High Court favours pub-owners in landmark FBD Insurance case

In a landmark decision in the High Court on Friday, 5 February 2021, Mr Justice Denis McDonald (McDonald J) of the Commercial Court ruled that four publicans are entitled to compensation from FBD Insurance Plc (FBD) for the disruption that their businesses suffered, as a result of the Covid-19 pandemic. This decision is likely to result in FBD being liable to pay out on over 1,000 further claims made by restaurants and bars.

The test case was taken by four pubs in Dublin and Westmeath, trading under the names Sinnott’s Bar, Leopardstown Inn, Lemon & Duke, and Sean’s Bar. The pub owners claimed their insurance policies contained a clause that indemnified the pubs if their premises were closed by order of the local or government authority due to “outbreaks of contagious or infectious disease on the premises or within 25 miles of same”.

FBD argued that the policy was never intended to provide pandemic cover. It claimed that its insurance policy had been designed and priced to cover “standard foreseeable risks and not those associated with extraordinary events” such as Covid-19. It stated that an imposed closure of pubs in response to local outbreaks of a disease (rather than global) would have been covered.

During the hearing in October 2020, over a period of three weeks the Court examined a number of issues including causation and the application of principles of quantum in cases of this nature. The Court further heard submissions in relation to the proper interpretation of ‘trends clauses’, which typically allow insurers to reduce the amounts payable under the policy where other wider factors have affected an insured’s ability to trade.

Judgment
McDonald J found that cover is not lost where the closure is prompted by nationwide outbreaks of disease, provided that there is an outbreak with a 25-mile radius and further provided that the outbreak is a cause of the closure. He found that the outbreak of Covid-19, which occurred within 25 miles of each of the plaintiff’s premises, was a proximate cause of the imposed closure of pubs announced by the government on 15 March 2020.

However, the Court rejected the pubs’ claim against FBD for the continued effects of the Covid-19 pandemic on their business after the period of imposed closure comes to an end. The Court did not make any findings on the issue of the quantification of losses, and this aspect of the matter will be dealt with on a later date. The proceedings are next before the Court on 17 February 2021.

The Court had regard to a recent decision of the Supreme Court in the UK, in a test case brought by the Financial Conduct Authority (FCA), with the Irish Court delaying its judgment to allow further submissions from the parties following the impact of the Supreme Court FCA test case.

Implications of the decision
Since the judgment, twelve insurance companies have been put on notice that they face High Court actions from hundreds of bars and restaurants.

FBD has issued a public statement to the effect that the judgment provided clarity to all parties involved and that it will not appeal the decision. FBD indicated that it will make payments to relevant policyholders in the interim while waiting for clarity from the Court in respect of quantum.

The effects of this decision are yet to be seen, however as many businesses across different industries have policies with similar clauses, and as the costs will likely be passed onto businesses and consumers through higher insurance premiums, the implications are sure to be wide-reaching for insurance companies, business owners, and consumers alike. This is notwithstanding FBD’s assertions that it had set aside €30 million in provisions to deal with potential liabilities arising from the Court’s decision in these cases, as according to market analysis it is thought that the final cost for FBD may actually be in the region of €60 million.