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.

Stamp Duty On Commercial Property

Following Budget 2018 which was announced by the Minister for Finance on the 10th October 2017, the rate of stamp duty for non-residential property was increased from 2% to 6%. The change took effect from midnight on the 10th October 2017. However, an allowance was made for purchasers who already had a binding contract for sale in place as a transitional measure. Such purchasers could avail of the 2% stamp duty rate provided that the deed transferring the property was executed before the 1st of January 2018 and that the deed specified that it was executed in pursuance of a binding contract entered into before 11th October 2017.

The rate of stamp duty on residential property was not changed by Budget 2018 and remains at 1% on the first €1,000,000 and 2% on the excess over €1,000.000.

Stamp duty on shares which derive their value from land

The 6% rate of stamp duty will also apply to the transfer of shares in companies, interests in partnerships and units in Irish Real Estate Funds (IREF) which derive their value or the greater part of their value directly or indirectly from Irish real estate other than residential property. This is an anti-avoidance mechanism introduced by the Revenue Commissioners to prevent those wishing to purchase Irish commercial property avoiding the 6% stamp duty rate on a transfer by purchasing shares in a company instead where the rate would otherwise generally be 1%. The increased rate applies when:

  1. The sale or transfer of the stocks/shares results in a change in the person or persons having direct or indirect control over the immovable property concerned; and
  2. The immovable property concerned was:
    1. acquired by the company, IREF or partnership with the sole or main objective of realising a gain from its disposal,
    2. was or is being developed by the company, IREF or partnership with the sole or main object of realising a gain from its disposal when developed,
    3. held as trading stock by the company, IREF or partnership.

The increased rate, where applicable, applies from the 6th December 2017 with the exception of a transfer executed before 1 March 2018 on foot of a binding agreement entered into before 6th December 2017. If the property is developed for residential purposes after acquisition, the purchaser may be able to obtain a refund of up to two thirds of the stamp duty paid provided the development commences within 30 months of the acquisition and other conditions are met.