Stop what you’re doing – Business Interruption

The UK High Court appears to lean in the favour of Claimants in a recent decision of the High Court brought by the Financial Conduct Authority, the regulator of the Insurers, where the Defendants were 8 insurers and two other interested parties. However, the relevance of the judgment to individual companies here in Ireland really depends on the facts of each case and the policy specifics. It will no doubt be a useful focal point for submissions and argument in the forthcoming business interruption case in this country brought for similar reasons by a group of Plaintiffs against FBD Insurance Plc. and will be followed with interest by businesses here, particularly in light of ongoing and tightening restrictions imposed by the State to control the Covid-19 pandemic.

It may be anticipated that the outcome of the Irish case will, more likely than not, be influenced by the reasoning elaborated in the English decision. This will be despite the strong belief that the UK decision will be appealed by the insurers, as any appeal will not have been heard before the Irish case comes before the court for determination. The defendants have been given leave to appeal directly to the English Supreme Court.

The Hearing here – as in the UK – will take place against a background of political clamour for insurers to “do the right thing” which was firmly rejected by the Judges at the outset of their Judgement. However, the Judges in the UK went on to reach conclusions which in the main are favourable and provide hope from the point of view of the Claimants.
The main points of the Judgement are:

• Every business interruption policy is a contract between an individual policyholder and an individual insurer and the ordinary principles of contractual construction apply
• The court must ascertain what a reasonable person, with the background knowledge which the parties may be assumed to have had at the time of making the contract, would have understood the contracting parties to have meant by the language used. In this regard the court can look to the factual and legal background known to the parties at or before the date of the contract
• Where the parties have used unambiguous language, the court should apply it. It is not the court’s function to rewrite a contract in an attempt to assist an unwise party
• If a clause in an insurance policy covers, or excludes, the risk of damage to a number of items, the court will take the view that the words used denote things of the same type, and each word can take its meaning from the words with which it is linked or surrounded
• Importantly, where there is doubt about the meaning of a contract, the words will be construed against the person who put them forward (in this case the insurer) whether it be in the main contract or in an exclusion clause
• The Court concluded that the relevant date for any ‘initial outbreak’ was not the date of the first outbreak in the UK, but rather the 31 December 2019 when the first cases in Wuhan were confirmed
• The Court stated that, in relation to a disease such as COVID 19, “an extensive area, possibly embracing the whole country, can be regarded as the relevant vicinity for the purpose of this wording”
• It was held that “non-damage” clauses covering disease and denial of access to business premises triggered payment under the claims.

For further details on the potential impact of this judgment, please contact Liam Collins and Geraldine Stack: Geraldine.stack@goregrimes.ie