Introduction

The High Court of Ireland delivered a landmark judgment on January 28, 2022, in the case of Hyper Trust LTD T/A The Leopardstown Inn v FDB Insurance PLC. This decision addresses critical questions surrounding the interpretation of business interruption insurance policies in the context of the COVID-19 pandemic. The plaintiffs, comprising owners of several Dublin pubs including The Leopardstown Inn, Sinnotts, Lemon & Duke, and Seán's Bar, sought indemnification from FDB Insurance for losses incurred due to government-imposed closures and restrictions aimed at curbing the spread of COVID-19.

Summary of the Judgment

The High Court affirmed that government-imposed partial closures, specifically restrictions on the use of bar counters, constitute a closure under extension 1(d) of the FBD Public House Policy. This interpretation aligns with the policy's intent to cover losses arising from closures due to contagious or infectious disease outbreaks. The court further delineated the methodology for quantifying losses resulting from such partial closures, emphasizing the need to assess the impact based on the identifiable and essential nature of specific premises within the establishments.

Analysis

Precedents Cited

The judgment references several key precedents to bolster its interpretation of the insurance policy terms:

• FCA Case: A UK Supreme Court decision that influenced the court's understanding of "closure" in insurance policies.
• Hickmott on Business Interruption Insurance: Provided foundational guidelines on interpreting "trend and other circumstances" clauses.
• Emerald Meats Ltd. v. Minister for Agriculture: Highlighted the necessity of documenting business trends over successive periods.

Legal Reasoning

The court applied an objective "reasonable person" standard to determine the meaning of "closure" within the policy. It established that bar counters are discrete, identifiable, and essential parts of a pub's operations. As such, restrictions preventing customers from using these counters for serving beverages effectively equate to a closure under extension 1(d). The judgment also outlined a pragmatic approach to quantifying losses, recommending a 12-month assessment period to account for seasonal and cyclical business trends.

Impact

This judgment has significant implications for the business interruption insurance landscape, particularly for industries where operations are segmented into discrete units. Insurance providers may need to revisit policy language to explicitly cover partial closures, thereby providing more comprehensive protection to businesses facing similar disruptions in the future.

Complex Concepts Simplified

Trend and Other Circumstances

The "trend and other circumstances" clause requires insurers to adjust the estimation of losses based on identifiable business trends and extraordinary events. The court clarified that:

• A 12-month period is generally appropriate to capture business trends, smoothing out irregularities.
• Exceptional events, like exclusive contracts or major sporting events, should be considered as "other circumstances" rather than part of the trend to avoid skewing loss assessments.

Average Clause

The policy's average clause stipulates that if the sum insured is less than the property's value, a proportionate share of the loss is indemnified. This emphasizes the importance of maintaining adequate coverage relative to the insured property's current value.

Conclusion

Implications for Future Cases

Following this judgment, businesses in similar sectors should reassess their insurance policies to ensure comprehensive coverage. Insurers may need to clarify the language around "closures" to include partial or segmented operational disruptions explicitly. Additionally, the methodology for quantifying losses will serve as a benchmark for future claims, promoting consistency and fairness in the adjudication of business interruption disputes.

Staff Wages and Salaries Claims

The court also addressed claims related to staff wages during periods of closure. While claims from some plaintiffs regarding retained staff were successful due to the demonstrated necessity of retaining key personnel, others faced challenges in substantiating the reasonableness of retaining certain employees. The judgment underscores the burden on plaintiffs to provide detailed evidence justifying the retention of staff as part of loss mitigation efforts.