A fitness centre in Melbourne’s eastern suburbs has lost a covid-related business interruption dispute after its argument over the effect of the word “or” in the policy clause was rejected.

The hybrid clause provides cover when a business is ordered to close due to “human infectious or contagious disease or the discovery of an organism likely to result in human infectious or contagious disease occurring at the insured premises”.

The gym closed on March 23 2020 after government orders, later reopened in a restricted capacity, and then closed again after non-essential business across 31 municipalities plus the Mitchell Shire were affected by orders from July 8 2020.

The business says it isn’t necessary to show an outbreak at the premises itself to gain cover because of the way the policy is worded.

The Australian Financial Complaints Authority (AFCA) says the complainant argues “the critical use” of the conjunction “or” means that the phrase “at the insured premises” only applies to the second part of the clause.

“On this construction, the human infectious or contagious disease – consequent upon which an order is made closing or evacuating the insured premises – can be discovered anywhere,” AFCA says.

In the fitness centre’s argument, there are two parts to the clause wording. In the first part, cover should be provided if a business is ordered to close due to human infectious or contagious disease.

In the second part, cover should be provided where the closure results from the discovery of an organism likely to cause disease at the insured premises.

The AFCA decision in favour of Berkshire Hathaway Specialty Insurance points to the second business interruption industry test case, where a similar issue was examined in the Swiss Re International v LCA Marrickville claim.

The court appeal ruling observed there was “substance to the proposition” that the paragraph as a whole concerned events at the premises, and a “construction which triggers cover consequent upon the discovery of a human infectious disease anywhere in the world is likely to give rise to difficult questions of causation”, AFCA says.

The AFCA fitness centre decision says the policy wording is awkward and there is some merit to the complainant’s argument but its view on the clause would make the words “at the premises” redundant.

“All the complainant would need to prove is that an order was made by a competent authority consequent upon a human infectious or contagious disease,” AFCA says. “The location of the disease would be irrelevant. That, in my view cannot be the intention of the policy.”

A request for cover under a prevention of access clause was also rejected by AFCA as the wording referring to “damage” didn’t extend to the type of harm caused by a human infectious or contagious disease, and an exclusion applied.

The decision is available here.