The Insurance Council of Australia (ICA) second business interruption case has started in the Federal Court today with a focus on a claim lodged by The Taphouse craft beer bar and restaurant in Townsville.

Senior counsel Ian Jackman, representing IAG, has told the court that COVID-19 did not represent physical damage as required under a prevention of access clause, and people were still able to attend the premises for takeaway.

“Ordinary language jars with the notion that a disease is itself physical damage,” he said this morning before Justice Jayne Jagot.

The Taphouse prior to the pandemic did not operate a takeaway business but moved to provide services on that basis following Chief Health Officer restrictions introduced on March 23. These were followed by home confinement directions and later capacity restrictions for businesses.

Mr Jackman said the fact that The Taphouse hadn’t been set up for takeaway food service was “neither here nor there” while the infectious diseases wording referenced an “outbreak”, which would mean multiple active cases within the defined area at around same time with community transmission.

“There is no evidence of anyone having acquired COVID-19 in Townsville or any community transmission,” he said. “It follows from that, there was no outbreak within 20 kilometres of the premises within the policy period.”

Mr Jackson said health orders issued for Queensland followed a National Cabinet meeting and were a response to areas where there was a “reasonably-based fear, and a fact” of community-based transmission.

The orders were not caused by the situation in Townsville and events there were not equivalent to the situation elsewhere, he said.

Mr Jackson contrasted the situation with the UK Financial Conduct Authority (FCA) test case matter involving Arch insurance, noting differences between occurances of a disease and an outbreak, and weightings that caused government responses.

“The kind of reasoning the Supreme Court adopted in FCA and Arch is distinguishable from the Taphouse case relating to Townsville,” he said.

“It’s highly unlikely the Chief Health Officer even thought about the very few Townsville cases, but if she did then it could only ever have been a minor subsidiary factor compared to containing the actual outbreaks which had occurred elsewhere, and can’t be regarded as proximate cause.”

Arguments were also heard over whether receipt of government supports such as Jobkeeper should be considered in assessing business interruption claims.

The second test case consists of nine small business claims from a range of business sectors and locations lodged with Australian Financial Complaints Authority as part of its dispute resolution process.

Other insurers involved are Allianz, Chubb, Guild, and Swiss Re Corporate Solutions, but all ICA members have committed to applying the rulings of the courts.

ICA CEO Andrew Hall says the case is an important step towards finalising the issue and providing an “efficient, transparent and consistent framework” to process business interruption claims.

“Insurers acknowledge the frustrations of policyholders who have been waiting to have claims resolved, however the unprecedented nature of this pandemic has meant court determinations have been necessary to establish the principles insurers need to process claims and resolve disputes,” Mr Hall said.

The case is set to run until Wednesday next week and time has already been set aside for a potential appeal hearing in November.