In this August 2021 judgment, the Federal Court of Australia in Star Entertainment Group Limited v Chubb Insurance Australia Limited [2021] FCA 907 had to deal with the interpretation of an insurance policy of the insureds who owned and operated various casinos and associated businesses.  The insureds allege that the government’s directions in connection with Covid-19 caused significant interruption to their business and that, under the insured’s industrial special risks insurance policy and memorandum 7, “damage” was extended from physical damage to damage by loss of use or loss of customer financial loss resulting from acts of any lawfully constituted authority in connection with or for the purposes of retarding Covid-19.

The court said that the physical loss or destruction or damage to revenue or turnover of income generating property was core to the policy but that physical interference with the insured’s profit generating property was not the only way an insured could suffer loss.

The case turned on the proper interpretation of the Civil Authority Extension as read with the indemnity clause (see below).

The court found that the fundamental difficulty is that the insured’s argument, that the Civil Authority Extension extends the word “damage” from physical damage to financial loss of use or custom resulting from government acts or orders, would provide cover without any sub-limit for the consequences of government activity in connection with or in regard to a catastrophe, which itself is not an insured peril.  The court said that the policy was not catastrophe insurance.  No provision of the policy provided cover for the business consequences brought about by the spread of Covid-19.

The court rejected the insured’s argument for two reasons:

  • The better construction, conforming with the whole policy, is to construe the words “conflagration or other catastrophe” in the extension to refer to events or occurrences capable of or apt to cause physical loss or destruction of or damage to the property of the insured at the premises.  That is to events or occurrences which would be or apt to be an insured peril.
  • The loss referred to in the extension is the physical loss of property not the loss of use of property or loss of custom or financial loss.

The Civil Authority Extension read: “The word “Damage” under Section 2 of this Policy is extended to include loss resulting from or caused by any lawfully constituted authority in connection with or for the purpose of retarding any conflagration or other catastrophe.”

And the Indemnity read: “In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged by any cause or event not hereinafter excluded (loss, destruction or damage so caused being hereinafter termed ‘Damage’) and the Business carried on by the Insured being in consequence thereof interrupted or interfered with, the Insurer(s) will, subject to the provisions of this policy including the limitation on the Insurer(s) liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.

Provided that the Insurer(s) will not be liable for any loss under this Section unless the Insured’s property lost, destroyed or damaged is insured against such Damage and the Insurer or Insurers by which such property is insured shall have paid for, or admitted liability in respect of, such Damage unless no such payment shall have been made or liability shall not have been admitted therefor solely owing to the operation of a provision in such insurance excluding liability for loss below a specific amount.”

The court said in context the word “loss” in the extension means physical loss or destruction of or damage to property, not loss of use or of custom or financial loss.  Conflagration or “other catastrophe” means an occurrence or event, not a state of affairs, apt to cause physical loss or destruction or damage to property and is not apt to refer to or encompass a pandemic of disease.

The judgment contains a useful detailed discussion of the meaning of “loss” as used in policies.