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DWF successful in defending $3 million insurance claim over COVID-19 cancellation

28 January 2022

In the recent case of Outback Music Festival Group Pty Ltd (Formerly known as Big Run Events Pty Ltd) v Everest Syndicate 2786 at Lloyd's [2022] FCA 13, DWF in Australia represented London Underwriters in successfully defending a claim for indemnity under an Event Cancellation Insurance Policy.

Outback Music Festival Group Pty Ltd (Formerly known as Big Run Events Pty Ltd) v Everest Syndicate 2786 at Lloyd's [2022] FCA 13

Background

The Outback Music Festival Group (the Applicant) is the organiser of an annual music festival, the "Big Red Bash". The festival is billed as "the world’s most remote major music festival", and is held annually in outback Queensland, about 35km from Birdsville.

The 2020 edition of the Festival was due to take place between 7 and 9 July 2020; however the festival was cancelled on 3 April 2020 in light of the COVID-19 pandemic.

The Policy

The Applicant held Event Cancellation Insurance for the Festival. The Policy however did not cover loss:

"directly or indirectly arising out of, contributed to by, or resulting from…any communicable disease or threat or fear of communicable disease (whether actual or perceived) which leads to:

- the imposition of quarantine or restriction in movement of people or animals by any national or international body or agency;

- any travel advisory or warning being issued by a national or international body or agency."

Federal Court decision

Chief Justice Allsop heard the matter, and considered whether the communicable disease exclusion applied. The parties did not dispute that COVID-19 was a communicable disease.

The Applicant's proposed construction of the exclusion clause, was that the clause was only engaged, if those actioned referred to in the sub-clauses (such as travel warnings, or the imposition of quarantine), were the cause of the event cancellation. The Applicant's evidence was that those actions did not cause the cancellation. Rather the event had to be cancelled for the safety of all concerned in the context of the overwhelming operational difficulties thrown up by COVID-19, any number of which was or were sufficient to make holding the event impossible.

His Honour took a different approach to construction. Instead, he considered that the sub-clauses of the exclusion describe the nature of the communicable disease itself.

His Honour then distilled the clauses down to questions as follows:

  • Was the cancellation of the event caused by or contributed to by or did it arise or result from a communicable disease or a fear or threat of a communicable disease? Yes: COVID-19.
  • Did the disease lead to the imposition of quarantine or restrictions in movement of people by any national body or agency? Yes: The Australian Government imposed entry and movement restrictions on persons entering Australia involving isolation and prohibition on entry of people and cruise ships. Also, the States and Territories imposed border and movement restrictions.
  • Did the disease or threat of the disease lead to travel advisory or warnings being issued by any national body or agency? Yes: National Cabinet and State and Territory Governments urged Australians to avoid non-essential travel. This was reiterated by the Prime Minister on behalf of the Australian Government.

To this last question, the Applicant submitted that the National Cabinet established in the wake of COVID-19 was not a national body or agency of the type countenanced by the exclusion provision. Instead, his Honour held that the National Cabinet, albeit not any formal sub-committee or part of Federal Cabinet, was a national body of the highest character brought together ad hoc comprising of the Prime Minister and the First Ministers of each State and Territory of the Federation. Its advice can be seen as that of a national body dealing with a national emergency.

His Honour also rejected arguments that s.54 of the Insurance Contracts Act applied. Likewise, there was no failure on the Insurer's party to act in the utmost good faith.

If you require further information or have any queries in relation to this legal update, please contact Damien van Brunschot or David McGrath.

We would like to acknowledge the contribution of Kristen Scarcella (Law clerk) to this article. 

Further Reading