Irish Commercial Court makes further ruling on COVID-19 business interruption insurance claims

Speed Read

The Commercial Court has issued its third judgment in the FBD Business Interruption Proceedings, holding that:

• Policyholders were entitled to be indemnified for lost profits due to early closing measures and bar counter closures. A pub did not have to close completely to trigger a business interruption claim. A claim might arise if the bar was only allowed to remain open for restricted hours or if it was only allowed to open parts of the premises. In this case, use of bar counters by customers was no longer permitted, reducing the capacity of the premises.
   
• Wages paid were taken into account in determining the quantum of the claim (but only if the evidence showed the pubs acted reasonably in continuing to pay their staff during closed periods).

The judgment shows that although some policies will cover many losses associated with pandemic-related business restrictions, policyholders will be held to standards of reasonable behaviour in enumerating those losses. The precise extent of cover will depend on the individual policy wording.

Background

In February 2021, McDonald J held (see our previous publication) that business interruption cover was available to the plaintiffs under the defendant's Public House Policy, and that it was not confined to local-only (rather than national) outbreaks of disease.

In April 2021, the Court held that the policy was not confined to the total closure of the plaintiffs' businesses, and provided cover for the closure of part of a premises, although losses arising from other restrictions, such as social distancing, would not be covered. 

The most recent judgment (January 2022) considered whether the plaintiffs were entitled to indemnification for lost profits due to early closure measures or to closure of parts of the premises. It also considered how such losses should be quantified and it explored issues concerning the payment of staff wages during closure periods and whether the different lockdown periods gave rise to a single indemnity period or more than one.

Decision

Early closures

The Court concluded that the Policy did cover losses arising from early closures and that losses should be quantified by reference to till receipts from the year preceding the pandemic. 

Bar counter closures

The Court considered whether Irish government guidelines had the effect of requiring the closure of bar counters for periods in 2020. FBD argued that the counter could not be considered closed where the guidelines permitted their continued use by staff preparing drinks. The plaintiffs responded that this was a secondary use of the bar - its primary use (the sale and consumption of alcohol and the service of customers at the bar) was prohibited.

The Court held that the counter was the subject of an imposed closure. The fact that it could still be used for limited purposes did not alter this. 

The Court directed the parties to appoint a single engineering expert to assess how many people could be safely accommodated within different areas of the premises to provide a basis to measure bar counter losses.

In examining the extent to which closures were required, the Court considered Government guidelines and industry submissions as well as legislation and regulations, taking a broad view of restrictions and 'closures' for the purposes of interpreting the Policy.

Staff wages during closure periods

All plaintiffs sought to include wages in their quantum calculations. FBD asserted that under the Policy the plaintiffs were required to take reasonable precautions to prevent loss or damage. The Court noted that the burden was on FBD to demonstrate that the plaintiffs were unreasonable in failing to mitigate their losses by continuing to pay staff during closure periods.

FBD argued that some staff were retained because owners believed, in the wake of a UK Court decision on similar issues, that the cost would be covered by insurance. The plaintiffs maintained that their objective was to ensure that they could re-open as soon as it was legally permissible to do so. The Court partially upheld three bars' claims, but was not in a position to rule on one claim, due to a lack of evidence.

Carvery closures

Two plaintiffs claimed to have suffered losses on their carvery offerings due to the government restrictions (in particular, the physical distancing requirements). The Court noted that self-service carvery and buffet offerings were not prohibited under the guidelines. Accordingly, the Judge concluded that the losses arising from the carvery closure could be attributed to a lack of custom rather than the government restrictions and this part of the claim failed. (The second judgment had already established that restrictions were not the same as closure).

Did the pandemic give rise to multiple indemnity periods or a single period?

The defendant had conceded that a plaintiff had suffered two distinct closure periods at an earlier stage in the proceedings. It sought to revisit its position on the issue in light of the Court's determination on the definition of 'closure' within the policy. McDonald J declined to allow it to advance this argument, but noted that the issue was unresolved. Accordingly, future proceedings would be needed to determine whether there was one indemnity period or more than one in the particular circumstances of individual claims.

Conclusion

Although policyholders will welcome the Court's determinations in respect of staff wages and partial closures, the Commercial Court has continued to carefully interpret and apply the specific provisions within the underlying insurance contracts under consideration. It has also insisted that both insurers and policyholders support their position with appropriate evidence. The recent decision, along with its predecessors, will provide useful clarity for policy drafters seeking to incorporate greater certainty in respect of the level of risk assumed by insurers providing business interruption cover. The questions that arose as a result of the pandemic would not have been anticipated when the relevant policies were drafted. Now insurers will be more focused on the extent of infectious disease cover which they are willing to offer, the exclusions which will apply and when it will be triggered. Policy wordings will likely be extended to make clear whether cover is to be provided in the various scenarios encountered in the FBD cases and to confirm what was intended by references to 'closure' of the premises. In the absence of such policy wording, the default position would remain as laid down in the FBD proceedings.

For more information, please contact James Grennan, Insurance & Reinsurance partner, Liam Kennedy, Disputes & Investigations partner or Linda Duffy, solicitor.  

Date published: 9 February 2022