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The widespread financial disruption and business closures in the wake of Covid-19 has resulted in businesses looking at their insurance policies in a new way. The concept of business interruption insurance has been brought into sharp focus as businesses attempt to recoup some of their losses. While this is still unchartered territory for the insurance industry in Ireland, insurance companies and businesses alike may look at cases in neighbouring jurisdictions for guidance.
What is business interruption insurance?
Typical business interruption cover offers protection against direct physical damage to a business premises, for example damage to a business premises caused by flooding or by storms. Therefore, it generally would not apply to financial loss for reasons of sickness or an outbreak of disease.
Some companies may have policies in place to protect against an outbreak of infectious diseases, however this is by no means a standard clause. Even if a version of this clause is included in a business’ insurance coverage, questions could arise if Covid-19 is not specified as a disease in the policy. As Covid-19 was only discovered in late 2019, it is, obviously, highly unlikely to be specifically named in pre-existing insurance policies.
In addition, there’ve been reports that claims under policies which mention notifiable diseases are being rejected as they were meant to cover isolated outbreaks and not a pandemic.
While the majority of insurance policies may not cover the outbreak of disease specifically, that is not to say a business will not recover under their policy. In certain cases, business interruption cover may be availed of. In order to determine if a business can successfully recover its losses through its insurance policy, it is necessary to look at the specific wording of the policy.
Guidance from the EU
In May 2020, the Paris Commercial Court issued a ruling following a dispute between the Eclore Group (Eclore) and AXA France IARD (AXA). Eclore, which operates four well known restaurants around Paris, issued proceedings in the French courts following AXA’s failure to compensate the company after it was forced to close due to Covid-19 restrictions. Eclore submitted that AXA’s failure constitutes a contractual breach on foot of their “all risks policy” which included an administrative closure clause. The French Court agreed with the company and found that the administrative decision to close the restaurant satisfied the insurance cover as a business interruption loss and AXA were instructed to pay the equivalent of two and a half months’ compensation for loss of business earnings in one of the company’s restaurants.
It should be noted that this decision is likely to be appealed, however AXA have since announced that they will cover the majority of claims from restaurant owners whose insurance policies are ambiguously worded. It should also be noted that this decision may result in the French insurance industry being liable to pay €20 billion per month if all Covid-19 insurance claims for business interruption are to be met.
Guidance from the UK
The United Kingdom’s Financial Conduct Authority (the FCA) have sought a ruling from the High Court in London regarding business interruption insurance policies. The FCA will run a test case whereby they will seek judgment from the courts surrounding the ambiguity of business interruption insurance policies. The ruling from the court in London will hold precedent, meaning it will be legally binding on the courts throughout the UK when assessing real life cases. The decision could also prove to be persuasive in assessing Irish claims. At the time of posting, the FCA had published skeleton arguments and the test trial is set for 20th July. We’ll continue to update you on this case as it unfolds.
The Irish Position
Guidance from the Central Bank
The Central Bank of Ireland issued a note to insurers requiring them to take account of the challenging situation many of their customers now find themselves in. The following was recommended by the Central Bank:
Where a policy permits a claim be made because a business has closed as a result of government direction due to a contagious or infectious disease, the Government’s advice to close non-essential businesses due to Covid-19 should viewed as a direction.
Clauses which contain any ambiguity surrounding what will be covered in relation to Covid-19 is to be read in favor of the customer.
Contra Proferentem
The legal principle of Contra Proferentem stands in favour of the business owner. This principle states that if there is any ambiguity over the meaning of a clause, it will be viewed against the person who drafted it. As an insurance policy is a contract drafted by insurance company allowing little or no amendments to be made by the customer, insurers have always been obliged to interrupt ambiguous clauses in favour of the insured.
The uncertainty around Covid-19 and its effects create a challenging time for businesses and insurance companies alike and will continue to develop over the coming weeks and months. For a business owner, the first step may be undertaking a review of your insurance policy. Legal advice should be sought as the situation continues to evolve.
For more information on insurance cover for business interruption, please email Emer Murphy at emurphy@lavellepartners.ie , Marc Fitzgibbon at mfitzgibbon@lavellepartners.ie or call 01 644 5800.