Case Closed
Melissa Macrae

The insured had a contract with Pan Pharmaceuticals to manufacture certain therapeutic goods.  In April 2003, Pan's licence was suspended for 6 months and its products were recalled.  The licence suspension and product recall impacted significantly on the insured’s business.

The insured made a claim for business interruption totalling $2.5 million on its industrial special risks policy.  The policy covered loss resulting from “an interruption of, or interference with, the business directly or indirectly arising from a closure …. of the whole or part of the premises by an order of a competent public authority consequent upon …. sanitary arrangements at the premises”.

The schedule to the policy made it clear that the premises referred to in the insuring clause were the insured's own premises, or any other premises where it stored its goods.

The insurer denied the claim. 

The Supreme Court of New South Wales found that the ISR policy did not respond to the insured’s claim.  In reaching its decision, the Court accepted that Pan’s premises were covered, but found that there had not been a “closure” as required by the policy.  The Court found that as a result of the licence suspension, activity at Pan’s premises ceased, but the premises were not closed in the sense that nobody could enter them.  The evidence showed that inspectors and other testers had access to Pan’s premises within the suspension period.

Even if Pan’s premises had been closed, the Court found that the order suspending the licence, which was made by the Delegate of the Secretary of the Department of Health, was not an order by a competent public authority.  The policy required that the order be made by, for example, the Department of Health itself, and not a delegate.

It is clear that the Court gave the policy a very strict and technical reading.  It is expected that the insured will appeal the decision:  CAT Media Pty Ltd v Allianz Australia Insurance Limited.