Mr. Justice Denis McDonald delivered judgment on Friday 05 February 2021 in cases taken against FDB Insurance plc (FBD) by four (4) public house owners. The cases related to business interruption insurance sold by FBD to the four (4) public house owners and claims for indemnity under business interruption insurance by the four (4) public house owners as a result of the closure of public houses in the context of the Covid-19 pandemic.
All the cases related to the interpretation of the terms of a policy specifically written by FBD for the publican’s trade.
In three (3) of the cases the availability of indemnity cover to the insured parties was confined to a consideration of the policy document alone; whereas in the fourth case (the Lemon & Duke case) a consideration of the point was extended to include a specific representation from FDB to the insured party that cover would be provided in the event of a forced closure of the Lemon & Duke public house as a result of Coronavirus (a factor that did not exist in the other three (3) cases).
The provision at issue related to a term of the business interruption insurance cover provided under the FBD policy which required FBD to indemnify an insured party in respect of losses incurred as a result of the business being affected by (inter alia) “outbreaks of contagious or infectious diseases on the premises or within 25 miles of same.”
Claims were sought for indemnity cover by each of the four (4) public house owners following the closure of public houses on the recommendation of the Government on 15 March 2020 that all public houses close with effect from 16 March 2020.
It needs to be stressed that the judgment is specific to the particular FBD policy and its terms and therefore insured parties will need to examine the terms of their own business interruption insurance to ascertain if cover applies in the specific context of the relevant policy.
Whilst the findings against FBD in the judgment of Mr. Justice Denis McDonald are not applicable to the terms of all business interruption policies in the market the following points would appear to be of general application to the interpretation of all such policies to ground the availability of indemnity cover or otherwise:
- the Courts will apply the text in context method of construction to the interpretation of each policy document. This means that the policy document will be interpreted in light of:
- the factual background in which the policy terms were agreed;
- the background law at the time the policy the policy terms were agreed; and
- the text of the policy document itself.
This means that a consideration of the policy terms is not necessarily confined to the text of the policy document itself and that other factors (such as whether the parties sought to negotiate the policy terms; if insurers made specific representations on cover ) can have weight is certain circumstances;
- in interpreting the insurance policy the policy document as a whole must be read and not just the terms or element in dispute;
- the nature of the insured peril (i.e. what cover is provided for) can be a composite peril. In the FBD case Mr. Justice Denis McDonald found that the insured peril was composite in nature consisting of the effect on a business arising from an imposed closure made by a government or local authority order following the occurrence of a contagious or infectious disease;
- “outbreaks” of a contagious or infectious disease can consist of a relatively small number of cases or where the pathogen is particularly serious a single instance of the disease;
- where geographical limits are imposed on the availability of cover (and depending on the policy terms) it is not necessary that the closure order is as a direct result of an outbreak of a contagious or infectious disease within the specified geographical limit. It is sufficient that there is an outbreak of the contagious or infectious disease within the specified geographical limit occurring simultaneously with outbreaks outside the geographical limits of the policy that gave rise to the closure order.
This is an important statement as certain insurers have sought to deny cover under business interruption policies on the basis that closure orders were made as a national or nationwide response to the Covid-19 pandemic and not as a result of a specific outbreak within the geographical limit of the policy;
- where there are a number of causes of the loss (one insured and the other not) cover will be available where it is not possible to determine which is the dominant cause of the loss and both will be treated equally as the cause or event.
Again this is an important statement as FBD had tried to argue that a cause of loss was the changing societal attitude to the Covid-19 pandemic and complying with social distancing directions (which was not an insured peril) and that this matter alone meant that the loss was not a direct result of a closure order; and
- the indemnity period (i.e. the period for which loss of cover is provided) is the period of the closure order and does not include any losses arising after the closure order is lifted. Therefore, claims cannot be maintained for the effects of social distancing requirements after the closure order ceases to have effect; and
- in determining the quantum of loss, the impact on trade (allowing for diminution in turnover as a result of the public adopting social distancing) is to be taken into account prior to 15 March 2020 and not after.
Again this is an important statement as FBD had tried to argue that diminution in turnover as a result of social distancing requirements had to be taken account of after a closure order was in effect to determine actual loss. The effect of this would have been to reduce turnover during the indemnity period relative to the loss in turnover arising from the impact of social distancing requirements.
Whilst the above points may be of general application to the interpretation of policy documents it does need to be stressed that they were founded on a consideration of the relevant FBD policy document at issue in the case. Therefore, each policy document needs to be reviewed to ascertain if these finding apply.
Professional advice should always be taken before acting on any of the matters discussed. Please contact a member of our team should you wish to discuss this topic further.