The Dublin High Court handed down a landmark decision in favour of policyholders on February 5, 2021, in four test cases brought by publicans against FBD Insurance (“FBD”), providing clarity to policyholders seeking indemnity for business interruption as a result of the Covid-19 pandemic. FBD announced that it won’t be appealing the decision, and that the judgment “provided clarity to all parties concerned”.
A few weeks after the UK Supreme Court issued its final decision in the FCA test case, the Irish High Court ruled in favour of policyholders. The FBD insurance decision will be a milestone in the Irish business interruption insurance landscape. Noteworthy point, the Irish High Court delayed its decision in order to consider the parties’ submissions on the potential impact of the FCA test case. This decision is quite different from the FCA’s Test Case though, as unlike the UK watchdog, the Central Bank of Ireland did not take the initiative to bring such a test case to Court, certainly due to statutory restrictions, and let the market litigate the case. Despite its absence in the test case proceedings, the Central Bank is apparently willing to supervise this issue, as it announced that it “welcomes the judgment of the High Court” and that it will be “closely examining the potential impact of this judgment for customers in the context of its sustained and ongoing engagement with insurers”. The CBI also issued a supervisory framework for insurers last August, setting out its expectations on how insurers should assess Business Interruption claims and how systemic issues of customer harm should be identified and addressed.
The Irish test case involved four pubs that held insurance policies with FBD. The insurer refused to indemnify the publicans for losses arising from disruption caused to their businesses by Covid-19, stating that their policies did not cover these types of claims.
Indeed, FBD’s policies contained a clause confirming that pubs would be indemnified if they were closed by order of the government authority in relation to “outbreaks of contagious or infectious diseases on the premises or within 25 miles of same”. The publicans argued that :
- the failure to cover their claims was a breach of contract ;
- and that under their policies of insurance with FBD, they were entitled to have their consequential losses covered by an insurable risk.
FBD contested this, and argued that the imposed closure could not be said to have been causatively linked to an outbreak of Covid-19 which occurred within the 25-mile radius surrounding the publican’s respective premises.
However, the High Court dismissed FBD’s arguments and ruled in favour of the pub owners, stating that the BII policies responded where the closure was caused by national disease outbreak, as long as :
- there was an outbreak within the 25 mile radius of the business,
- the outbreak was one of the causes of the closure.
In its opening statement, the High Court stated that “It is hoped that the ultimate outcome of these cases will assist in the resolution of a large number of similar claims”, with the hope that this decision will ensure that similar business interruption claims are resolved without recourse to litigation.
What’s next ?
FBD said that it was committed to paying valid BII claims and will endeavour to process claims as quickly as possible and in accordance with the court’s judgment. It also indicated that it will make interim payments to affected policyholders while waiting final clarity from the court on issues of quantum. Indeed, test actions to determine how much FBD must pay out will be heard in the High Court after April.
As the FCA’s test case, the Irish test case judgement is positive news for many customers but - as for UK brokers – it will create an exposure for insurance intermediaries, as explained in an article written by Richard Webb.