A HIGH COURT ruling in a test case taken by four publicans against FBD Insurance could have wide-reaching implications for the company, consumers and the insurance industry in general. 

The publicly-listed insurer lost a Commercial Court test case taken against it by four pub groups after FBD refused to provide cover for losses associated with the closure of the businesses during the initial round of public health restrictions, brought in last March. 

The pub owners claimed that under their policies with FBD, they were entitled to have their consequential losses covered by what they claimed is an insurable risk.

They also claimed that by failing to pay out on the policy the insurer was in breach of contract.

Judge Denis McDonald ruled in favour of the publicans on Friday morning, finding that they are entitled to be compensated by FBD for the disruption.

The outcome of the case could have significant implications for over 1,000 pubs and restaurants covered by FBD’s business interruption policy.

In a statement, FBD said the judgement has provided “much-needed clarity” and that the company will “endeavour to process claims as quickly as possible”.

Interim payments will be made to policyholders in advance of a final decision by the court on the precise amounts, according to the firm.

“We understand the significant challenges our ‘Public House Insurance’ policyholders currently face. FBD will arrange interim payments to affected policyholders while awaiting final clarity on quantum,” FBD said.

“We expect the cost to be well within the range of considered financial outcomes, with FBD remaining strongly capitalised.”  

In its half-year results for 2020, published last summer, FBD posted a €9.3 million loss for the first six months of the year. It already set aside €30 million to cover any costs that might arise as a direct result of the test cases, although the final cost associated with the settlement of claims could be much higher.

FBD’s full-year results are due to be published in the coming weeks. In 2019, the company reported after-tax profits of over €100 million and assets totalling over €1 billion. 

Consumer and financial expert Eoin McGee says it’s possible that the costs will eventually be passed onto businesses and consumers through higher insurance premiums.

But the impact will depend on profit levels at the company and how it performs through the pandemic.

“At some stage, you would expect the money to be recouped somewhere along the line, whether that’s already happened in terms of the lack of claims that they had in the last 12 months, or in the future if they hiked premium rates [for publicans]. If they do hike premiums you could see the price of your gin and tonic come up,” he said.

While McGee stressed that it’s far too early to say what the impact will be on consumers, FBD’s decision to fight the publicans in court will have negative implications for the industry.

“I think it does do damage to consumer sentiment around what insurance is for,” he said.

This is exactly what insurance companies don’t need right now, with the way the world is at the moment. And I think sometimes these insurance companies think that the consumers think about them in different fields — commercial insurance; general insurance; car insurance — but they don’t. They just think ‘insurance’. And this is a negative thing that they’ve done, and we’ll all feel like we’re going to have to pay for it somewhere along the line.

‘Examination process’

Sinn Féin finance spokesperson Pearse Doherty said the impact of the decision goes beyond the hospitality sector.

“This could have a huge impact on other businesses right across the board,” he said in a video posted on his social media channels.

“It isn’t just publicans. We know that hairdressers, we know that community organisations and many other businesses have policies like this, which also could mean that they could be expecting a payout from the insurance industry.”

Doherty called on the Central Bank of Ireland, which regulates the insurance industry, to set up “an examination process similar to the tracker mortgage scandal”.

 In that case, he said, it took “one person to go to court” to force a bank to accept wrongdoing before the regulator stepped in.

“What happened? 40,000 people had money that was taken from them put back into their bank accounts. We know that it costs the banks €1 billion. So, this is similar. We don’t know the size and scale of it but there are 1000s of policies right across the state that are affected, and it can’t be left up to individuals.”

Reacting to the news this morning, Noel Anderson, managing director of Lemon & Duke — one of the four pubs to take the case against FBD — expressed delight at the outcome.

However, he added, “It should never have come to this.

“I specifically had taken out a business interruption policy to protect us against Covid-19 and its potential impact on our business… Yet, in order to have our claim settled, we were forced to go through 10 months of deep financial uncertainty, significant additional risk in taking this action as well as extensive stress and strain to arrive at an outcome which should have been clear from the outset.”

Anderson encouraged FBD and other insurers to “reflect” on the outcome of the case and said he hopes that they will be forthcoming in making payments to relevant pubs and other businesses impacted”.