Business interruption claims safety in numbers and is speed the key? The pros and cons of group litigation
A number of test cases against FBD Insurance have now been entered into the Commercial Court with an intended trial date of October 2020 (the Test Cases). It is hoped that the decisions will shortly follow and that the likely appeals will be heard directly by the Supreme Court in order to speed up the process.
We consider how the Test Cases will impact on the hundreds of claims being made against FBD and other insurers who have declined cover for Business Interruption.
The ultimate resolution of the Test Cases is likely to dictate the outcome for the majority of claimants challenging the FBD policies. The interpretation of the FBD policy is an objective issue and the decision on coverage should apply to all those policies of the same wording and purpose.
There are likely to be cases that will fall outside the scope of these decisions such as where pre-contract representations were made as would appear to the case in Lemon & Duke whose case includes a claim that they agreed a pre-contractual Side Letter agreeing to cover Covid 19 so it’s result is likely to be distinguished in any event. We represent other clients who received oral confirmation that COVID-19 closures would be covered, to find it was then withdrawn and these cases may well also be decided on their own merits.
In relation to other insurers it is less likely that the Test Cases will determine liability in their cases. The wording of their policies will be different and each one will have to be interpreted on its own merits. It is unlikely that any “new law” will be created by the decisions.
Many publicans are joining together to reduce the costs of advancing claims against FBD and the main Pro’s and Con’s of group litigation is set out below but it might be helpful to go through the five well established rules of how to interpret contracts and then we will focus on the Pros and Cons of group claims.
The legal approach to interpreting agreements is well established. The principles of interpretation as set out by Lord Hoffman in I.C.S. v. West Bromwich B.S. have been endorsed on many occasions by the courts. These are as follows:
Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
The background was famously referred to by Lord Wilberforce as the 'matrix of fact' but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be next mentioned, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meaning of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must for whatever reason, have used the wrong words or syntax; see Mannai Ltd. v. Eagle Star Ass. Co. Ltd. [1997] A.C. 749.
The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania S.A. v. Salen A.B. [1985] A.C. 191, 201:
"If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."
In Law Society of Ireland v The Motor Insurers Bureau of Ireland O’Donnell J quoted Lord Hoffman and a speech he made to German patent lawyers, explaining this approach to contract interpretation. Lord Hoffman was standing at his kitchen sink doing the washing up when his wife suggested he should put on his umbrella. He hesitated only for a moment before opening a cupboard taking out an apron and putting it on. He continued at pages 727-728:
‘If one looks in the dictionary, there is no way in which the word umbrella … can mean apron… Nevertheless I understood clearly what my wife was using the word umbrella to mean. I was in the kitchen, which has a roof, and anyway it was not raining, so she clearly could not have intended the dictionary meaning of umbrella. But an umbrella keeps you from getting wet and this suggested that she was concerned that I might get my suit wet while I was washing up the dishes. For that purpose, I usually wear an apron. So I concluded that she was using the word umbrella to mean apron. The reason why she chose that word does not particularly matter. It might have been some poetic fancy but more likely it was just a slip of the tongue. The point is that despite the dictionary, she succeeded in conveying the meaning which she intended.
This illustration tells us something important about language. It is a code which we use to communicate. The code has two elements: semantics, the meaning of words, and syntax … the order in which words are arranged. But when we try to understand what someone is saying, the code is only part of what we rely on. Enormously important is the background, the context, the knowledge already assumed to be shared between the speaker and listener, [and] the purpose for [which] the communication is being made. What we are trying to understand is not just the meaning of the words. That in itself is inadequate. The real object, as in the case of my wife's remarks about putting on my umbrella, is to understand what the speaker intended to mean by using those words.”
In summary, each policy is to be interpreted as whole, not just by reference to the clause in question. Evidence is admissible as to the surrounding circumstances/context in which the policy was entered into. This may involve expert evidence as to the actuarial basis for such policies and the underlying basis for such policies. Where there is a factual dispute, such as the making of a pre-contract representation this will fall to be decided in the normal way and the law in relation to exclusionary clauses is equally well established. Furthermore insured have the benefit of the Contra Preferentum rule where the clause is interpreted against the drafter.
While the Test Cases may be useful with regard to factual background for Business Interruption cover and provide a roadmap of sorts, the question of whether every policy excludes cover for Covid 19 is likely to have to be determined on a policy by policy basis.
This in turn brings into the focus the crucial question for many claimants of whether it is best to await the outcome of these test cases; to join with others in a “Group Action” or to maintain their own proceedings. As a starting point your insured should be informed of your claim without delay.
While late notification of a claim may not be fatal to your claim it will undoubtedly complicate it.
Speed in my view may also be key so it’s not advisable to sit back and await other decisions which may be distinguished and ending up being the last in line of millions of euro worth of claims against any insurer.
After that there are a number of pros and cons to being part of a Group Action that should be considered.
Pros of Group Action:
Being part of a group does provide some insulation against the costs of an individual action. Our experience is however that group indemnities are entered into to indemnify the pathfinders so it is limited.
Test cases and Pathfinder cases place less of a strain on the court’s system particularly in light of restrictions in place due to Covid 19.
In the event that the litigation is successful everyone is likely to receive some money.
Cons of Group Action:
Any one individual within the Group will have less control than they would otherwise have over their own litigation.
An individual will have to bear the costs of the litigation if unsuccessful.
Most insurance policies will have an arbitration clause which will require the parties to resolve their dispute through arbitration and not through the Courts. Arbitration is an alternative dispute resolution process where a third party is appointed to decide a dispute. It shares many of the procedural steps that are found in a court process but often arbitration can be quicker as the parties have more control over hearing dates and other timelines. Given the strains on the court system due to Covid 19 it is likely that arbitration will be a more efficient way to resolve your claim.
Ultimately it is hoped that a settlement will be reached in respect of many of these claims. It is likely that an insurance company will propose a settlement in the form of a scheme to provide a level of redress for each claim. This may not represent a good settlement in any particular case but may be acceptable when all matters are taken into account. It is further likely that even if you are part of a Group Action you will have the option to opt out of any such settlement and to pursue your individual claim. Being part of this process, as opposed to pursuing your own claim from the outset may add to the time it takes to reach a resolution.
Costs could be affected by failure to arbitrate and each policy must be checked
Often only as good as the weakest link in any group.
The decision to be part of a Group Action or to pursue your own claim is difficult. A lot will depend on the strength of your case and this in turn this will depend on the particular wording of your policy and any representation made on behalf of the insurer prior to enacting the policy.
In particular, if time is a crucial issue you should seek advice as to the likely time it will take to reach a resolution through Arbitration or through a legal Group Action.
We are assisting a number of clients pursue their Business Interruption claims and should you need any advice or assistance or review of policy wording please contact Annemarie.james@kmj.ie
Stay safe!
Anne Mare James
Partner
Kirwan McKeown James LLP Solicitors
3 Clanwilliam Square