Suncorp’s Vero loses business interruption case, Covid claims field narrowed

The defeat for Suncorp subsidiary Vero over business interruption insurance has also narrowed the field over which future claims will be fought.

Suncorp said the overall judgment of the court was ‘favourable’. Picture: Richard Gosling

The legal defeat suffered by Suncorp subsidiary Vero may have opened the door to further legal action, but it also narrowed the field over which future business interruption insurance claims will be fought, lawyers say.

Queensland insurer Suncorp was dealt a blow on Friday when the Federal Court found in favour of Melbourne cafe Vanilla Lounge, declaring that the pandemic exclusions in the business’s policy did not cover claims arising from Victoria’s lockdown.

Herbert Smith Freehills partner Mark Darwin said the judgment that applied to its Vero unit was “the first good news” for the insurers in a series of skirmishes being played out in the courts.

Mr Darwin said the judgment found “not every biosecurity emergency will trigger the exclusion, only those that are serious enough”.

“I think it means the policyholders will have to go back to the drawing board as to whether it’s got a claim at all,” he said.

The Federal Court judgment found the limitations on Vanilla Lounge restaurant owner Rockment’s trading “were imposed by the state of Victoria”.

“It is not sufficient to exclude cover … if the claim is somehow causally connected to a human disease specified in a declaration of a human biosecurity emergency,” the judgment said.

“A claim which is consequent upon loss arising from a government-ordered closure of the insured’s premises caused by the declared emergency is within the scope of the exclusion.”

However, the judgment narrowed the possibility of further legal action.

“[Suncorp unit] Vero’s preferred construction, that the essence of the exclusion’s causal factor is the listed human disease, may well facilitate the establishment of the connection required for its triggering, but it is a significant departure from the ordinary meaning of the words used,” the judges said. “Vero’s desired outcome is that once a disease becomes the subject of a human biosecurity emergency declaration, any claim consequent upon a closure required because of the disease’s presence will fall within the exclusion.”

But Maurice Blackburn insurance principal lawyer Josh Mennen said the key issue in the court’s comments was that “a causal connection between the declaration of a human biosecurity emergency to a claim is not sufficient to trigger the exclusion, rather the exclusion requires a ­direct or indirect cause of a lockdown.”

He said the court had found the onus of proof was on the insurer to show “a causal relationship between the declaration under the Biosecurity Act and the closure”.

“It shows the complexity of the facts of each claim against the specific policy wording,” he said.

“Insurers are not necessarily safe just because they’ve included the Biosecurity Act exclusion clause and each case will turn on its owns merits.”

But Mr Mennen added that the decision was “very specific” to Vero policies and claims made in reference to a shutdown.

“It may be relevant to claims made for example in Adelaide, which are made under the newer generation exclusion clauses, and potentially also claims made as a result of any Sydney lockdown that occurs,” he said.

Suncorp, in an update to the market on Monday, said the court’s overall judgment was “favourable” and precluded the need for further reservations of funds to cover potential losses arising from business interruption insurance claims.

“In light of this favourable outcome, Suncorp believes its overall reserving continues to be adequate,” the insurer said in its statement.

“It is important to note that valuations do not take account of the potential for further COVID-19 lockdowns, as well as any unexpected outcomes from future litigation including any industry test cases.”