Court determines food spoilage claim
by Resolve Editor Kate Tilley
The Federal Court has rejected a claim by Star Entertainment Group for its insurers to indemnify the casino giant for losses from food spoilage during 2020 Covid-19 shutdowns enforced at three of its locations.
The industrial special risks policy, brokered by Marsh, was for nine Star companies, and placed with 11 insurers, led by Chubb Insurance Australia, which held 20% of the risk.
It included overall sums insured of $4 billion for the Sydney Star Hotel and Casino; $1.75 billion for the Gold Coast complex; $1.43 billion for the Treasury Casino and Hotel Brisbane and associated buildings; $87 million for the Gold Coast Convention & Exhibition Centre; $35 million for the Waterline Park facility, Brisbane; and $12 million for unspecified locations.
In 2021 court hearings about the same policy, Star had argued the policy’s “civil authority extension extended the word ‘damage’ from physical damage to damage by loss of use or custom or financial loss resulting from the many acts and orders of various governments in connection with, or for the purposes of retarding, the catastrophe of the Covid-19 pandemic”.
But on 5 August 2021, Chief Justice James Allsop rejected Star’s claim, saying the policy did not cover the ramifications of National Cabinet and other government bodies’ actions to slow or prevent the spread of Covid-19 because “the pandemic or disease of Covid-19 is not an insured peril”.
CJ Allsop said: “The construction propounded by Star provides full cover for the business interruption caused by government orders in connection with, or to retard, the catastrophic spread of the disease, notwithstanding that the pandemic, being the posited catastrophe, is not an insured peril.”
He delayed resolution of the spoilage claim to review additional material from the parties. The policy’s sublimit for ‘food spoilage/deterioration of stock’ was $250,000.
The policy wording said it was agreed coverage included “loss, destruction of or damage to stock and/or merchandise caused by deterioration, putrefaction, contamination or changes in temperature arising from any cause whatsoever other than work bans, shortage of fuel or the deliberate withholding of electricity supply”.
Star argued that food contamination occurred at the Sydney, Gold Coast and Brisbane premises because Star could not sell food or beverages, which then reached their expiry dates and had to be disposed of or donated. Some deterioration occurred because of failures when staff were not onsite to inspect fridges.
While there was no stated individual deductible for spoilage, the insurers argued the relevant deductible was $750,000 for each of the claims at the three premises because of wording under the heading ‘material damage – deductible’.
The claims were for $154,183 at Treasury, Brisbane; $227,109 for the Gold Coast; and $230,380 for the Sydney complex.
In the 5 August 2021 judgement, CJ Allsop said he was inclined towards not accepting the insurers’ argument. “A small limit of $250,000 and a deductible of three times that is not readily explicable. One does not explain that disconformity by assuming that if there is a spoilage claim there will always be a likely large material damage claim under the section 1 indemnity to absorb the deductible.”
He said the parties had directed little attention to that aspect of the claim, which was not a criticism, as the focus had been on other issues. However, he gave the parties time to prepare written submissions of no more than five pages.
The insurers submitted six propositions they argued showed the deductible applied to each claim.
In his 19 January 2022 judgement, CJ Allsop said: “The policy cannot be intended, it was submitted, to cover every piece of spoiled food, however small. Rather, cover for spoilage in an insurance context is directed to significant losses that are out of the ordinary run of things to which an ISR policy of this kind might respond.”
Star argued the lack of a specific deductible for spoilage meant no deductible applied. It said the policy was not intended to cover every “basket of prawns or a carton of milk”. But it was unlikely that only spoilage claims of $1 million were covered (for the $250,000 sub-limit above the deductible of $750,000).
But CJ Allsop said although there was no specific deductible for spoilage, it was a claim for material damage, of which there was none, other than the spoilage. The claim for indemnity therefore failed because the totality of the spoilage claim was less than $750,000. That also meant it was unnecessary to decide whether one or more deductibles would have applied.
Star has appealed against the initial judgement and the case is within a bundle of business interruption test cases heard by the Full Bench of the Federal Court last November.
CJ Allsop decided to deliver his judgement on the spoilage issue after delays in the Full Court judgement being delivered.
In the Appeal Court judgement, delivered on Monday 21 February, the court rejected Star’s claim the pandemic fitted into the “other catastrophe” category.
The judges said the policy’s clause that addressing losses caused by notifiable diseases expressly excluded diseases listed under the federal Biosecurity Act from the policy’s coverage.
“Covid-19 is such a disease,” Justice Mark Moshinsky said. The Star Group was ordered to pay Chubb’s legal costs.
Star Entertainment Group Ltd v Chubb Insurance Australia Ltd  FCAFC 16 (21 February 2022)
Star Entertainment Group Ltd v Chubb Insurance Australia Ltd (No 2) FCA 16 (19 January 2022)
Star Entertainment Group Ltd v Chubb Insurance Australia Ltd  FCA 907 (5 August 2021)
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