Introduction

The case of Hyper Trust Ltd trading as The Leopardstown Inn v. FBD Insurance PLC ([2021] IEHC 279) adjudicated in the High Court of Ireland on April 23, 2021, centers on the interpretation of the term "closure" within a business interruption insurance policy. This case emerged in the backdrop of the global COVID-19 pandemic, which significantly impacted the hospitality industry.

The primary parties involved are Hyper Trust Limited, operating as The Leopardstown Inn, representing the plaintiffs, and FBD Insurance PLC, the defendant. The plaintiffs sought indemnification under their business interruption policy following government-imposed closures due to the pandemic.

The key issues revolved around:

• The precise meaning of "closure" as stipulated in the insurance policy.
• The territorial extent of the "counterfactual" used to assess losses.
• The appropriate basis for awarding legal costs to the plaintiffs.

Summary of the Judgment

Justice Denis McDonald delivered a comprehensive judgment addressing the aforementioned issues. The court concluded that the term "closure" within the insurance policy extends beyond a complete shutdown of the premises to include partial closures. This interpretation aligns with the policy's intent to cover business interruptions caused by specific events leading to imposed closures.

Regarding the territorial extent of the counterfactual, the court held that it should not be confined strictly within the State's borders. Instead, given the global nature of the COVID-19 pandemic, the counterfactual should consider the international context to avoid artificial and impractical assessments of the plaintiffs' losses.

On the matter of legal costs, the court determined that the plaintiffs are entitled to recover their costs on a "party and party" basis, adhering to established legal principles. The court declined to award costs on a "legal practitioner and client" basis, emphasizing that such orders are reserved for instances warranting judicial disapproval of a party's conduct, which was not substantiated in this case.

Analysis

Precedents Cited

The judgment extensively referenced the FCA case, where the UK Supreme Court interpreted similar insurance clauses. Lords Hamblen and Leggatt in that case established that "closure" can encompass partial shutdowns of a business's premises, asserting that an inability to use a discrete part should trigger coverage.

Additionally, the court drew parallels with other cases like Hiscox 1-4 and Arch policy, reinforcing the notion that insurance policies should be interpreted in a manner that reflects commercial sensibility and the reasonable expectations of a policyholder.

Legal Reasoning

Justice McDonald employed a contextual approach to contractual interpretation, emphasizing that terms must be understood within the policy's entirety and the surrounding factual landscape. The court considered the evolution of public house operations during the pandemic, noting that partial services (like takeaway) imply a significant, though not total, closure.

The reasoning underscored that policies like FBD's are crafted with diverse business models in mind, necessitating flexible interpretations. The court also acknowledged regulatory frameworks, such as Ireland's Health Act regulations, which influenced how businesses could operate, thereby impacting the assessment of "closure."

Impact

This judgment sets a critical precedent for the interpretation of business interruption insurance policies in Ireland, especially in contexts involving pandemics or similarly widespread events. By affirming that partial closures qualify for coverage, the court provides clarity for policyholders seeking indemnification under comparable circumstances.

Moreover, the decision on the "counterfactual" extent encourages a holistic evaluation of losses, considering both domestic and international factors. This approach ensures that assessments remain realistic and just, reflecting the interconnected nature of modern economies.

Complex Concepts Simplified

Counterfactual

In legal terms, a counterfactual is a hypothetical scenario constructed to assess what would have happened to a business if the insured event (e.g., imposed closure) had not occurred. It serves as a baseline to determine the extent of financial loss attributable to the event.

Party and Party vs. Legal Practitioner and Client Costs

Party and Party Costs refer to the legal costs incurred in litigation that are recoverable by the winning party from the losing party. These costs are generally limited to those deemed reasonable and necessary for the case.

Legal Practitioner and Client Costs, formerly known as solicitor and client costs, are broader. They can include legal fees beyond what is recoverable under party and party costs, especially in situations where the court wishes to express disapproval of a party's conduct or acknowledge the complexity of the case.

Conclusion

The High Court's determination in Hyper Trust Ltd t/a The Leopardstown Inn v. FBD Insurance PLC reinforces the principle that insurance policies should be interpreted with a view to fairness and commercial practicality. By recognizing that "closure" can be partial, the court aligns insurance coverage with the nuanced realities faced by businesses during unprecedented events like the COVID-19 pandemic.

Furthermore, the nuanced approach to establishing the territorial extent of the counterfactual ensures that assessments of loss remain comprehensive and just, considering global interdependencies. The decision on legal costs upholds established legal norms, reserving broader cost recoveries for cases where there is clear judicial reason.

Overall, this judgment provides valuable guidance for both insurers and policyholders, clarifying coverage expectations and promoting equitable outcomes in the realm of business interruption insurance.