The Commercial Court has delivered its judgment in four test cases taken by publicans against FBD Insurance plc (“FBD”). The judgment was originally due to be delivered on 15 January 2021, however this was deferred to allow the parties make legal submissions following the UK Supreme Court's judgment in a similar test case, which was also delivered on 15 January. The eagerly awaited decision is of great significance to insurance companies and businesses throughout the country.
The four test cases were taken by Hyper Trust Limited trading as the Leopardstown Inn; Aberken, trading as Sinnotts Bar; Inn on Hibernian Way Ltd trading as Lemon & Duke; and Leinster Overview Concepts Ltd trading as Sean’s Bar (the “Publicans”). Each of the Publicans hold policies of publican insurance with FBD (the “Policy”), which include business interruption insurance. They brought proceedings having been told by FBD that the losses the Publicans had experienced as a result of COVID-19 were not covered by the Policy. The principal question for the Court to consider in each of the four cases was whether FBD was obliged to cover any of the losses suffered by the Publicans following the closure of public houses in accordance with Government guidelines on 15 March 2020.
The central dispute between the parties related to the interpretation of a clause in the Policy which stated that FBD would indemnify the Publicans for losses arising from the imposed closure of the premises by order of a government or local authority. In that regard, the Policy contained specific terms, which included, “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”. FBD declined cover in respect of the each of the Publicans’ losses on the grounds that the imposed closure did not arise on foot of an outbreak of Covid-19 on any of the Publicans’ premises or within a 25-mile radius of the premises. FBD accepted that there was an imposed Government closure but that this closure could not be causatively linked to an outbreak of Covid-19 which occurred within a 25-mile radius of the Publicans’ premises.
What is the Insured Peril?
The Court in its judgment advised that during the course of the proceedings, the parties used the word “peril” as shorthand for the nature of the risk covered by the insurance policy. The Court was asked to consider the nature and extent of the insured peril. FBD submitted that the relevant peril was simply the “imposed closure” of the Publicans’ premises. On the other hand, the Publicans maintained that the relevant peril was a composite one involving all of the integral elements of the disputed insurance policy clause, namely that the business was affected by (a) imposed closure (b) by order of a local or government authority, following (c) an outbreak of infectious disease on the premises or within a 25 mile radius.
The Court stated that instead of breaking up the clause and accepting that the nature of the peril was the imposed closure as suggested by FBD, the clause must be read as a whole and the words “imposed closure” could not be considered to be the relevant peril on their own. The Court further stated that this is how a reasonable person standing in the shoes of the parties to the proceedings would interpret the relevant clause. The Court found, inter alia, that the relevant peril was as put forward by the Publicans and it could not see any basis how the geographic limit could be excluded from the description of the peril.
The Court then undertook a detailed review of the meaning of specific words within the relevant disputed clause. The Court reviewed the meaning of the words “following”, “by” and “outbreak”. The Court found, inter alia, that the relevant clause relates to business interruption claims where that business interruption was shown to have been proximately caused by a government imposed closure which, in turn, has had as one of its causes, an outbreak of an infectious or contagious disease within 25 miles of the insured public house premises. The Court further held that it is not necessary for the insured to also establish that the outbreak was the proximate cause of the imposed closure so long as the outbreak was a cause.
The case raised a number of issues in relation to causation. FBD argued, inter alia, that the Publicans’ losses would have occurred in any event even in the absence of the occurrence of the insured peril. FBD maintained that the “loss or damage” was confined to loss or damage caused by the insured event and that the imposed closure of the Publicans’ premises could not be said to cause loss or damage affecting the results of the business of any of the public houses in question subsequent to their re-opening. FBD submitted that, once the imposed closures ceased, any loss suffered thereafter was attributable to the ongoing effects of Covid-19 which was not insured under the policy.
The Court accepted FBD’s contention that a “but for” test usually applies in determining whether the losses claimed by an insured under a policy of insurance are caused by the insured peril. However, the Court also accepted that there are certain instances which give rise to a relaxation and modification of the “but for” test.
The Court found that where there are overlapping proximate causes of the losses, one of which in the case was the composite peril and the other being the alteration of societal behaviour in response to Covid-19, it was appropriate to modify the “but for” test. The Court found that where a loss is sustained as a result of two or more interrelated events which are each capable of causing the loss but where it is not possible to say that, but for any one of them, the loss would not have been incurred, it would be inappropriate not to modify the “but for” test in this instance where the common thread between the peril on the one hand and societal reaction on the other is the presence of Covid-19.
Trends and Circumstances
Part of the dispute between the parties related to whether the fall off in sales suffered by the Publicans in the days preceding the government imposed closure on 15 March 2020, constituted a trend or circumstance that should be carried forward into the period of closure i.e. whether those losses should be assumed to continue throughout that period.
The Publicans accepted that, to the extent that they suffered a drop in sales in the days immediately prior to 15 March 2020, that should be taken into account when calculating the takings during the twelve months immediately before the date of damage. The Publicans also accepted that the insured peril did not occur until 15 March 2020 when the imposed closure was announced. However, the Publicans maintained that once the insured peril occurred, it would be contrary to principle if any element of the insured peril was to be taken into account in adjusting the amount of the payment to be made by FBD under the insurance policy.
FBD maintained that, under the “trends and circumstances” provisions of the insurance policy, any trends and circumstances affecting the business prior to the occurrence of the insured peril on 15 March 2020, are to be taken into account in adjusting the amount to be paid, even if they are ultimately part of the composite insured peril. The Court rejected this approach and found that in applying the “trends and circumstances” provisions of the insurance policy, one must exclude the effects of the insured peril from the calculation. The Court further stated that in the absence of clear language to the contrary, it would go against the nature of an insurance policy as a contract of indemnity, to allow the effects of the insured peril to reduce the payment to be made to an insured who has the benefit of cover for that peril.
The Indemnity Period
The Court rejected a claim by the Publicans’ that they were entitled to maintain a claim against FBD for the continuing effects of the Covid-19 pandemic on their businesses even after any period of imposed closure comes to an end. However, the Court held that to the extent that the Publicans can show their businesses continue to be affected by the composite peril after the period of imposed closure comes to an end, they are entitled to be indemnified for those losses until the losses cease or the indemnity period comes to an end (whichever is the earlier).
Lemon & Duke
The circumstances in which Lemon & Duke’s policy was put in place was quite different to the other Publicans. Unlike the other Publicans, the Lemon & Duke policy was put in place after the threat posed by Covid-19 first emerged. Furthermore, Lemon & Duke maintained that its policy was also put in place following the making of a specific representation in relation to the business interruption cover available under the Policy. On foot of its differentiating circumstances, Lemon & Duke made an additional claim for misrepresentation and for aggravated damages. The Court rejected this claim on the grounds that, inter alia, the conduct of FBD did not approach the standard which would justify an award of aggravated damages. The Court also noted that although a claim for damages was pleaded in the summons and statement of claim, Counsel for Lemon & Duke did not raise the issue before the Court until delivery of its written closing submissions immediately prior to the closing oral submissions.
While the Court’s judgment is certainly a victory for the Publicans, the issue as to the quantum of the losses covered by the Publicans’ policies is due to be addressed at a later stage. This will include the question of whether the Publicans’ claimed losses were proximately caused by the composite peril. In simple terms, that means that the Court will consider whether the closures following the outbreaks of Covid-19 were an effective (i.e. proximate) cause of some of the claimed losses.
Furthermore, the Court still has to consider the concept of disaggregation at the quantum hearing. FBD maintained that, when looking at what would have been the position of the Publicans’ businesses but for the occurrence of the insured peril, their businesses would have been severely impacted by the requirement for physical distancing and by a fear among the population about the risk of contracting Covid-19. In contrast, the Publicans argued that it would simply be impossible to disaggregate the losses in that way.
Ultimately, the Court found that the Publicans’ Policy covers losses caused to their businesses on foot of Covid-19. This decision will be of great importance to many policy holders throughout the country and it will allow them to recover for losses caused to their businesses following the imposed closures in accordance with Government guidelines on 15 March 2020. In addition, the quantum hearing will provide further clarity and guidance to affected parties. Irish insurers and policy holders will no doubt be reviewing their policy wordings in light of the decision and the cost implication for insurers is likely to be significant. The extent of these cost implications will become clearer following the quantum hearing.
For further information on any of the issues raised, please contact Pamela Fitzpatrick firstname.lastname@example.org at Hayes solicitors.Back to Full News
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About the Author
Pamela specialises in commercial litigation and dispute resolution acting for financial institutions, private equity funds, private companies and individuals in a variety of matters including enforcement and recovery actions, landlord and tenant disputes and general litigation cases. Pamela also advises on a range of commercial and business law matters, including data protection law and commercial contracts.