The much anticipated decision of the Commercial Court in four test cases taken by publicans to challenge the refusal of FBD Insurance to indemnify their businesses was delivered by Mr Justice McDonald on 5 February last.
This judgment is of great importance to both businesses which have been significantly and adversely affected due to Covid-19 restrictions and their insurers. The judgment affects claims submitted by all holders of business interruption policies to insurers in Ireland and follows on from a recent UK Supreme Court decision which Mr Justice McDonald also considered as part of his judgment.
The FBD Case
FBD had maintained that the losses incurred by businesses as a result of Covid-19 restrictions were not covered by their business interruption cover. A standard FBD business interruption policy contained a clause that business would be indemnified by “closure of the premises by order of the local or government authority following outbreaks of contagious or infectious diseases on the premises or within 25 miles”. FBD argued that this “outbreaks clause” was not triggered in circumstances where closures were the result of restrictions imposed by central government as a result of a national pandemic and that Irish business interruption policies did not cover nor were they ever intended to cover pandemics. FBD business interruption policies are only intended to cover standard foreseeable risks rather than risks associated with extraordinary and extreme events. On the other hand, the publicans argued that, in the absence of any exclusion for pandemics and given its ordinary meaning, an insurable risk covered by the FBD business interruption policies had occurred and therefore cover was triggered.
In his decision Mr Justice McDonald concluded that the FBD business interruption policies covered losses caused as a result of Covid-19 as long as there was an outbreak of the virus within a 25 mile radius of the business and that the outbreak was one of the causes of the closure of the business. FBD has stated that it will not appeal the decision and that it will now assess the business interruption claims based upon the Court’s judgment.
Impact of the Decision
Mr Justice McDonald has expressly not yet made any findings as to the quantification of loss and the impact of the trends clauses in particular. This may reduce the amounts payable under business interruption cover where other wider (non-Covid-19) factors have affected the ability of an insured to trade. The Court has adjourned the test cases to 17 February next and will deal with the question of quantification of loss at a later date.
The effect of this initial judgment has already been felt with the Restaurant Association of Ireland confirming that a further 423 businesses are now seeking confirmation of indemnity and payments under business interruption policies held by FBD and eleven other insurers.
The value of business interruption claims will be very significant and are likely to have an impact upon the ability of Irish insurers to maintain business interruption cover in the future as most hospitality businesses in Ireland remain closed under the current level of lockdown and therefore their losses are continuing. The impact of this decision is likely to extend to business interruption claims for non-hospitality businesses which were also closed as a result of Covid-19 restrictions imposed by central government.
We will continue to provide updates on any further developments.