A Melbourne fitness centre has lost a dispute over pandemic business interruption cover after unsuccessfully pointing to a Federal Court test case ruling to argue that an outbreak in the local community was sufficient to meet policy requirements.

The dispute partly centred on wording referring to the discovery of a disease or organism “likely to result in human infectious or contagious disease occurring at the insured premises”.

The inner suburban centre pointed to a judgment in the second industry test case matters that found “no requirement for the organism to be discovered at the business premises”, with the interpretation focusing instead on the likelihood of the disease emerging at the premises after its discovery.

“The complainant quite rightly points out there was no appeal on the above matters,” the Australian Financial Complaints Authority (AFCA) says.

“However, there are observations in the appeal case indicating that the Full Court of the Federal Court would have interpreted this provision differently and required the discovery of Covid-19 ‘at the premises’ had there, in fact, been an appeal.”

In a matter that went to appeal, Meridian Travel v Insurance Australia Ltd, the court looked at a similar wording that referred to the “discovery of an organism likely to result in a human infectious or contagious disease at the situation”.

In that decision, the phrase “likely to result in a human infectious or contagious disease” was considered an adjectival description of the organism. The policy required that the discovery must be “at the situation”.

“Although the wording is not identical, the Full Court provided detailed reasons for the view expressed,” the AFCA adjudicator says. “In my opinion, this reasoning would apply equally to the policy wording that is being considered in this complaint.”

The fitness centre also argued that the business disruption was covered by a prevention of access clause

AFCA says the Federal Court concluded similar wordings contemplated physical injury and not the kind of harm caused by a human infectious disease. Damage from disease is also excluded in the product disclosure statement, it says.

The decision, in favour of Berkshire Hathaway Specialty Insurance, additionally notes that Victorian Government orders requiring the closure of non-essential businesses such as fitness centres were general, and there was no reference to the fitness centre’s premises.

The decision is available here.