By Frazer Hunt, Partner and Sara Menzies, Law Graduate
In the recent decision of Outback Music Festival Group Pty Ltd (formerly known as Big Run Events Pty Ltd) v Everest Syndicate 2786 at Lloyd’s  FCA 13, the Federal Court determined that the respondent insurers were entitled to rely upon a communicable disease exclusion clause to decline a $3.18 million claim for indemnity under an event cancellation policy issued to organisers of the “Big Red Bash” music festival.
The insured was the organiser of an annual music festival known as the “Big Red Bash”, which was due to take place in remote Queensland in July 2020. On 24 March 2020, the insured decided to cancel the event, in light of the COVID-19 pandemic.
The insured made a claim under its event cancellation policy for its loss in the amount of $3.18 million. The insurers declined the claim in reliance on the communicable disease exclusion clause in the policy, which read:
“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….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”.
The insured disputed the insurer’s rejection of the claim in the Federal Court and the matter was heard by Chief Justice Allsop.
Chief Justice Allsop found that the respondent insurers had validly relied upon the communicable disease exclusion clause in the policy.
The communicable disease exclusion clause enlivened
The insured argued that the requisite elements of clause 6.20 had not been satisfied on two grounds. Firstly, the loss was not caused by the imposition of quarantine, restrictions of movement or any travel advisory or warning. The insured relied on the minutes of a meeting held by the organisers on 24 March 2020 as evidence that the event was cancelled due to a multitude of health and safety, operational and reputational issues caused by COVID-19.
Chief Justice Allsop rejected this argument on the basis that clause 6.20 does not require any causal connection between the restrictions on movement, travel advisory or warning and the loss suffered. The text of the clause, read in the context of the entire policy, only required that:
- the loss arose directly or indirectly from a communicable disease; and
- the communicable disease in question led to restrictions in movement or travel advisory or warnings being issued by a national or international body or agency.
In any event, the Court observed that even if there were a causal requirement, it would be satisfied because it was clear from the minutes of the organiser’s meeting that travel restrictions were a material factor which contributed to the decision to cancel the event.
Secondly, the insured submitted that clause 6.20 did not apply because the travel restrictions were imposed by the Queensland State Government, which is not a “national… body or agency”. However, the Court favoured the respondents’ interpretation that “national” was used in juxtaposition to “international” and so included any domestic body or agency with the requisite authority. Further, the National Cabinet, which comprised the Prime Minister, Premiers and Chief Ministers of each state and territory, was deemed a “national body”. Various media statements from the Prime Minister at the time proved that the National Cabinet was responsible for imposing restrictions on movement and travel advisory and warnings, captured by clause 6.20.
Section 54 of the Insurance Contracts Act
Separately, the insured attempted to rely on section 54(3) of the Insurance Contracts Act 1984 (Cth). This provision prevents an insurer from refusing to pay a claim due to an act of a third party, which occurred after entry into the contract, if the insured proves that its loss was not caused by that act. The insured contended that the restrictions on movement imposed by the Government satisfied these requirements. The Court disagreed on the basis that the acts of the Government and National Cabinet did not entitle the insurer to refuse the claim. Rather, those acts gave a certain character to the communicable disease in question, which enlivened the exclusion clause.
Where a dispute about an exclusion clause arises, the Court will scrutinise the wording of the policy and apply common law principles of construction. Accordingly, insurers must take care to read and interpret exclusion clauses, in the context of the policy in its entirety, before making a decision on whether or not to grant indemnity to an insured.
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