Landmark Ruling for Publicans on Insurance Claims for Coronavirus forced closures
Posted in [Blog] on Wednesday, February 24th, 2021
On the 5th February 2021, the High Court ruled in favour of four pub owners who claimed that FBD Insurance Plc was required to cover their losses for the enforced closure of business during the coronavirus pandemic. The landmark test cases were taken by Aberken Ltd, trading as Sinnotts Bar; Hyper Trust Ltd, trading as The Leopardstown Inn and Inn on Hibernian Way Ltd trading as Lemon & Duke, all based in Dublin. The fourth action was taken by Leinster Overview Concepts Ltd the owner of Sean’s Bar, which is based in Athlone, Co Westmeath.
The publicans challenged FBD Insurance Plc’s refusal to indemnify them, as well as the insurer’s stance that its policies of insurance did not cover the disruption caused to businesses after the Covid 19 pandemic resulted in the first temporary closure of businesses, in mid-March 2020. The case had implications for up to 1,300 other Publicans/Restaurateurs across Ireland who have a similar insurance policy.
The publicans claimed the policies taken out with FBD contain a clause that states the pubs will be indemnified if their premises were closed by order of the local or Government Authority if there are “Outbreaks of contagious or infectious diseases on the premises or within 25 miles of same.” They claimed they were entitled to have their consequential losses covered by what they claimed is an insurable risk. They also claimed that by failing to pay out on the policy the insurer was in breach of contract.
FBD disputed the claims and argued that the closures did not occur as a result of an outbreak of disease at the premises or areas where the pubs are located. FBD also claimed that the general insurance market in Ireland does not insure against events like pandemics, it claimed.
The High Court found that the policy sold by FBD did cover the losses the pubs sustained by having to close due to the global health emergency. Mr. Justice McDonald rejected FBD’s arguments and held that the insured peril in the case was “a composite one” which involved (a) an imposed closure (b) by order of a local or government authority (c) following an outbreak of a contagious or infectious disease either on the premises itself or within a radius of 25 miles.
In respect of this composite risk, there was significant debate between the parties as to the definition of the term “following” contained in the policy. It was argued by FBD that “following” meant “as a direct result of,” which would have required the Plaintiffs to show that the outbreaks of Covid-19 were the dominant cause of the closure orders. This would have made the Plaintiff’s case more difficult to prove. However, Judge McDonald relying on the UK Supreme Court decision (Financial Conduct Authority v. Arch Insurance (UK) Ltd  EWHC 2448) where similar issues were raised, ruled that the word “following” meant that the outbreak had to be a cause, but did not need to be the dominant cause, of the enforced closures. A single case of Covid-19 could be defined as an outbreak, as long as the closure was as a result of that case. The Court was satisfied that Covid-19 was the cause of the Government decision to close businesses on 15th March 2020.
The High Court then ruled on the scope of the “insured risk” in the policy. Judge McDonald considered cases such as Kuwait Airways Corporation v. Iraqi Airways Co. (Nos. 4 and 5)  2 AC 883 and J.J. Lloyd Instruments Ltd v. Northern Star Insurance Co. Ltd  1 Lloyd’s Rep. 32 (the Miss Jay Jay) and held that the court would apply a modified “but for” test. The Court held that where two interrelated events are each capable of causing a loss, both events must be treated as causing the loss. This was necessary to avoid a “manifest injustice” in the case. The pandemic was a cause of the Plaintiff’s losses, even if general societal reactions were also a factor in the loss.
The Court held that the FBD policy covered the periods in which the Plaintiffs were unable to trade due to government-mandated closures. Any other period was not under cover which could mean that FBD Insurance are not liable for losses in the periods where the pubs had traded under Government rules in Level 2/Level 3 restrictions. The question of quantum was reserved to a further hearing in the future.
The case was briefly mentioned before Mr Justice McDonald on 17th February 2021 with Counsel for FBD Insurance Plc confirming that the Defendants do not intend to appeal the High Court’s Judgment. Several issues remain outstanding between the parties including what final orders the court should make in light of its findings, and what level of legal costs should be paid to the Plaintiffs. In particular a determination may be required from the court regarding the impact of the Judgment on periods when the pubs were partially closed and when they were forced to close entirely due to Covid. Judge McDonald agreed to adjourn the matter to 26th February 2021 for mention.
Contact us at Cantillons Solicitors at +353 (0)21 -4275673 or firstname.lastname@example.org if you would like more information.