Case study: The importance of clear policy drafting

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    04 November 2022

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Dural 24/7 Pty Ltd v Certain Underwriters at Lloyd’s of London [2022] FCAFC 147

The Full Federal Court of Australia recently considered the application of a conformity clause in a business interruption policy. This decision was an offshoot from the recent landmark Business Interruption (BI) test cases decided by Australian Courts in 2020 and 2021 in the midst of the COVID-19 pandemic. It reinforces the need to focus upon clear and accurate policy drafting to set the scope of cover and avoid ambiguity.


The appellant, Dural, is a fitness and yoga franchising business. Lloyd’s syndicates insured Dural for business interruption loss. The policy period coincided with the first year of the COVID-19 pandemic.

The policy contained a coverage extension for “Murder, Suicide, or Disease” (our emphasis):

The Occurrence of any of the circumstances set out in this extension of cover shall be deemed to be Damage to Property used by You at the Situation.

b. the outbreak of human infectious or

contagious disease occurring within a 20 kilometre radius of Your Situation; or

c. closure or evacuation of Your Business

by order of a government, public or Statutory Authority consequent upon:

Cover under b. and c. under this extension of cover does not apply in respect of Highly Pathogenic Avian Influenza in Humans or other diseases declared to be quarantinable diseases under the Australian Quarantine Act 1908.

The Quarantine Act 1908 was repealed in 2016 meaning that COVID-19 could not possibly be a declared quarantinable disease under that legislation. It was, however, a listed disease under the Biosecurity Act 2015.

Thankfully, the policy contained a conformity clause which dealt with matters of construction and interpretation, including the use of gendered and singular/plural words. The clause relevantly provided that “…References to a statute law also includes all its amendments or replacements”. The insurers sought a declaration that the reference to the Quarantine Act in the above extension should be read as referring to human diseases under the Biosecurity Act, on the basis that the Quarantine Act had been replaced by the Biosecurity Act.

The Courts’ decisions

In the Federal Court, Jagot J found that that the Biosecurity Act was operating in place of the Quarantine Act, and thus had replaced it. What was important was that the subject matter of the laws was the same, or sufficiently similar, such that the new law applies in place of the old – even where it “deals with that subject-matter in a new and radically different manner from the old statute law”.

Dural appealed the Federal Court’s decision.

The Full Federal Court dismissed Dural’s appeal with the result that there was no cover under the disease extension for COVID-19. As a primary finding, the Court agreed with Jagot J that the conformity clause was concerned with the construction and interpretation of the policy, and the relevant part of it (“…References to a statute law also includes all its amendments or replacements”) was directed at keeping the wording of the policy current.

The Court observed that the Biosecurity Act plainly replaced the Quarantine Act. While acknowledging that there were some “important” differences between the Acts, the Court agreed with the primary Judge that both Acts had the same or substantially similar fundamental aim – being the identification and declaration or listing of diseases at a national level in order to protect the Australian community. Having regard to the purpose of the conformity clause (which was to keep the policy up to date), the Court upheld the primary Judge’s finding that the listing of human diseases under the Biosecurity Act replaced the declaration of quarantinable diseases under the Quarantine Act for the purposes of the operation of the policy.

The Court also rejected Dural’s argument that the conformity clause’s reference to “replacements” was limited to the repeal of statutes in force at the date of policy inception. The Court held that the words were in aid of a general purpose, namely the maintenance of the currency of the policy wording.

Our view

These decisions underscore the importance of ensuring that references to legislation contained in policy wordings are current and up to date. Failing to do so could significantly impact the scope and availability of cover under the policy.

As evidenced by the recent findings of Australian Courts in the test cases, what may appear to be subtle differences in wordings can give rise to remarkably different results. While the cases turned on their individual facts, it is notable that the Courts had significantly different views on the meaning of each of the words that were used in an attempt to maintain the currency of the policies:

  • in the first test case, the words “subsequent amendments” were held not to extend to the Biosecurity Act on the basis that it was a separate Act to the Quarantine Act;
  • in the second test case, the Biosecurity Act was held not to be a “re-enactment” nor a “re-enactment with modifications” of the Quarantine Act on the basis that, while the Biosecurity Act had replaced the Quarantine Act, and the two Acts cover some of the same subject matter, the differences between the relevant parts of the Acts were too extensive; and
  • in Dural 24/7, the Full Federal Court held that the declaration of diseases as quarantinable under the Quarantine Act (as “a statute law”) had been replaced by the listing of human diseases under the Biosecurity Act on the basis that the subject matter and fundamental aim of the relevant parts of both Acts was substantively equivalent.

While the findings of the Australian Courts do not, of course, directly impact New Zealand insurers, they serve as a timely reminder to insurers to review the terms of any conformity or other clauses which concern the currency of statutes that are referenced in their polices, together with any references to legislation or regulations. In advising their clients, brokers should also be mindful of the potentially critical variances in cover and ambiguity that may arise from subtly different policy wordings.

Addendum: On 14 October 2022, the High Court of Australia refused the applications for special leave filed by two policyholders and one insurer to appeal certain parts of the Full Federal Court’s judgment in the second test case.

This article was co-authored by Siobhan Pike, a Solicitor in our Litigation and Dispute Resolution team.

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