A new order threatens the hospitality and retail industries in Ireland following the enormous disruption experienced by businesses during the Covid-19 Pandemic.
At issue is the interpretation of business interruption cover by Underwriters following the submission of claims by businesses who are forced to close as a direct result of the restrictions on trading imposed by the Irish Government in an effort to manage the Pandemic.
There is much interest in the test case taken by the Financial Conduct Authority (“FCA”) in the UK on behalf of similarly affected UK policy holders which may have a bearing upon a similar test in Ireland involving FBD Insurance.
Business interruption cover is intended to cover losses as a result of the disruption of the operations of the business. In general, Irish insurance policies do not contain any force majeure clauses and largely infectious disease coverage is limited to outbreaks of disease at a business premises or within the immediate area of that business which caused the business to close for trading.
The Financial Conduct Authority .v. Arch & Ors
Given the very significant losses and large number of claims combined with relatively basic cover for business interruption which has led to insurers disputing liability for Covid interruption claims, the FCA in the UK bought a test case on behalf of affected policy holders to clarify key issues of contractual uncertainty. A representative sample of 21 types of policies by eight insurers were chosen where the FCA taking on the role of putting forward the policy holder’s case. 370,000 policy holders were identified as holding 700 different types of policies issued by 60 insurers that will be affected by the outcome of the test case taken by the FCA.
In the initial case taken by the FCA, the UK High Court found in favour of the FCA in a majority of the key issues in dispute. The relevant provisions of the policy in question fell into three broad categories namely;
- the occurrence of a notifiable disease without a specified radius of the premises.
- provisions which provide cover where there has been a prohibition of access to or a prohibition of the use of premises as a consequence of Government or other formally authorised actions or restrictions; and
- provisions relating to restrictions imposed in the premises leading to a notifiable disease.
The issue of causation of loss was also in dispute (the “but for” test where it is alleged that loss would have occurred irrespective of any claimed breach of an insurance contract by an insurer). The UK High Court held in favour of the FCA in a majority that matters in dispute, but aspects of the Judgment were appealed and proceeded to the UK Supreme Court for determination.
UK Supreme Court Judgment
On the 15th of January 2021, the UK Supreme Court delivered its Judgment which ran to 112 pages. In summary, the Court ruled that otherwise valid claims should not be reduced or rejected because the business loss would have resulted in any event from the Pandemic; that cover was available for both partial and full closure of premises from the Pandemic and for mandatory closure orders that would have otherwise not been legally binding.
Potential Importance of the UK Supreme Court Decision
This case has been looked on with particular interest in Ireland given an ongoing test case in the High Court by four publicans arising from a dispute with FBD Insurance regarding business interruption cover claims arising as a result of the closure of their premises during the Covid-19 Pandemic. This case is regarded as a test case which would cover most business interruption claims in the hospitality sector as the vast majority of these claims do not arise from outbreaks of Covid-19 on the insured’s premises but rather from mandatory closure under Government directives.
Mr Justice Denis McDonald had been due to give Judgment in the FBD test case but has agreed to defer Judgment until February to allow submissions to be made by the party’s’ lawyers following the UK Supreme Court Judgment in the FCA test case. The Plaintiffs had relied upon the UK High Court Judgment in the FCA test case in submission to Mr Justice McDonald.
The deferred Irish High Court Judgment
UK Juridical decisions are not binding on the Irish Courts but where relevant, may be persuasive. Mr Justice McDonald has confirmed that his Judgment has been written and that in his judgement he had “not fundamentally relied on the English Court’s findings” prior to the UK Supreme Court judgement in the FCA test case. His Judgment is expected on the 5th of February 2021 and the potential importance of this Judgment extends beyond the business interruption claims made by the hospitality industry and is likely to be also relevant to business interruption claims made by Irish retailers, hoteliers and other businesses directly affected by the mandatory closing of their business premises during Covid-19.
Watch this Space
It will be interesting to see if Mr Justice McDonald applies a similar interpretation to both the UK High Court and Supreme Courts regarding the rejection of cover by insurers of non-physical damage clauses covering the denial of access to businesses for reasons beyond their control. Eugene F Collins will comment on the High Court Judgment in the FCA case when the Court has made its determination.