Communicable disease exclusion held effective to deny a music festival promoter a Covid-19 cancellation insurance claim

Outback took out cancellation insurance on 30 September 2019 for its “Big Red Bash” music festival to take place in July 2020.

Outback cancelled the event on 3 April 2020 because of “the COVID-19 pandemic, attendant health and safety concerns, and a number of operational issues resulting from the closure of State borders, the imposition of travel restrictions and travel warnings and other related considerations”.

Outback claimed AUD3,182,444 under the policy. The insurer declined the claim, relying on the communicable disease exclusion in the policy.

An application was made by Outback in the Federal Court of Australia. The application was dismissed with costs.

The judgment is Outback Music Festival Group Pty Ltd (formerly known as Big Run Events Pty Ltd) v Everest Syndicate 2786 at Lloyd’s [2022] FCA 12 (Allsop CJ) (19 January 2022).

The reasons for cancellation

The Big Red Bash annual music festival was due to take place at The Big Red Dune, a remote location on the edge of the Simpson Desert some 35 kilometres west of Birdsville in Queensland, between 7 and 9 July 2020. By March 2020, the event was sold out with a crowd of 10,000 expected to attend.

On 24 March 2020, the Queensland Government closed its borders to stop the spread of COVID-19.

The Managing Director of Outback decided to cancel the event because of three overarching risks or challenges associated with the COVID-19:

1. Health and Safety: There was insufficient access to healthcare in the event that attendees of the music festival were to contract COVID-19. There was no intensive care unit and were no ventilators at the Birdsville medical clinic. As 65% of attendees come from interstate, there was also the risk of exposure to remote and rural towns through which attendees of the festival travel.
2. Operational: There was a high risk of dropouts among volunteers; it was not viable for food vans to make the trip for a single event; and uncertainty about the air link and State border closures and travel restrictions which were not expected to be lifted in time for the staging of the event.
3. Reputational: They key stakeholders: the local council; patrons; volunteers; sponsors; local community; and the State Government; had all expressed concerns about running the event in an environment that is not safe. There would be reputational consequences if the event were to go ahead.

The Court concluded:

“on any view of the reasons for cancellation, the event had to be cancelled. It was clearly a matter of necessity. The unfolding pandemic made it almost certain that few if any people would be able to travel and also that even if people could get to the event, it would be dangerous and fraught operationally to conduct the festival.” [judgment, paragraph 67]

The communicable disease exclusion

The exclusion was:
 

6.20   any communicable disease or threat or fear of communicable disease (actual or perceived) which leads to:

(6.20.1)    the imposition of quarantine or restriction in movement of people …         by any national … body or agency;

(6.20.2)    any travel advisory or warning being issued by a national … body or agency.

The Court formulated three questions that it answered in the affirmative, and as a result, decided that the exclusion was engaged. The questions and answers were:

Question 1 Was the cancellation of the event caused by or contributed to by or did it arise or result from a communicable disease or a fear or threat of a communicable disease? 

Yes: COVID-19

Question 2 Did the disease lead to the imposition of quarantine or restrictions in movement of people by any national body or agency? 

Yes: The Australian Government imposed entry and movement restrictions on persons entering Australia involving isolation and prohibition on entry of people and cruise ships. Also, the States and Territories imposed border and movement restrictions.

Question 3  Did the disease or threat of the disease lead to travel advisory or warnings being issued by any national body or agency? 

Yes: National Cabinet and State and Territory Governments urged Australians to avoid non-essential travel. This was reiterated by the Prime Minister on behalf of the Australian Government.

[judgment, paragraphs 70, 71 & 72]

In its decision, the Court:

Made an objective assessment of all of the evidence on whether the cancellation was due to an inability to proceed with the event, not on Outback’s reasons alone.

The expression ‘national body’ included both the Australian Government and the Queensland State Government.

The restrictions, advisories and warnings did not lead to the cancellation. It was the nature and severity of communicable disease that led to the cancellation.

The causal connection is that a communicable disease be severe such that it leads to quarantine, restrictions on movement, travel advisories and warnings materialising, which materially contribute to the cancellation.

The Court concluded:

“The exclusion is engaged because the decision to cancel was taken because a communicable disease or the threat of a communicable disease of a character contemplated by exclusion 6.20”. [judgment, paragraph 75]

Comment

This decision adds to the case law upon communicable disease exclusions in policies of insurance being effective to decline a cancellation claim arising out of COVID-19.

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