The second business interruption insurance test case may not be finalised until this time next year given a Full Court appeal outcome is likely to be taken to the High Court, legal firm Herbert Smith Freehills says.

The Full Court appeal before three judges is set to begin on Monday and will involve five of the 10 test cases adjudicated by Federal Court Justice Jayne Jagot, who handed down her decision last month.

Herbert Smith Freehills Partner Mark Darwin and Senior Associate Travis Gooding say the side that loses in the Full Court will inevitably apply to the High Court for special leave to appeal.

“It would be a strange result if the High Court did not consider the issues to be of sufficient importance for special leave to be granted,” they say in an article on the firm’s website. “On that basis, we doubt there will be any finality to the COVID-19 business interruption cover issues in Australia until this time next year.”

Herbert Smith Freehills says the headline Federal Court outcome, that nine of the cases were won by insurers, is essentially due to one legal and one factual finding.

On the legal issue, Justice Jagot found it would be incongruent to read prevention of access extensions as being applicable to actions in response to diseases, where the policy contains another clause specifically extending cover for diseases.

Justice Jagot also found that while it was possible there had been a local “outbreak” of COVID-19 within a relevant area, it could not be said that was the “proximate cause” of Government pandemic orders that interrupted the business. That contrasted with court rulings in the UK, where COVID was more widespread.

The “incongruent” finding on the prevention of access extensions will likely be the main target of the Full Court appeal by policyholders, and any subsequent appeal, Mr Darwin and Mr Gooding say.

“Her Honour held that, if she was wrong on the ‘incongruence’ point, then in many claims the prevention of access or ‘action by authorities’ cover had been triggered and was a proximate cause of the loss,” they say.

The point does not appear to have been argued in the UK test case, but outcomes there held that certain prevention of access clauses were triggered by circumstances arising from COVID-19, and therefore by implication were not incongruent with the disease clause in the same policy, according to the article.

“The big hope for policyholders has to be that the ‘incongruency’ finding is overturned on appeal, in which case the factual differences with the UK will no longer be important,” Mr Darwin and Mr Gooding say.

The Full Court will also hear an appeal filed by The Star Entertainment Group over denial of cover by Chubb and other insurers at the same time as the test case matters.

The Insurance Council of Australia says an expedited timetable is likely to see appeal proceedings in the Federal Court concluded by the end of this year “or shortly thereafter”.