Business Interruption Update – FBD Judgement

Dear Member,

On 5 February 2020, the Commercial Court judgment in the FBD case was delivered by Mr Justice McDonald. A copy of the judgment can be found HERE. 

It follows on from the UK Supreme Court judgment handed down last month, which was considered as part of the FBD judgment.

The Judge held the four pub owners who brought the action were entitled to be compensated by FBD for losses associated with business closure due to the Covid-19 pandemic.   The FBD judgment incorporates certain findings from the UK Financial Conduct Authority’s (FCA) test case into Irish law, including the reversal of the Orient Express case and the renewed analysis of the “but for” test. The Irish Court interpreted broadly the presence of Covid-19 to trigger an insuring clause with a specified geographical area.  FBD had maintained that the losses incurred by businesses as a result of Covid-19 restrictions were not covered by their policies.

Judgment

In summary, the judge concluded that the FBD policy in issue covered losses caused as a result of Covid-19 if there was an outbreak of Covid-19 within a 25-mile radius of the business and the outbreak was one of the causes of the closure of the business.

FBD does not plan on appealing the judgment.

The decision bears reading in full. As ever, each case will turn on its own facts. The Court in this case carefully considered the documentation provided by FBD to the insureds. The dispute centred on the following clause in FBD’s policies, which stated it would indemnify the pubs for losses:

“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 argued that this clause was not triggered, in circumstances where closures were the result of restrictions imposed by the Irish Government as a result of a pandemic and that business interruption policies did not cover and were not intended to cover pandemics. FBD claimed the policy wording was intended to cover standard foreseeable risks and not risks such as a pandemic, which are extreme and out of the ordinary.  The Plaintiff pubs argued amongst other things that, in the absence of any exclusion for pandemics and given its ordinary meaning, an insurable risk covered by the FBD policies had occurred and therefore cover was triggered.

Quantum

There have been no findings yet on losses sustained by the insured parties, with the factors that will impact the level of quantum, such as the trends clauses and other factors impacting a business’s ability to trade having yet to be considered. The case stands adjourned to 17 February 2021.

The judgment will have far-reaching consequences, not only for those businesses which hold a relevant FBD policy, but for other businesses holding similarly worded policies, including policies with different insurers.

Brokers Ireland was delighted that Peter Lennon of RDJ offered his thoughts on the judgment and its implications for Brokers in a webinar on 10 February 2021. The slides provided for that webinar are available here:

A recording of this webinar will shortly be made available in the members’ area of our website.

We will provide further updates on this case once it has been back before the Court.

Kind Regards

Cathie Shannon

Director of General Insurance