause:
(a) an open retail facility means a retail facility (or part thereof) that is not prohibited from operating by these directions
(b) a retail facility includes any facility that is used wholly or predominantly for:
(i) the sale or hire of goods by retail; or
(ii) the retail provision of services.
The directions made on 25 March 2020 were then replaced by the Non-Essential Activity Directions (No. 2) made on 26 March 2020, the preamble of which states:
(1) The purpose of these directions is to prohibit the operation of non-essential businesses and undertakings in order to limit the spread of Novel Coronavirus 2019 (2019-nCoV).
(2) These directions replace the Non-Essential Activity Directions given on 25 March 2020, and:
(a) remove hair salons and barber shops from the list of non-essential retail facilities, as well as the 30 minute time limit, thereby permitting those facilities to operate so long as they comply with the density, cleaning and signage requirements in clause 14;
(b) add ‘sex on premises’ venues to the list of non-essential entertainment facilities.
(3) These directions must be read together with the Prohibited Gatherings Directions given on 25 March 2020.
Relevantly, the Prohibited Gatherings Directions placed a density quotient on business such as those conducted by the complainant at the insured premises as follows:
Definition of density quotient
The density quotient of a single undivided indoor space is the number calculated by dividing the total area of the space (measured in square metres) by 4.
Finally, the Victorian State Government issued Stay at Home Directions on 30 March 2020, the preamble of which states:
The primary Stay at Home direction was as follows:
Direction – stay at home other than in specified circumstances
Requirement to stay at home
(a) clause 6 (necessary goods or services);
(b) clause 7 (care or other compassionate reasons);
(c) clause 8 (work and education);
(d) clause 9 (exercise);
(e) clause 10 (other specified reasons).
The Clause 10 exception did not include leaving one’s premises to visit a business such as that which was conducted by the complainant.
These orders and directions made by the Victorian State Government in March 2020 shall be collectively referred to as the ‘March 2020 orders’.
July 2020 orders
There was a well-documented history of outbreaks in the lead up to Victoria’s second lockdown. This included the closure of specific postcodes from 1 July 2020 and 4 July 2020. Shortly afterwards, having failed to contain those localised outbreaks, the Victorian State Government expanded the locked-down area to all metropolitan Melbourne, including the City of Kingston.
Stage 3 restrictions were implemented from 11:59 pm on 8 July 2020 as per the Restricted Activity Directions (Restricted Areas), Area Directions (No.3) and Stay at Home Directions (Restricted Area). The purpose of the directions was to address the serious public health risk posed to Victoria by COVID-19 and restrict the operation of certain businesses in the restricted areas to limit the spread of COVID-19.
These directions shall be collectively referred to as the ‘July 2020 orders’.
Claim made under a hybrid clause
The policy cover set out on page 57 of the PDS is what is often called a ‘hybrid’ clause. This is a clause that provides cover for loss arising from orders or actions of a competent public authority closing or restricting access to a whole or part of a business premises.
There is no dispute the Federal Government issued a statement that National Cabinet had agreed to impose COVID-19 restrictions on 22 March 2020. As set out above, the Victorian State Government then announced restrictions on 23 March 2020 which were, subsequently revoked and replaced by further restrictions on 26 March 2020. The parties agree that the Victorian State Government is a ‘competent authority’.
However, in a hybrid clause, the orders or actions of the competent authority must be made or taken as a result of infectious disease, or the outbreak of infectious disease, within a specified radius of the insured premises.
The relevant clauses have been the subject to interpretation by the Federal Court of Australia in Swiss Re International SE V LCA Marrickville Pty Limited (2021) FCA 1206 (test case 2) and LCA Marrickville Pty Limited v Swiss Re International SE (2022) FCAFC 17 (appeal case). Test case 2 and the appeal case examined several different policies and are a guide for the interpretation of the policies.
Claim must involve closure as a result of outbreak of COVID-19 within a 20-kilometre radius
To fall within the terms of the ‘hybrid’ clause of the policy, the claim made by the complainant must first incorporate the ‘closure or evacuation’ of the whole or part of its insured premises as a result of an ‘outbreak’ of a notifiable human infectious or contagious disease occurring within a 20-kilometre radius of the insured premises.
I shall deal with the policy requirement of ‘outbreak’ first.
Outbreak
Insofar as the requirement of ‘outbreak’ is concerned, the Federal Court held that the emergence or discovery of a person in the community with a highly contagious or an infectious disease such as COVID-19, in circumstances where the presence of the disease is otherwise unfamiliar or unknown, is an event or happening which satisfies the definition of ‘outbreak’.
An outbreak simply requires the presence of a person in non-controlled circumstances. For a disease such as COVID-19, one active case in an uncontrolled setting is itself an ‘outbreak’.
Given the location of the complainant’s business within the City of Kingston, and the evidence presented by the parties, I accept there were ‘outbreaks’ of COVID-19, most likely within a 20-kilomtre radius of the insured premises during the relevant periods.
Closure
Analysis of the policy requirement of closure is more complex in this particular complaint.
The Federal Court considered that ‘closure or evacuation’ did not require each person to be prohibited from entering or remaining on the premises. Rather, the Court considered that, if the public was not able to remain on the whole or part of the premises, the premises may well be ‘closed’ in whole or in part.
There is no dispute the complainant’s business suffered operational limitations and a significant reduction in income due to the effects of the COVID-19 pandemic. In fact, the complainant reported to the insurer that its business was compelled to close and cease trading for various periods commencing 1 April 2020 because of the restrictions imposed by the Victorian State Government. The complainant also relies upon the nature of its business and the variety of services it offers, much of it involving face-to-face and in-person, group services. It also says the majority of the market research conducted by its business is ‘hands-on’ and cannot be undertaken on-line. In an email dated 24 August 2023 the complainant advised:
Although technically open at various times, the requirement for masks prohibited the use of the scientific protocol required for consumer taste testing sessions. [The complainant’s] role in Melbourne was to undertake these taste testing sessions. The only way to continue to fulfil urgent and time critical scientific taste testing of Australian beef and lamb was to move to a covid free city (Brisbane) and set up duplicate operations using Brisbane facilities and staff at significant extra cost.
In contrast, the insurer says:
A person who owns, operates or controls an open retail facility that is not a market stall, market or retail shopping centre in a Restricted Area during the restricted activity period must comply with:
(a) the density quotient for each indoor space; and
(b) the signage requirement for each indoor space; and
(c) the cleaning requirement.
Orders did not require closure
I am satisfied the exchanged material demonstrates the complainant’s business was not required to close by order of a competent authority, whether as a result of an outbreak of COVID-19 within a 20-kilometre radius of the insured premises or otherwise. This is because of the following considerations.
First, neither the March 2020 orders or the July 2020 orders required the complainant to close or evacuate the insured premises. Rather, the orders imposed conditions which the complainant was required to adhere to in order to open the premises to entrants.
Second, an order imposing a limitation on the number of persons allowed to enter a premises does not, of itself, constitute ‘the closure or evacuation of the whole or part of the situation’ (as required by the insuring clause). Similarly, orders requiring a business to undertake cleaning or display signage cannot be regarded as requiring the ‘closure or evacuation’ of premises. In test case 2 at [324]-[325], her Honour J J stated, relevantly:
The 1 June 2020 order enabled the part of the Situation ordinarily accessible by members of the public for treatment to again be accessible for treatment but subject to the restriction of the number of people being the lesser of 10 customers and 4 square metres of space for each person (including staff members) on the premises and a COVID-19 safety plan.
Contrary to LCA Marrickville’s submissions I do not accept that the “same logic” applying to the earlier orders applies to the order of 1 June 2020. The 1 June 2020 order did not have the effect of closing the whole or any part of the business premises (as defined in the 1 June 2020 order in cl 3(2)). By cl 5(1) and Schedule 1 to the 1 June 2020 order it restricted the number of persons who may access the premises as identified. In my view, that did not involve closure of the whole or part of the Situation.
Her Honour’s finding above was not challenged on appeal before the Full Federal Court.
Third, a general Stay at Home order restricting people’s movement is not the same as a specific order to close a business. The complainant’s business was not ordered to close. Rather, it closed because of the lack of people who were able to attend.
Fourth, a voluntary decision to close a business (albeit because of financial duress imposed by the pandemic), as opposed to a compulsory order to cease or curtail a business, does not satisfy the terms of the insuring provision. In test case 2, at [585], in respect of Taphouse’s claim, her Honour stated:
I do not accept that the 29 March 2020 direction prevented or restricted access to the premises. That direction prohibited people from leaving their residence except for nominated purposes which included obtaining food. While the effect of this direction may well have been to reduce the number of people coming to Taphouse for takeaway food and drink the direction cannot be characterised as one preventing or hindering access to the Taphouse premises. It had nothing to do with the Taphouse premises. The causal link to the Taphouse premises is too remote and tenuous to be satisfied by the 29 March 2020 direction.
In conclusion, I am satisfied the conduct of the ‘authority’ did not close the insured premises in whole or in part. Rather, the complainant closed its business due to financial constraints and associated pandemic-related duress. It follows the insurer is entitled to deny liability for the claim.
Whilst I am satisfied the insurer is entitled to deny the claim on this basis, I am of the view it is appropriate to consider all issues raised, including whether the closure of the insured premises was ‘as a result of’ the outbreak of a notifiable human infectious or contagious disease occurring within a 20-kilometre radius of the insured premises.
No. I am not satisfied the complainant has shown the closure of the insured premises by order of a competent authority in March 2020 and the subsequent loss was ‘as a result of’ an outbreak of a notifiable human infectious or contagious disease occurring within a 20-kilometre radius of the insured premises.
Closures and consequential loss must be ‘as a result of’ an outbreak within a 20-kilometre radius of the business premises
Satisfying the policy requirements of ‘closure’ and ‘outbreak’ is not enough to establish a valid claim under the ‘hybrid’ clause of the policy.
Thus, even if the complainant was able to satisfy the ‘closure’ policy requirement (which it has not), to establish liability under the ‘hybrid’ clause it is necessary to prove, on balance, that a closure or evacuation of the premises, by order of a competent public authority, was ‘as a result of’ the outbreak of a notifiable human infectious or contagious disease occurring within a 20-kilometre radius of the insured premises.
Moreover, this policy requirement is not satisfied simply because the relevant order was made because of the risk of COVID-19 to persons in the relevant radius. Rather, what is required is that the order was made ‘as a result of’ an outbreak within a 20-kilometre radius of the business premises.
March 2020 closure was not ‘as a result of’ an outbreak occurring within a 20-kilometre radius of the premises
The March 2020 orders were initially based on advice from the Australian Health Protection Principal Committee (AHPPC). AHPPC is an advisory body comprised of all state and territory Chief Health Officers which provided advice to National Cabinet on numerous occasions over the course of the pandemic, including in March 2020.
The preamble to the orders state:
The purpose of this direction is to prohibit the operation of non-essential businesses and undertakings in order to limit the spread of Novel Coronavirus 2019 (2019-nCoV).
The AHPPC statement of 19 March 2020 says non-essential indoor gatherings should be restricted and recommends the four-square metre rule per person. AHPPC, in its statement of 22 March 2020 recommending the closure of businesses, says:
Previously AHPPC considered an important trigger in a given area to be when >50% of cases are locally transmitted, but recent international evidence suggests that action needs to be taken earlier than that point, given the lag in epidemiology. Nationally, Australia is close to 50% community transmission at this time but the major trigger is not focal. Rather it is the rapid growth in total cases and the case-load particularly in Sydney, Melbourne and Brisbane/Gold Coast. The call for action is now based on the principle of getting ahead of the curve…..
The AHPPC advice further stated:
….. the recent rapid influx in imported cases and associated chains of transmission, including cruise ships and super-spreader events, means we do need to do more now. It is too soon for the measures introduced only last week to have impacted on the epidemiology, but we are seeing evidence of non-compliance with these new measures, people not taking this seriously. We have also now had two ‘super spreader’ events in Sydney - one a wedding (35 infected) and one at a church service.
Her Honour J J notes in test case 2 at paragraph 589:
However, an action directed at protecting human health across a wide area such as a State (such as closing certain premises across a State) would not ordinarily be taken to be a result of an outbreak of a contagious disease within a 20-kilometre radius of the premises. The causal link required between the risk of harm and the specified radius of premises is not satisfied. Putting it another way, it could not be said that any outbreak of COVID-19 within the 20-kilometre radius was a proximate (in the sense of real or efficacious) or, indeed, any other kind of cause of the directions.
March 2020 orders were issued due to threat or risk to persons from cases known and unknown
AFCA accepts the Victorian State Government was most likely aware of COVID-19 cases existing both within and outside the relevant radius. That is supported by the AHPPC advice. However, the orders were issued not because of the existence of COVID-19 within the radius, but rather the threat or risk to persons from cases known and unknown.
Exactly what evidence was before the Federal Court is not entirely clear from the information exchanged. AFCA notes, however, that in both test case 2 and the appeal case there is a recognition of the likely presence of COVID-19. AFCA notes that in test case 2 (at 339) Her Honour J J referred to a series of announcements made by various bodies, which referred to advice which the AHPPC had provided to National Cabinet. AFCA accepts that, most likely, the Federal Court was aware of the role which the AHPPC played in determining a policy response to the pandemic.
AFCA also notes the following passage from J J. in test case 2:
I am unable to accept that the orders on which LCA Marrickville relied were as a result of anything in fact occurring at or within 5 kilometres of the Situation. They resulted from the Minister’s concern about the public health risk COVID-19 presented to the State of NSW as a whole. There is a crucial difference between the “risk” or “threat” of an outbreak of COVID-19 and an outbreak of COVID-19. While the risk or threat is based on the existence of COVID-19 in some locations (not every location) in the State, it is only the risk or threat which relates to the State as a whole (and every person in the State). The existence of COVID-19 in certain locations (that is, the outbreak or occurrence of COVID-19) does not relate to the State as a whole.
The fact that the Situation and the area within 5 kilometres of the Situation is within NSW does not mean that it can be said that the orders resulted from COVID-19 at the Situation or within the 5 kilometre radius. To so conclude would be to render the causal connection between the order and the 5 kilometre radius around the Situation meaningless. The causal connection identified by the words “as a result of” link the order and circumstances within the 5 kilometre radius.
Consistent with the Federal Court findings, the Victorian Government’s directions were general directions. The purpose of the directions issued in March 2020 was to prohibit the operation of non-essential businesses and undertakings to limit the spread of the coronavirus.
These directions were issued from March 2020 and throughout the next two or more years. The orders were the result of the government's concern for the public health risk that COVID-19 presented to the State. The orders were not ‘as a result of’ an outbreak at or within a 20-kilometre radius of the complainant's premises. There is no reference to the complainant’s premises or the surrounding area in the directions. There were no specific government orders specifying business locations.
It follows that, had the complainant satisfied the policy requirement of ‘closure’ (which it has not), the insurer would be entitled to deny the claim on the basis the complainant has not established a valid claim under the terms of the policy for the loss suffered following the March 2020 orders.
No. I am not satisfied the complainant has shown the closure of the insured premises by order of a competent authority in July 2020 and the subsequent loss was ‘as a result of’ an outbreak of a notifiable human infectious or contagious disease occurring within a 20-kilometre radius of the insured premises.
July 2020 orders
The July 2020 orders followed the outbreak of COVID-19 within the LGAs identified, including the City of Kingston. In the document titled “Attachment D – COVID Additional Directions 8 July”, the directions to close businesses in Metropolitan Melbourne were justified as follows:
Based on close to a doubling case rate over a 14-day period, increasing spread of infections across multiple postcodes, and early indicators of risk in other parts of Metropolitan Melbourne, indications are that the current postcode approach is not aggressive enough to effectively contain the spread. It is proposed that Stay at Home and Restricted Activity Directions are extended to all postcodes within the 31 LGAs across Metropolitan Melbourne. The expansion of restrictions to this geographic area is needed to urgently supress growth and spread of the virus.
Further the preamble to Area Directions (No.3) provides as follows:-
Complainant says closure pursuant to July 2020 orders were ‘as a result of’ an outbreak within 20 kilometres of the premises
Test case 2 and the appeal case did not address any instances of these more geographically targeted public health orders.
The language of the Full Federal Court in the appeal case at [573] (Taphouse), as well as that of J J in test case 2 at [258] (LCA Marrickville) and [588] (Taphouse), places emphasis on the absence of any geographical limitations (other than State borders) in the reach of the orders considered in the test cases.
It is clear the Restricted Areas directions are, both in purpose and effect, geographically targeted. Thus, the complainant contends that these Restricted Area orders were made ‘as a result of’ an outbreak within the 20-kilometre radius of the premises involved.
As set out above, item (2) in the Preamble to the Area Directions (No 3) states:-
These directions identify areas within Victoria which have a higher prevalence of, or risk of exposure to, 2019-nCoV and which are subject to specific directions which are reasonably necessary to protect public health.
Unlike the orders considered in the test cases, these Restricted Areas directions, on the face of it, refer to and respond to geographically specific outbreaks, including outbreaks within and outside the 20-kilometre radius of the premises involved in this complaint.
Indeed, in its submissions dated 3 June 2023, the complainant contends the July 2020 orders were directly related to events (outbreaks) within the 20-kilometre radius of its insured premises. In support of this contention the complainant states these local (City of Kingston) issues were relied upon by the Victorian Government and the Deputy Chief Medical Officer when making the general Orders:
Throughout the COVID pandemic, Dr Annaliese van Diemen, Deputy Chief Health Officer continued to ‘revoke’ existing directions and ‘apply’ new directions. These changes are evidence of a dynamic and increasingly anxious and targeted response by the Government as the outbreak spread across metropolitan Melbourne. The initial ‘risk of an outbreak’ that the earliest Directions were based on rapidly became Directions specifically issued in response to the outbreak.
At page 6 of its submissions dated 3 June 2023, the complainant further states:
The key fact is every direction after the outbreak was established, was in response to the outbreak, not the fear or risk of outbreak. This is confirmed by the Government in their change of language, removing the key words [“… reasonably necessary to eliminate or reduce the risk to public health…”] [from the latter directions] and, in doing so, acknowledging all directions are in response to the outbreak.
I acknowledge the complainant’s submissions and I have carefully examined all the supporting material provided by the complainant. Moreover, I expect the complainant might seek solace from the following passage that forms part of the judgement of the Federal Court in test case 2 [571]:
I would agree with Insurance Australia, however, that after the event epidemiological evidence would be irrelevant. Such evidence cannot have been a causal factor for the authority taking the action. I do not agree that the stated purpose of the directions to “assist in containing, or to respond to, the spread of COVID-19 within the community” means that the intention of the Chief Health Officer was to “respond” to identified instances of COVID-19 and “contain” the virus within the geographical areas in which it was then prevalent. If that had been so, I would infer that the directions would have been far more geographically targeted (emphasis added). The fact that the directions were state-wide supports the inferences available from their terms; that the Chief Health Officer considered that the outbreak was present (whether she knew where or not) and involved a threat to each and every person across the whole of Queensland….
In summary, the complainant says the evidence demonstrates the motivation for the July 2020 orders was, indeed, due to specific outbreaks of COVID-19, and not a general concern for the whole of the State of Victoria. In that regard, the words used by the Victorian authorities when announcing the July 2020 orders made it clear that the new (July 2020) lockdowns were because of the unacceptably high number of new cases arising in certain specific geographical areas. The authorities identified the specific areas of concern, including the City of Kingston. Thus, the July 2020 orders were not merely a result of the fear or risk of outbreaks in the Melbourne metropolitan area.
Post-July 2020 closures not due to outbreak of COVID-19 occurring within a 20-kilometre radius of the premises.
In contrast to the complainant’s submissions, AFCA notes the following comments of Her Honour J J in test case 2 (at 84):
It will also become apparent that there is an important distinction to be drawn between insuring provisions which depend on an occurrence or outbreak of an infectious or contagious disease within an area and insuring provisions which depend on the threat or risk of an occurrence or outbreak of an infectious or contagious disease within an area. The two concepts are different. Care must be taken not to elide the difference between the two … [T]here is a difference between assessing whether government actions were taken in response to the actual outbreak or occurrence of COVID-19 within a specified area and assessing whether government actions were taken in response to the threat or risk of the spread of COVID-19 across a wide area such as a State.
It follows that businesses in the complainant’s position must avoid precisely the same error highlighted by her Honour in the above passage – i.e. that they conflate the concept of a localised outbreak with a broader risk of transmission (“[c]are must be taken not to elide the difference between the two”).
In all the circumstances, I am of the opinion that the July 2020 orders, like those in the test cases, were ultimately about ameliorating the risk of spread State-wide (or at least across a significant region much larger than the 20-kilometre radius).
In other words, the July 2020 directions were not imposed ‘as a result of’ any specific outbreak of disease which occurred within 20 kilometres of the complainant’s premises. Rather, they were imposed as a result of the increasing spread of the outbreak across the broader metropolitan area. The expansion of restrictions in July 2020 was to urgently supress the growth and spread of the virus. The purpose of the directions was to address the serious public health risk posed to Victoria by COVID-19, having identified areas within Victoria which had a higher prevalence of, or risk of, exposure to COVID-19.
In sum, I accept the closures from July 2020 were most likely a result of the threat of the spread or risk of an outbreak of an infectious or contagious human disease occurring across the broader metropolitan area and the associated risk to the State of Victoria as a whole. The closures were not ‘as a result of’ the outbreak of COVID-19 occurring within a 20-kilometre radius of the insured premises.
It follows that, had the complainant satisfied the policy requirement of ‘closure’ (which it has not), the insurer would be entitled to deny the claim on the basis the complainant has not established a valid claim under the terms of the policy for loss suffered during closures following the July 2020 orders.
No evidence of breach of the duty of the utmost good faith
Several related issues arose relatively late in the course of this complaint. They involve concerns whether the insurer breached its duty of the utmost good faith, acted in an unfair manner and failed to comply with its duty of disclosure.
After examining all of the exchanged material, I am satisfied there is no evidence to indicate the insurer breached any of its duties or acted in an unfair manner during this complaint.
AFCA recognises the coronavirus has had a devastating impact on small businesses throughout Australia.
AFCA has been guided by the interpretation of the policies as applied by the Federal Court in several test cases.
The Federal Court found, amongst other things, that the Government orders in those cases were general orders made as a result of concern for public health. The orders were not made as a result of an outbreak within a specified radius of the premises involved. Indeed, there was no evidence that the closure of the businesses involved in those cases was a result of an outbreak within a specified radius of the relevant premises. The same considerations and logic should also be applied in this complaint. Moreover, I am of the opinion the complainant has not satisfied the policy requirement of ‘closure’.
If follows that, in all the circumstances, it is fair the insurer be entitled to rely upon the terms and conditions of the policy to deny liability for the claim.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all the information the parties have provided.
While the parties have raised a number of issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
