COVID-19 causes event cancellation and triggers policy exclusion
May 2022 | InsuranceAn infectious disease exclusion clause in an event cancellation insurance policy was engaged in circumstances where a music festival was cancelled as a result of COVID-19.
In Outback Music Festival Group Pty Ltd (formerly known as Big Run Events Pty Ltd) v Everest Syndicate 2786 at Lloyd’s,1 uncertainty arose regarding whether insurers were liable to indemnify the insureds for claims made under an event cancellation insurance policy. The main issue was whether the infectious disease exclusion clause contained in the event cancellation insurance policy excluded cover after a music festival was cancelled due to COVID-19.
Background
Big Run Events Pty Ltd (Big Run) claimed indemnity under an Event Cancellation Insurance Policy (Policy) issued by the insurers.
Big Run was the organiser of a music festival which was due to take place at a remote location on the edge of the Simpson Desert in Queensland between 7 and 9 July 2020 (Insured Event). The Insured Event was cancelled on 3 April 2020 in light of the COVID-19 pandemic, attendant health and safety concerns, and a number of operational issues resulting from the closure of State borders and the imposition of travel restrictions and travel warnings.
Big Run notified the insurers of the claim under the Policy, claiming $3.18 million. The insurers denied the claim on the basis that the insuring clause did not respond, and an exclusion applied. The relevant exclusion provided:
'This Insurance does not cover any loss directly or indirectly arising out of, contributed to by, or resulting from:
(6.20) any communicable disease or threat or fear of communicable disease (whether actual or perceived) which leads to:
(6.20.1) the imposition of quarantine or restriction in movement of people or animals by any national or international body or agency;
(6.20.2) any travel advisory or warning being issued by a national or international body or agency.’
Big Run applied to the Federal Court of Australia, seeking indemnity from the insurers under the Policy.
Issues
Chief Justice Allsop considered the following issues:
- Was the insuring clause of the Policy engaged?
- Did the exclusion under clause 6.20 apply?
- Was s 54 of the Insurance Contracts Act engaged?
Decision
Issue 1: Was the insuring clause engaged?
Allsop CJ found that the event had to be cancelled and so the insuring clause responded, and the Policy was enlivened. Allsop CJ stated that the unfolding pandemic made it almost certain that few people would be able to travel to the music festival and that holding the event would be dangerous and fraught operationally.
Issue 2: Was the exclusion clause engaged?
Allsop CJ determined that the exclusion clause was engaged in the circumstances. Several sub-issues were considered by Allsop CJ in his reasons.
Is COVID-19 a communicable disease?
Allsop CJ determined that COVID-19 was a communicable disease of the character contemplated by the exclusion clause as it is a disease which had led to the imposition of travel warnings, quarantine and restriction in movement of people by National Cabinet, the Australian Government and state and territory governments.
Was the cancellation of the music festival caused by COVID-19?
Allsop CJ answered in the affirmative due to the operational and safety issues posed by COVID-19.
Did COVID-19 lead to the imposition of quarantine or travel restrictions by a national body?
Allsop CJ found that National Cabinet was a national body 'of the highest character' whose advice could be seen as that of a national body dealing with a national emergency when issuing decisions and warnings regarding restriction in movement of people or travel to prevent the spread of COVID-19. Further, Allsop CJ decided that COVID-19 had led to the imposition of quarantine or travel restrictions by federal, state and territory governments including imposing entry and movement restrictions.
Allsop CJ also considered that the phrase 'leads to' requires the materialisation of such quarantine, restriction, travel advisory or warning prior to cancellation 'to [avoid] potential capricious, inconvenient or unjust consequences in light of the purpose of the Policy'.
Did a national body issue travel warnings as a result of COVID-19?
Allsop CJ determined that National Cabinet and state and territory governments urged Australians to avoid non-essential travel and that these warnings were reiterated by the Prime Minister on behalf of the Australian Government.
As all the above questions were answered in the affirmative, Allsop CJ found that the exclusion clause had been engaged.
Issue 3: Was s 54 of the Insurance Contracts Act engaged?
In the alternative, Big Run argued that where the exclusion was engaged, the insurers were prevented from denying the claim under s 54 of the Insurance Contracts Act 1984 (Cth) due to the imposition of restrictions on movement amounting to an act by some other person subsequent to entry into the contract. Allsop J found that there was no basis for the engagement of s 54 of the Insurance Contracts Act due to the actions of the Australian Government and National Cabinet.
Allsop J also stated that the insurers had not failed to act in the utmost good faith by relying on the exclusion.
Key takeaways
This decision reinforces that clear and definitive infectious disease exclusions contained in insurance policies will help to reduce the risk that insurers will be found liable to pay out claims relating to COVID-19.
1 [2022] FCA 13.
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