The High Court has delivered its highly anticipated decision in cases taken by four publicans challenging FBD’s declinature of business interruption claims arising from the closure of their businesses as a result of the COVID-19 pandemic. In a detailed judgement, the High Court found in favour of the four publicans on all but one aspect of their claim. The decision potentially affects some 1,300 other publicans insured with FBD.
The risk covered
The High Court determined that, in the case of the FBD policy, the risk covered was a “composite peril” involving three components:
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An imposed closure
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By order of a local or government authority
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Following an outbreak of a contagious or infectious disease either on the premises itself or within a radius of 25 miles
For the purposes of the hearing, all parties agreed that there were outbreaks of COVID-19 within 25 miles of the premises of all four of the plaintiffs. The High Court was not persuaded by FBD’s argument that because the imposed closure also resulted from outbreaks outside the 25 miles radius, the plaintiff could not recover their losses.
The Court also rejected FBD’s contention that because the pandemic was not an “event” in the sense of a single occurrence but rather was a series of occurrences / outbreaks, the plaintiffs’ losses were not covered. The High Court determined that an event can also be a “state of affairs” such as the occurrence of a pandemic.
Causation
A detailed examination was conducted by the High Court of the concept of “proximate cause” and the application of the “but for” test. In respect of both issues, the High Court applied an interpretation which favoured the publicans. Whilst it was acknowledged that the only losses insured under the policy are those which would not have been suffered but for the closure of the premises following an outbreak within 25 miles, FBD argued that a substantial part of the losses claimed by the plaintiffs would have occurred in any event due to social distancing, the economic slowdown, travel restrictions and the general societal reaction to the pandemic. In considering the “but for” test, the High Court decided to apply a modified version of the test to ensure that it is not “applied in an unduly mechanical way which could give rise to manifest injustice”.
The High Court concluded that the plaintiffs should not be disentitled to recover under their policies simply because there were overlapping proximate causes for their losses, one of which was insured (the closure of the premises due to outbreak within 25 miles) and one of which was uninsured (the alteration of societal behaviour) provided that there was an inter-relationship between those causes and it was not possible to distinguish between the effects of one from the effects of the other.
Indemnity period
The only aspect of the case which was decided in FBD’s favour related to the definition of “the indemnity period”. The High Court rejected the case put forward by the plaintiffs that they should be entitled to maintain a claim against FBD for the continuing effects of the COVID-19 pandemic on their business even after any period of imposed closure comes to an end. However, on this issue the door was left slightly ajar by the High Court as it was made clear that the plaintiffs may be able to recover losses incurred after the imposed closure came to an end, if they can show that their business continues to suffer the effect of the imposed closure. So much may depend on the extent of any ‘bounce-back’ of the sector in due course.
Quantum of loss
The issue of how the actual losses suffered by the four plaintiffs is to be calculated will be determined at a later date and is certain to be the subject of intense debate. The High Court has indicated that the effects of the pandemic going forward cannot be considered as a “trend” or “circumstance” to be considered when looking at the position the plaintiffs would have been in if the imposed closure had not occurred.
Effect of the decision
The decision examines some of the key principles relating to the interpretation of contracts: the requirement to consider the factual and legal backdrop in which an insurance contact is put in place; the purpose of insurance and the nature of the risk covered. We will publish a more in-depth analysis of the judgment in this regard.
The likely market response to both the FBD case and the outcome of the FCA case in the UK will be a move towards a much more restrictive approach to business interruption coverage and policy wording, including specific exclusions for losses resulting from pandemics.
Conclusion
For now, the question on the lips of the insurance sector is - what next? FBD has confirmed that it does not intend to appeal the decision and is set to begin making interim payments on valid business interruption claims.
It is highly likely that other policyholders will take the court’s decision as an indication that their losses should also be covered under their policies of insurance. Insurers are likely to be met with a high volume of claims but because of the range of policy wordings and the varying types of business interruption insurance cover which is in place in Ireland, it remains unclear what the coverage position will be in any particular case and careful regard will need to be had to specific wording. It is likely that further disputes will arise and the High Court may yet be called on again to adjudicate on different policy wordings of other insurers.
For more information and expert advice on the continuing impact of the pandemic on your business operations, contact a member of our Insurance & Risk team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
