Update on the enforceability of business interruption clauses

To assist our clients I have prepared an update on our recent article on whether you are covered for Business Interruption  and in particular a response to the purported refusal by one insurer FBD  to cover policy holders for business Interruption .

As previously advised each policy must be read together with the schedule and renewal letter and  we have already advised clients in respect of many policies where we believe the policy holder is covered.

When reading one’s policy one must bear in mind the Contra Proferentum rule  which applies to contracts of insurance. This is a doctrine which applies in insurance law which states that any clause which is ambiguous must be interpreted against the interests of the party that created, introduced or requested that that clause, be included.

In plain language, the policy should be interpreted in favour of the policy holder where any ambiguity arises and against the Insurance company who drafted the policy.

While we have not yet received the letter from FBD  purporting to refuse cover, referred to in today’s Business Post by Peter O Dwyer  12th April , in response to claims on behalf of our clients ,  it is disappointing to see that FBD Insurance are refusing to indemnify their policy holders for Business Interruption claims.

I have below analysed and debunked the reasons given by FBD for the purported refusal to indemnify their customers.

REFUSAL REASON ONE

One of FBD ‘s policies provides cover for Business Interruption as a result of closure of a business arising out of “outbreaks of contagious or infectious disease on the premises or within 25 miles of same”

FBD have taken the view that  “ The closure on any view was not caused by outbreaks of disease on or within 25 miles of the premises, rather it was caused by national considerations resulting from the global pandemic including in particular the requirements of social distancing”

Firstly some businesses were closed directly because of an outbreak in the school or business itself.

Secondly some businesses were closed due to outbreaks within 25 miles of the business .

However  

Thirdly and more importantly the reason for social distancing and closing shops and businesses regulations were as a direct result of the outbreak of disease. This is a case of chicken and egg and in this case Covid 19 is clearly the chicken .

Covid 19 came first , closures  and social distancing were a reaction to Covid 19,so they came second. The outbreak of the disease was the reason for the implementation of the regulations to cope with the outbreak.

Without the disease there would be no closures so this argument does not hold water.

This is the clear and natural meaning of the clause without any attempt to interpret the clause positively toward the insured and FBD are clearly splitting hairs on this clause.

REFUSAL REASON TWO

One FBD  Policy  states :

“The company will indemnify the insured against outbreaks of contagious or infectious diseases on the premises or within 25 miles of same.”

FBD are quoted as saying the Business Post today that the policy does not cover (COVID 19) as

…..  “ a pandemic manifestly does not fall within the scope of the clause”

So, firstly without invoking the Contra Proferentum Rule the clear reading of the clause does not exclude pandemics and nor does it exclude new or novel diseases

If FBD wished to refuse indemnity it should have not only specifically excluded pandemics but also new and novel diseases.

The natural meaning of the clause is that it includes all contagious and notifiable diseases of which COVID 19 is clearly one, pandemic or not.

The definition of Pandemic in the Cambridge English dictionary is “ of a disease existing in almost all of an area or in almost all of a group of people, animals, or plants” . This can include Sars , Ebola and other pandemics which many insurers have actively sought to exclude  but this policy does not exclude pandemics and my view is that this reason for refusal is not sound.

It is clear that it is contagious and infectious and since we have had pandemics before albeit not as intense as Covid 19 this is not a good enough reason for any insurers to refuse cover.

REFUSAL REASON THREE

The final reason given today for refusal to indemnify policy holders was that “was that any loss to the business owner was not caused by an outbreak of an infectious or contagious disease but by “social practices” resulting from the pandemic”.

This is the same argument as number One and again we are back to chicken and egg here. The reason for the closures and Government regulations were in response to the contagious or infectious disease “

Where insurers refuse to indemnify on the basis that the ‘blanket government closure’ was never intended to be covered by the policy, such a refusal is unacceptable and a claim should be pursued.

While there may be more reasons we have not seen them as of yet but would be confidant that the above reasons are not robust and will fail as a defence.

This is also quite apart from the clear request from the Central Bank of Ireland that insurance companies interpret business Interruption clause in favour of the policy holders and the Governments equally clear direction likewise.

Every policy is different and must be read carefully and even when some level of cover is established, care needs to be taken in reading the policy to find all or any other limits. Many disease extensions are limited to a three-month period and few provide full cover for gross profit annualised.

We have reviewed many policies on behalf of clients and are glad to provide expert advice to anyone in need of assistance in the pursuit of any claim for cover by reviewing the policies of insurance.

We can provide expert advice in dispute resolution for interpretation of policies and pursuit of arbitration or if necessary, court proceedings.

All views are personal and every policy should be read individually and we take no responsibility for any advice given without clear instructions and review of documents.

If we can be of any further assistance on this or any other matter including the interpretation of force majeure clauses in contracts with suppliers or other providers please contact us at

Anne Marie James
Partner

Kirwan McKeown James LLP Solicitors
3 Clanwilliam Square
Grand Canal Quay
Dublin D02V997
T 016612297
Email: Annemarie.james@kmj.ie
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