Sarah Twohig and Paddy Murphy of our Litigation & Dispute Resolution team and James Foster of our Insurance and Reinsurance team discuss the Central Bank of Ireland’s (CBI) new COVID-19 and Business Interruption Insurance Supervisory Framework and how it might impact your business.
COVID-19 and Business Interruption Insurance Supervisory Framework
The Supervisory Framework sets out the CBI’s expectations of insurance firms in handling COVID-19 related business interruption insurance claims. Its objective is to identify and resolve issues that have the potential to cause customer harm. This provides clarity for affected businesses as quickly as possible.
Notably, the Supervisory Framework reiterates a number of points made by the CBI in its letter to industry on 27 March last, which we considered here, namely that insurers are obliged to act honestly, fairly and professionally in the best interest of consumers.
Interpretation of Government’s order to close businesses
Crucially, the CBI has expressed the view that Government communications to close businesses last March should be treated as a direction or mandate for the purpose of determining whether interruption cover exists.
Unclear Policy Wordings
What does this mean where policy wording may be unclear?
When it emerged that cover for the COVID-19 outbreak may not be available under all business interruption policies, the CBI exercised its statutory powers to seek information from insurers to determine how many business interruption insurance policies provided for “infectious disease” cover. It also sought examples of those policies to carry out a preliminary analysis and scoping exercise.
Having reviewed this information, the CBI reiterated its view that where there is unclear policy wording the interpretation which is most favourable to customers should be afforded.
Litigating COVID-19 business interruption claims
The CBI has stated that it does not have a statutory role in dealing with individual customer complaints and will not bring any test case to Court to decide whether business interruption cover should be provided due to COVID-19. This notably differs to the position adopted by the FCA in the UK.
What does this mean for an aggrieved insured business?
It means that you must bring complaints to the Financial Services and Pensions Ombudsman or initiate arbitration or legal proceedings.
However, given that the CBI has attempted to mitigate the associated costs of bringing such proceedings with its Supervisory Framework, it also means that the general rule in litigation that “costs follow the event”, does not apply.
This is because the CBI has set out its expectation that insurers will pay the reasonable costs of litigation taken by a policy holder against it, in circumstances where the parties have agreed that the case is a “test case” that affects other business interruption insurance policies. The CBI expects insurers to adopt this approach even where the insurer is successful in the proceedings.
FBD ‘test’ cases
A number of well-known pubs have taken Commercial Court proceedings against FBD Insurance plc (FBD), claiming that losses arising from the government enforced closure of pubs were covered by their business interruption policies. We previously considered the emerging litigation threat faced by the insurance industry here.
It appears that the CBI’s expectation that insurers pay the reasonable costs of litigation will apply to these FBD proceedings.
In terms of the substantive issues, the key issues for the Court to decide will be:
- whether the plaintiffs’ business interruption policies cover the COVID-19 outbreak in the first place; and
- if so, whether the losses they suffered while closed over the last few months were caused by the COVID-19 outbreak.
While we wait for the Court to determine these issues, it is clear that any decision given by the Court will have far reaching effects for both insurers and insured business.
The key takeaway for any insurer is to quickly familiarise itself with how litigation costs will be treated under the Supervisory Framework. This is particularly relevant given the CBI’s expectation that defendant insurers should be cognisant of the significant costs burden on plaintiffs and consider how the scope of the issues in dispute can be narrowed to reduce costs.
A further takeaway is that the continued delay of phase 4 of the reopening of our economy and Ireland’s pubs, is likely to keep the issue of business interruption policies very much in play. As the Commercial Court is leading the charge with virtual court hearings, the FBD cases are listed for hearing this October (having only be initiated in May) so it is certainly a case of watch this space.