In this article, I try to summarise the recent FBD business interruption insurance policy judgment.
The case Hyper Trust Limited Trading As the Leopardstown Inn and FBD Insurance plc and linked cases ran before Judge Denis McDonald in the Commercial Court division of the High Court and he handed down his Judgment on the 5th of February 2021. It was hoped that these four test cases would being clarity to the question of the entitlement of Pubs to claim for business interruption on foot of the common FBD policy of insurance. It is likely that one or more of the parties will appeal this judgment and therefore the law in this area is subject to change.
The judgment is 214 pages long and deals only with the question of liability of FBD for business interruption claims and the interpretation of the policy. It does not go to the question of how much the publicans are entitled to and that is to be the subject of later hearings. The intent of this article is to share the writer’s interpretation of this judgment. This should not be taken as legal advice. Your particular circumstances have not been considered and you are advised to take legal advice on any potential claim you may have.
For the ordinary pub owner, the summary of the case is that the High Court has found that a pub owner/operator covered by a similar FBD policy of insurance is covered for the following “insured peril”:
Business interruption caused by a government imposed closure which in turn has as one of its causes an outbreak of an infectious disease within a 25 mile radius
This means that your pub must have had a case of the coronavirus within the 25 mile radius at the time that the government imposed closure. If you did not have a case within the 25 mile radius of your premises, then on my interpretation of the judgment, you fall outside the definition of what is insured. The date of the first closure was treated in the judgment to be the 15th of March 2020, being the date of the Government announcement. So it is important that publicans are able to show that there was a coronavirus case within a 25 miles radius of their premises prior to the forced closure.
Logically, later imposed closures will similarly have the requirement that you are able to show a coronavirus case occurred within the 25 mile radius.
In brief, the publican is indemnified for:
- The Loss of gross profit during the indemnity period calculated by comparing the gross profit earned during the indemnity period with the gross profit earned during the corresponding period of the previous year, adjusted for the trend and other circumstances affecting the business;
- Increase in cost of working;
- Auditors charges;
- Less any sum saved during the indemnity period
What is the indemnity period?
The pub owner is insured for the loss of gross profits measured as per the policy incurred as a result of the insured peril i.e. the forced closure caused in part by the infectious disease within the 25 mile radius.
After the period of forced closure is over, the Court has hinted strongly that most of the losses arising may not be arising from the insured peril and may not be covered. It did not make a decision yet on that point, as it is for the damages hearing. However, the Judge has indicated that it is the period of closure that is what is insured.
So if you have a downturn in business that is caused by the global coronavirus pandemic in general, it would not be covered. It would however be covered if the downturn arises from the “insured peril”. It would seem to me that the Court has hinted strongly that the period of closure is the period of cover for most businesses. The general downturn suffered in the pub industry after reopening is not covered.
“Adjusted for the trend and other circumstances affecting the business”
There was much consideration to the “trend” before the government imposed closure and whether that should be extrapolated out to the closure period. The High Court found that this was not correct. So long as the pub owner can establish that the closure following the outbreaks within the 25 mile radius was a cause of their loss, their recovery under the policy will not be reduced by changes in societal behaviour arising as a result of the pandemic. The Court did not make a finding about changes in behaviour outside of Ireland, so pubs that rely on tourist trade from abroad may or may not have their claims reduced – the question of changes to behaviour outside Ireland was not decided on. Following the same logic as the Judge followed in excluding the pandemic effect on behaviour in Ireland, it would seem to me that international changes in behaviour should also be ignored, provided that you meet the criteria for business interruption cover.
While the “trend” of the downturn caused by the coronavirus in the lead up to the closure will not be extrapolated out into the closed period, based on this judgment, you will likely not be covered for the ongoing downturn after you are able to re-open given that it is likely to have been caused by the pandemic in general.
What you are covered for would seem to me to be limited to period of actual closure, with the possibility of some additional costs in advertising and other actions reminding customers of your existence after you have reopened. This is normally allowed in fire type claims so I would hope that it will be allowed in these claims also.
What does this mean for me?
For the ordinary pub owner/operator, this means that you should immediately get a copy of your policy of insurance, including your policy documents. Make sure to ask FBD for a copy of the policy document that applied at the relevant time. I have heard of cases where policy holders have been given a copy of the revised policy document by other insurers which now have specific exclusions for the coronavirus. You should then invoke the policy by notifying FBD of your claim and requesting confirmation of cover. Take legal advice on this if desired, but make sure that your claim is notified as soon as possible and certainly in advance of the 14th of March 2021. If you have already received a letter denying cover, then in my view you need to invoke the Arbitration Clause of you policy. This also should be done as soon as possible and I would recommend obtaining legal advice when doing so.
That will start the ball rolling on your business interruption claim or arbitration. Feel free to contact us for legal advice or support.
If you have any queries regarding business interruption claim please contact us by phone at 061 501100, email Thomas Dowling, litigation partner at [email protected] or get a call back by completing our contact form so we can provide you with further information or advice.