The Policy and the question of the application of the Civil Authority Extension
139 Before turning to the structure of the Policy and the appropriate way to understand the purpose and reach of extensions of cover found in the memoranda to sections 1 and 2, it is instructive to recognise one basal consideration: the Policy provides no coverage for any form of interruption of interference or any form of loss in respect of, resulting from, caused by (however wide or narrow the relational prepositional phrase chosen) COVID-19 or indeed any disease that is a listed human disease under s 42 of the Biosecurity Act. Further, subject only to the limited operation of the Disease Extension, the Policy provides no coverage for any form of interruption or interference or any form of loss in respect of, or resulting from or caused by any disease.
140 The Policy is an ISR policy built around the fundamental structure of there being physical loss or destruction of or damage to the Insured Property (property of any kind unless excluded). The indemnity under section 1 (see [49] above) covers any physical loss or destruction of or damage to non-excluded property at the Situation, subject to limitations of the Policy (which will include the perils exclusions). The indemnity under section 2 (see [8] above) provides cover in the event of a building or other property 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 excluded and the Business of the Insured being in consequence interrupted or interfered with. That cover involves the obligation of the Insurers to pay the amount of (financial) loss resulting from such interruption or interference (in accordance with the applicable Basis of Settlement).
141 The Policy does not list insured perils; rather, it takes the form of an all risks policy, under which the cover for the relevant property and the relevant perils is to be understood by recognising the width of the word property "all real and personal property of every kind and description" (see the Interest Insured clause in the Schedule at [42] above and the definition of "The Property Insured" at [51] above) together with the reach of the property exclusions; and by recognising the width of the available causes or events that might cause such physical loss, destruction or damage: "any … not otherwise excluded" in the section 1 indemnity and "any cause or event not hereinafter excluded" in the section 2 indemnity.
142 The importance of the property damage coverage under section 1 for the coverage under section 2 is revealed by the proviso to the section 2 indemnity (see [8] above). The clear commercial object is to ensure that the Insured will be in a financial position to make good the physical loss, destruction or damage that will have an effect on the interruption or interference with the Business.
143 The introductory words of the Civil Authority Extension ("The word 'Damage' under section 2 of this Policy is extended to include loss…") are central to the resolution of the controversy. The section 2 indemnity is critical in that inquiry. As I have already said (at [113] above) the word "Damage" in the section 2 indemnity is not just a reference to a description of the physical loss or destruction of or damage to Insured Property at the Premises used for the purpose of the Business. It is also, as the words in parentheses in the section 2 indemnity reveal, a reference to or description of physical loss, destruction or damage "so caused", that is caused by any cause or event not excluded. Thus the word "Damage" in the section 2 indemnity does not refer to or include property that is physically lost, destroyed or damaged by a cause or event excluded, that is by a peril excluded.
144 Thus, one needs to turn to the perils exclusions to understand the reach of the word "Damage" in section 2.
145 Perils exclusion 4(a) (see [80] above) is important, but can be dealt with briefly. The word "disease" is part of a large group of perils that conceivably can cause ("occasioned by or happening through") physical loss or destruction of or damage to property. Its importance is that it reinforces the fundamental nature of the cover directed to physical loss or destruction of and damage to property. Also, it is a clear exclusion of disease (of any kind or qualification).
146 Perils exclusion 1(b) (see [78] above) is central to the resolution of the controversy. The chapeau to the perils exclusion directs attention to sections 1 and 2. Exclusion 1(b) removes from cover physical loss or destruction of or damage to Property Insured resulting from damage to property by or under the order of any Government or Public or Local Authority. Thus, subject to the following clause, referred to in the argument as the "writeback", the word "Damage" in section 2 did not include or refer to physical loss or destruction of or damage to property used by the Insured at the Premises for the purpose of the Business if that loss, destruction or damage resulted from damage to property by or under an order of a government, public or local authority. The peril excluded for sections 1 and 2 was the making of such a governmental order. There was no material loss or damage cover under section 1 for property lost, destroyed or damaged by such an order (even if otherwise Property Insured); nor was there Damage and so no consequential loss cover under section 2, the order being a cause or event excluded. The word "Damage" for section 2 meant physical damage caused by a non-excluded peril.
147 The writeback made clear that notwithstanding the provisions (that is the words) of perils exclusion 1(b) the Insurers were liable for certain things: certain effects on "sound property" implicitly resulting from the governmental order; loss or destruction of or damage to, or the costs of removal of, sound property at the Premises for the purpose of preventing or diminishing imminent damage by, or inhibiting the spread of, fire or any other peril insured against.
148 Clearly, that is a writeback for section 1. There is material loss or damage cover for sound property lost, destroyed or damaged, and for the cost of removal of sound property, if that loss, destruction or damage or need for removal was for the purpose set out of prevention or diminishing imminent damage or inhibiting the spread of fire or other peril.
149 There was a debate in argument whether the writeback had any effect on the cover under section 2 affected by perils exclusion 1(b) (see [78] above). In terms, the writeback is directed to liability for loss or destruction of or damage to property or the cost of its removal. It does not, in terms, writeback liability of the Insurers for financial loss resulting from interruption or interference of the Business in consequence of the loss or destruction of or damage to sound property. Star submitted that liability under section 2 followed automatically from liability under section 1. Thus, it was submitted, loss or destruction of or damage to sound property resulting from damage to that property by or under a governmental order for the purpose of preventing or diminishing imminent damage by, or inhibiting the spread of, fire or other peril was within the word "Damage" in the indemnity in section 2 because the loss or destruction of, or damage to sound property in this context was not caused by an excluded cause or event.
150 The point is a fine one. There is force in the Insurers' submission that the writeback is directed only to the physical loss or destruction of or damage to the sound property or the cost of its removal. The Insurers' contention is supported by the terms of perils exclusion 3 (see [79] above). There the exclusion is said not to apply in certain circumstances. The restriction or "writeback" is directed to the cause or peril, unlike the "writeback" in 1(b) which deals with indemnity for property damage. On this construction, the peril of governmental order remains excluded for the purposes of the indemnity clauses, but a specific liability is recognised, notwithstanding the perils exclusion in 1(b). There is also force in Star's submission that the writeback, in creating liability, removes pro tanto the perils exclusion in terms of the writeback. The point is fine and a textual one of some subtlety. Were it necessary to decide I would prefer the construction of the Insurers. The writeback does not in terms qualify the exclusion of the type of peril, but rather states that notwithstanding the perils exclusion the Insurers have a liability to cover the loss or destruction of or damage to certain sound property and the costs of its removal.
151 One then comes to the memoranda to section 2. Before turning to particular memoranda and their terms, it is appropriate to say something of them generally. Not all the memoranda deal with extensions of cover beyond an application of the (all risks) indemnity read with the perils exclusions. See memoranda 1 to 6, 12, 14, 17 and 20 that deal with various subjects other than extensions to cover. There is no need to set them out. There are various extensions to cover: see memoranda 7, 8, 9, 10, 11, 13, 15, 16, 18 and 19 set out at [65] to [75] above.
152 At least some of these memoranda recognise that there are various ways in which a business may suffer loss other than by physical loss or destruction of or damage to property of the insured. Some of these extensions are effected by extending the locations (beyond the Premises) at which physical damage may occur: see memoranda 8, 10, 11, 15 and 18 ([66], [69]-[70], [72] and [74] above). Most of those memoranda (8, 10, 11, 18 and 19) begin with the words "Loss as insured by Section 2 of the policy". Memorandum 15 begins with the words "Loss as Insured by this Policy resulting from interruption of or interference with the Business." The word "Loss" here is plainly referring to the financial loss resulting from interruption or interference referred to in the last part of the section 2 indemnity. These are sometimes called "dependency extensions" there being loss of the Insured from the dependency of the Insured's Business on other places or premises or on what happens elsewhere.
153 Each of memoranda 8, 10, 11, 15, 18 and 19 uses a deeming technique linking financial loss under section 2 to circumstances other than damage to the Insured's property by a deeming of the loss to result from Damage to the Insured's property used at the Premises.
154 Memorandum 8 deals with temporary falling away of potential custom caused by Damage to property within a 10 km radius. Thus, interference with custom can be provided for by using a deeming construct of this character.
155 Memoranda 10 and 15 also concern factors that prevent or hinder the use of or access to the Premises. Thus, interference with use of the Premises can be provided for by using a deeming construct of this character.
156 Memorandum 19 concerns the closure of the whole or part of the Premises by order of a competent authority. The "Loss" in memorandum 19 is financial loss ("Loss as insured by section 2 of the Policy") resulting from interruption of or interference with the Business from the violent threat, as long as this necessitates the closure of the Premises by order of the authority.
157 Thus, these memoranda deal with financial loss, potential loss of custom, and prevention or hindrance of access to the Premises including by orders of an authority, by the drafting techniques employed, none of which phrasing was used at the commencement of memoranda 7 and 9: "The word 'Damage' under section 2 of this Policy is extended to include loss…" and "Damage is extended to include loss…", respectively.
158 I turn now to memorandum 9, the Disease Extension. This memorandum is concerned with circumstances that may affect establishments such as hotels, guest houses, public houses and restaurants. According to Riley (at 251-253 [11.19]-[11.20] and 453-454) a similar clause (below the chapeau "Damage is extended to include loss resulting from:-") was a recommended wording of the Association of British Insurers issued in 1989.
159 Plainly, the events are of a nature and character that may lead to "restrictions on the premises [being] applied". These last words come from para (b) of "Special Provisions" for the calculation of the Indemnity Period. Disease or organisms that may cause disease or vermin or pests on the Premises may naturally lead to the intervention of health authorities, as might defects in drains or in sanitary arrangements. For these reasons, it is the better view that the qualifying words in or under 3 (commencing "which causes restrictions" and ending "competent Local Authority") qualify 1, 2 and 3, not just 3. The occurrence of a murder or suicide may naturally lead to investigation by police, coroner or other authority who or which may restrict use of the Premises.
160 As has been noted already, para (a) in Special Provisions excluded from the meaning of Notifiable Disease Quarantinable disease under the Biosecurity Act (accepted by Star to be a listed disease).
161 Special Provision para (b) provides for the Indemnity Period as "the period during which the results of the Business shall be affected in consequence of the Damage." Thus the "Damage" here (and so in the chapeau) cannot mean financial loss: the result of the Business cannot be affected by financial loss. They are affected by a restriction on the use of the Premises brought about by disease, vermin, murder etc. The damage is something that affects the results of the Business. Thus Damage here, the "loss" which it is extended to include, is something that affects the results of the Business, and its commencement is marked by restriction on the Premises or the date of the murder or suicide. Textually it is the affectation or restriction on the use of the Premises. That conclusion is derived textually from the nature of the factors (disease, vermin, pests and murder or suicide) which are likely to call forth regulatory restriction or investigation of some kind, from the textual reference to "restriction on use" in 3 or under 1, 2 and 3, and from the terms of Special Provision (b). The last part of Special Provision (f) may be to the contrary of this meaning of Damage: "At or from the Premises, the use of which has been restricted … solely in consequence of the damage as defined above". That would rather have the Damage (as extended to include loss resulting from) to mean the occurrence of the disease, the discovery of vermin, the accident causing defects, or the occurrence of the murder or suicide. This thus creates a certain lack of clarity as to whether the Damage extended to include loss is the restriction on use or the events or circumstances that give rise or lead to the restrictions on use. Recognising a degree of lack of consistent felicity of language, I conclude that "loss" in the chapeau that results from the circumstances and events in 1(a) and (b), 2, 3 and 4 means loss of use of Premises from restrictions or order or advice of authorities or from the natural and likely consequences of investigating a murder or suicide.
162 I turn to memorandum 7, the Civil Authority Extension. Unlike memorandum 9 there is no particular textual direction to the loss of use of the Premises as the subject to which the memorandum is directed. Memorandum 7 is general in its terms. The word "Damage" under section 2, that is in the section 2 indemnity, is extended to include "loss" resulting from or caused by any lawfully constituted authority for the reasons described. It is to be recalled that "Damage" in the indemnity is physical loss or destruction of or damage to property used by the Insured at the Premises for the Business (but only) by any cause or event not excluded.
163 Perils exclusion 1(b) excludes any damage to property by or under the order of any Government or Public or Local authority. The writeback to perils exclusion 1(b) may be seen to be directed to a similar subject as memorandum 7. If the Insurers be correct (as I consider they are) and the writeback is directed only to section 1, the perils exclusion 1(b) calls forth the need for memorandum 7 if it is intended to provide consequential loss cover for physical loss of property that causes an interruption or interference with the Business from the order or action of some public authority. On this basis perils exclusion 1(b) operates generally to exclude such a peril; the writeback brings a precise form of material loss and damage cover (plus cost of removal) for sound property; and memorandum 7 provides a desired form of differently worded consequential loss cover for physical loss of property by the means and for the reasons there stated.
164 Even if Star be correct in its propounded construction of the writeback to perils exclusion 1(b), there is a clear purpose in memorandum 7, if the consequential loss cover under section 2 is to be framed in the desired form of the memorandum. The writeback to perils exclusion (1)(b) is in different, and arguably narrower terms, to memorandum 7. The proper construction of the Policy is not an exercise in fine textual exactitude as if one were engaging in a form of tongue and groove precision textual cabinet-making. Even if Star is correct about the writeback, if consequential loss cover is intended to be provided in terms of memorandum 7, it is far from clear that the writeback would achieve that given the differences in wording. Clarity is given by the terms of memorandum 7 to the commercial position of insured and insurer. Without the memorandum, perils exclusion 1(b) would operate to remove from "Damage" in section 2 any physical loss or destruction of or damage to Insured Property for consequential loss cover, if such were caused by acts of Government, Public or Local authorities. If consequential loss cover is intended to be granted for physical loss (and so destruction) of Insured Property caused by competent authorities in the terms contained in memorandum 7 it has to be stated in the memorandum in order to sit over the section 2 indemnity read with the perils exclusion 1(b) and (on this hypothesis) the partially restorative writeback (in different and narrower wording to memorandum 7).
165 At this point, one can recognise the significance of the omission of the word "exclusions" from the introductory words to the parts of the Policy containing the memoranda to sections 1 and 2 (see [63] above). Once one has read the exclusions (property and perils) with the two indemnities (to sections 1 and 2) one has the cover, subject to extension of cover by the two groups of memoranda. Thus the memoranda, such as the Civil Authority Extension and Disease Extension, are capable of making clear the position of coverage that may be affected by the terms of a perils exclusion and a differently worded writeback.
166 Policies of insurance, like all commercial contracts, are intended to be read and understood by the commercial parties to them. The process of construction is the giving effect to the parties' objective intentions. The Policy is to be construed by giving business sense to a business document, being that which businesspeople in the course of their ordinary dealings would give the document: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at 656-657 [35], citing Homburg Houtimport BV v Agrosin Private Ltd (The 'Starsin') [2003] UKHL 12; [2004] 1 AC 715 at 737 [10]. That there may be overlap between different clauses of a policy does not require the business person to give meaning to the different clauses to eliminate their overlap with refined precision.
167 Here the section 2 indemnity defines Damage as physical loss or destruction of or damage to property by any cause or event not excluded. Perils exclusion 1(b) excludes physical loss or destruction of or damage to the Property Insured resulting from damage by or under the order of any Government or Public or Local Authority.
168 Whether the writeback is limited to material loss and damage cover under section 1 or also pro tanto restricts or limits the effect of perils exclusion 1(b) on the reach of consequential loss cover under section 2, a simple reading of memorandum 7 would recognise the intention to include in the word "Damage" in section 2 physical loss to Insured Property caused by a now clearly included cause: acts of lawfully constituted authorities in the circumstances and for the purposes expressed in the memorandum. Whatever be the reach of the writeback, there can be no debate that physical loss of (and so destruction of, but not mere damage to) Insured Property caused by this peril (if it otherwise satisfies the section 2 indemnity) is covered for consequential loss. That is the reasonably straightforward sense of the clause that commends itself, notwithstanding any overlap (on the hypothesis of Star's construction of the writeback) with the wording of the writeback. As Lord Bingham of Cornill said in The Starsin [2004] 1 AC at 737 [10] in the paragraph cited by French CJ, Hayne, Crennan and Kiefel JJ in Electricity Generation 251 CLR at 656 [35] at ftnt 58, the business sense given by businesspeople to business documents in their ordinary dealings is likely to be a reasonably straightforward sense since (as Lord Bingham then said, quoting Lord Mansfield in Hamilton v Mendes (1761) 2 Burr 1198 at 1214; 97 ER 787 at 795) "[t]he daily negotiations and property of merchants ought not depend on subtleties and niceties: but on rules easily learned and easily retained …".
169 Thus, there is a clear textual and structural foundation of "loss" in memorandum 7 to be physical loss, which would practically in any case include destruction. There is no textual reason, other than the similarity (though not identity) of introductory wording of memoranda 7 and 9, to consider that "loss" means loss of use. Memorandum 9 has clear express and implied textual indications that the loss resulting from 1, 2, 3 and 4 is loss of use. The other memoranda also reveal terminological formulae available for use if loss in memorandum 7 were to be loss of custom or of use or of access or were to be financial loss.
170 The "loss" in Memorandum 7 cannot be financial loss, because the indemnity clause would then make no sense: financial loss causing interruption or interference with the Business.
171 The loss that results from or that is caused by the authority must be from action of that authority that is in connection with or for the purposes of retarding a conflagration or other catastrophe. A conflagration is a great and destructive fire. The natural and common sense steps to retard a fire are likely to be physical such as the creation of firebreaks by destruction. Conflagrations are not retarded by restrictions on access or use of premises. The words "other catastrophe" do assist in understanding that the "catastrophe" is physical or apt to create physical damage. In The Sun Fire Office v Hart (1889) 14 App Cas 98 at 103-104, Lord Watson (delivering the judgment of the Privy Council constituted by his Lordship and Lord FitzGerald, Lord Hobhouse, Lord Macnaghten and Sir William Grove on appeal from Barbados) said:
It is a well-known canon of construction that where a particular enumeration is followed by such words as "or other", the latter expression ought, if not enlarged by the context, to be limited to matters eiusdem generis with those specially enumerated. The canon is attended with no difficulty, except in its application. Whether it applies at all, and if so, what effect should be given to it, must in every case depend upon the precise terms, subject-matter, and context of the clause under construction.
172 Debate took place as to the canons of construction: noscitur a sociis and eiusdem generis. I respectfully agree with Mr Herzfeld and Mr Prince in their valuable work Interpretation (Thomson Reuters, 2nd ed, 2020) at 506 [24.20] that the former maxim simply reflects the importance of using context to determine meaning. Likewise, I agree with what those authors say in the next paragraph as to the eiusdem generis rule: that it is an application of the noscitur a sociis maxim and simply involves the construction of words in the context of surrounding words. Strictly for the eiusdem generis maxim there should be a list or enumeration. Here there are the words "or other" after "conflagration". In the Policy so overwhelmingly founded upon the causing of physical loss, destruction or damage and so contextually close to "conflagration", the natural meaning of "other catastrophe" is an event or occurrence apt to cause violent physical change or damage. An indication of types of catastrophe can be seen in the qualification to perils exclusion 3 ([79] above). Of course a pandemic of disease can in ordinary language be described as catastrophic or as a public health or economic catastrophe. But the context here is an ISR policy built on physical loss or destruction of or damage to property and an extension to make clear that the consequences of an authority taking steps to retard a great fire or other catastrophe is to be understood as Damage, when the insured perils had removed that available meaning, either completely or with a differently worded pro tanto qualification of the removal.
173 Also, not insignificantly, the pandemic or disease of COVID-19 is not an insured peril. There is every commercial reason to extend cover for the consequences of the actions of a lawfully constituted authority in connection with or to retard a conflagration or other catastrophe which may physically destroy property and lead to indemnity such as that which can be described as the events in the qualification to perils exclusion 3, if sufficiently serious. Such a conflagration or other catastrophe if not retarded will be an insured peril. But if "other catastrophe" is to include catastrophic disease in the nature of a pandemic, memorandum 7 is available to provide consequential loss cover for the actions of the authority to retard the peril, but that peril is not itself an insured peril.
174 The meaning and operation of the indemnity period also militates against "loss" in memorandum 7 being loss of use or custom or financial loss. The definition of the phrase "indemnity period" is set out at [61] above. The period commences with the "occurrence of the Damage". An occurrence in an insurance context, as the Insurers submitted, is synonymous with an event and has the ordinary meaning of something which happens at a particular time, at a particular place and in a particular way: Axa Reinsurance [1996] 1 WLR at 1035; Kuwait Airways Corporation [1996] 1 Lloyd's Rep at 683-686; Mann [2001] 1 Lloyd's Rep at 5-6 [15]-[21]; all referred to with approval and applied by the majority of the Supreme Court (Lord Hamblen and Lord Leggatt JJSC with whom Lord Reed PSC agreed) in Arch Insurance [2021] 2 WLR at 145 [67]. Loss of use or custom (even more so financial loss) from the various kinds of restrictions affecting custom and access because of a circumstance of prevalence of disease is not aptly described as an occurrence or event happening at a particular place, at a particular time and in a particular way. It may be, as with memorandum 9, that the first restriction on use can mark out the commencement of some interference with use, but such precision of an event or occurrence was not provided for in memorandum 7, as it was in memorandum 9. Further, the notion of a catastrophe occurring tends to support the physicality of such an event in the sense of damage to property at a time, place and in a manner, as the subject of the authority's action, rather than the spreading of a state of affairs of a disease.
175 There is one further aspect of the Policy that was said by the Insurers to tend against the engagement of memorandum 7 by actions of governments to retard a pandemic which of itself is not an insured peril. The Insurers submitted that at any quantum hearing (should Star be correct in its construction argument) the amount of the consequential loss would be reduced by the amount (which was extremely difficult to assess) that the Gross Profit would have been reduced (assuming Basis of Settlement No. 1 were used) by an amount to reflect what would have happened had the measures of the authorities not been taken and COVID-19 had spread unretarded. This was a counterfactual assuming the insured peril of the actions of the authorities had not occurred and the uninsured peril - the spread of the pandemic had occurred.
176 It is not entirely clear whether that approach would be legitimate considering the terms of Item No 1. For instance, para (a) of item No 1 dealing with reduction in turnover (see [56] above) refers to the Rate of Gross Profit being applied to the amount by which the Turnover during the indemnity period shall, in consequence of the Damage, (that is, on this hypothesis, in consequence of the loss of use caused by the actions of the authorities) fall short of the Standard Turnover. This does not easily engage a hypothetical counterfactual.
177 The type of dispute (often of some complexity) that can occur of the character of a debate about causation often concerns more than one actual cause of the interruption or interference - where only one or some is or are an insured peril or insured perils. This is generally debated and resolved through the other circumstances or adjustments clause (see [62] above). That clause is usually engaged when there are competing real life causes or operating business trends: see Riley at 47-50 [3.25]-[3.29]. Nevertheless, the words of the clause "or which would have affected the Business had the Damage [loss of use, here] not occurred" may be wide enough to encompass such a hypothetical counterfactual.
178 Thus, I agree with the submissions of Star that the difficulty in this counterfactual analysis (if it be a valid enquiry) is no reason to favour a contrary construction to that propounded by Star (if I were otherwise in favour of it).
179 For these reasons, memorandum 7 is not engaged. The word "loss" in memorandum 7 means physical loss of (and so destruction of, but not damage to) property, not loss of use, or of custom or financial loss. Further, "other catastrophe" means an occurrence or event, not a state of affairs, apt to cause physical loss or destruction of or damage to property and is not apt to refer to, or encompass, and does not reach to include a pandemic of disease.
180 For these reasons, I would dismiss the application for a declaration in terms of prayer 3A(a) as amended on the first day of the hearing and as set out at [12] above.