The FBD Insurance Case – what does it mean for COVID-19 business interruption insurance claims?
The judgment of Mr Justice Denis McDonald delivered on 5 February 2020 in the FBD Insurance Case ¹ has been hailed in certain quarters as a breakthrough for the hospitality sector suffering the impact of COVID-19 and has led the Governor of the Central Bank of Ireland to direct insurers to honour and pay valid claims urgently ² . But what did the High Court decide? How does the judgment affect businesses that hold insurance policies with cover for business interruption caused by an outbreak of an infectious disease?
The Leopardstown Inn, the Lemon & Duke, Sinnott’s (all based in Dublin) and Sean’s Bar in Athlone brought High Court proceedings against FBD seeking compensation for loss suffered due to the Government imposed national lockdown during the first wave of COVID-19. The High Court heard these four cases together as a test case. The main issue for determination was whether FBD was liable, under the express terms of the FBD Public House Insurance Policy, for consequential loss arising from business interruption caused by an imposed closure of the insured premises on account of an outbreak of an infectious disease, namely COVID-19.
The FBD Public House Insurance Policy provided cover for loss of profit suffered by the insured’s business as a result of an imposed closure of the insured premises following an outbreak of infectious disease on the premises or within 25 miles of the premises. Section 3 of the FBD Public House Insurance Policy provided:
“[FBD] will also indemnify the Insured in respect of [the loss of gross profit] as a result of the business being affected by imposed 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 of same…”
FBD’s position was that cover was confined solely to closures following a localised outbreak of disease within the specified 25 mile radius and not as a result of a transnational pandemic. FBD also contended that the decision to close was voluntary in that the real reason for closure was that it was not possible for pubs to comply with social distancing guidelines. The High Court disagreed with FBD’s interpretation.
In finding FBD liable to compensate its customers, the court determined that COVID-19 is a contagious or infectious disease and that cover was not lost where the closure was caused by a nationwide outbreak of disease provided there was an outbreak within the 25 mile radius and that that outbreak was one of the causes of the closure.
FBD are now actively encouraging Public House Insurance Policy customers to make a claim and interim payments are being made. The wider application of the High Court’s decision for other commercial insurance policies is dependent on the express terms and wording of each particular policy. The judgment will be of assistance to businesses making a claim where a comparison reveals similarities between the terms used in the FBD Public House Insurance Policy and their own policy. As the court found, it was the imposed closure following an outbreak of an infectious disease that was covered by the policy; not an outbreak of infectious disease of itself.
Our advice to clients with commercial policies of insurance is to carefully review the terms of their business interruption cover. Most will find some level of cover arising from outbreaks of infectious disease as an element of business interruption cover however the extent of such cover will be determined by the specific wording of the policy.
The test case returns to the High Court on 17 February 2021 for determination of the extent to which FBD is liable for the losses suffered by publicans on account of the imposed closure.
If you have any questions about this article, please contact Michael Ohle of our Dispute Resolution department or your usual Whitney Moore contact.
¹ Judgment of Mr. Justice Denis McDonald delivered on 5 February 2021
² Central Bank press release Governor Gabriel Makhlouf 11 February 2021