Two Victorian brothels forced to close because of covid orders have failed to have business interruption claims covered after the Australian Financial Complaints Authority found in favour of their insurer. 

One brothel in Thomastown, within 19 kilometres of the Melbourne CBD, lodged a claim after orders made by the state government on March 23 and 25 2020.

It said the orders were based on Australian Health Protection Principal Committee (AHPPC) advice to national cabinet due to the rapid growth in covid cases, particularly in Sydney, Melbourne and Brisbane/Gold Coast, and that statements from the then prime minister and Victorian premier confirmed they had relied on the recommendations. 

AFCA has previously pointed to business interruption test cases heard in the Federal Court and on appeal in the Full Federal Court that ruled in favour of insurers in similar disputes involving hybrid clauses, finding causal links were not established. 

But the brothel argued the courts “did not have the benefit of the AHPPC advice or the public statements of the relevant state governments or the contemporaneous circumstances known or inferred to be known by them”. 

AFCA says exactly what evidence was before the court “is not entirely clear from the information exchanged”. 

But in its decision, it says the Federal Court’s Justice Jayne Jagot referred to a series of announcements by the prime minister with reference to advice from the AHPPC and the response endorsed by national cabinet, while there was also recognition of the likely presence of covid in the relevant areas. 

“I do not agree with the complainant’s position that the information available to the Federal Court and Full Federal Court did not inform it of the role of the AHPPC or of the outbreaks within the major metropolitan areas,” the decision says. 

“In my view, most likely, the Federal Court was aware of the role which the AHPPC played in determining a policy response to the pandemic, the extent of the outbreaks and the statements by the various state governments and prime minister.” 

The decision in favour of Lloyd’s Australia says the orders were due to government concern for the public health risk covid presented to Victoria as a whole, and were not made due to an outbreak within a 20-kilometre radius of the Thomastown brothel. 

“There is no reference to the complainant’s business premises in the directions or in the preamble to the directions,” it says. 

Berrill and Watson Lawyers principal John Berrill, who represented the complainants, says the Federal Court ruling does not mention the advice and statements the claimants are relying upon, and AFCA has incorrectly drawn an inference by pointing to earlier statements the judgment does reference. 

“They are not the ones that we say show the chain of causation,” he said. “These people have simply not had their case properly considered.” 

Mr Berrill says it is likely further legal action will be pursued, through an individual suit or a class action. A similar hybrid-clause issue has been raised in an existing proposed class action, for which the Federal Court has ordered notices be sent out to gauge interest levels. 

AFCA has also ruled against a complainant in a dispute over a landlord’s loss of rent from a brothel in Rowville.  

The claim for cover, lodged following closure orders in May 2021, was made under a disease clause that required an outbreak “at the location”. 

“The tenant was compelled to cease operation of its brothel and close the insured premises as a result of Victorian state government orders that were general in nature,” the AFCA decision says. “The orders were not made because of an outbreak at the insured premises.”

The authority – in a decision again in favour of Lloyd’s Australia – says a communicable disease exclusion would also have applied to any loss caused by or attributable to covid. 

The decisions are available here and here.