FBD promises ‘interim payments’ to pubs after landmark court ruling

FBD said on Friday that it will make interim payments on "valid" business interruption claims under its pubs policy, after four publicans won a landmark Covid-19 business interruption court case against the insurer.

The Commercial Court ruling has ramifications for 1,100 Irish pubs and restaurants covered by FBD’s pub policy. The final cost for FBD may top €60 million, double what the insurer has set aside, according to analysts. However, the ultimate cost, including that borne by reinsurance companies that have taken on some of the risk, will be much higher.

FBD will not appeal the decision, a spokeswoman confirmed.

"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," said the Dublin-listed insurer, where former AIB executive Tomás O Midheach took over as chief executive last month.

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The company, which has received about 500 claims from pubs and restaurants to date and which will be writing to remaining affected customers on Monday, said interim payments would vary as a percentage of claims, depending on the nature of the pub.

Policy

FBD’s long-standing pub policy covered losses where a premises is closed under the orders of a local or government authority in the event of “outbreaks of contagious or infectious diseases on the premises or within 25 miles of the same”. The court said cover is not lost if closure is prompted by nationwide outbreaks of a disease, provided there is an outbreak within a 25-mile radius of the premises and that it is one of the causes of the closure.

The ruling is likely to have bearing on other business interruption policies. Insurers Hiscox, QBE and insurance managing general agents Optis and iSure are among firms that have written business interruption policies in Ireland with territorial provisions, according to Niall Donaghy, managing director of Claims Management Group, one of the State’s leading independent claims consultants.

“Some of these have been preparing to pay Irish claims as a result a recent UK case. The FBD ruling will provide further clarity and add more pressure,” he said.

Georgina Robinson of Robinson Solicitors told The Irish Times she issued letters to a number of insurers on Friday, seeking indemnity for clients that are members of the Restaurant Association of Ireland, on foot of the FBD ruling.

The Central Bank said it will be “closely examining the potential impact of this judgment for customers in the context of our sustained and ongoing engagement with relevant firms”. Where there is doubt about the meaning of a term on an insurance contract, “the interpretation most favourable to the customer should prevail”, it said.

Complaints

Meanwhile, the Financial Services and Pensions Ombudsman (FSPO) has received 125 complaints from individuals on business interruption policies as of January, according to a spokeswoman. It has issued legally binding decisions on “a small number” of cases, she said, declining to comment further before outline details are published by the FSPO.

FBD has set aside €30 million in provisions for potential liabilities resulting from pubs cases. However, the court will decide on the issue of quantifying losses suffered by publicans at a later date, with the case is due back in court on February 17th.

FBD said it would consider the effects of the judgment with its reinsurers and provide the market “in due course” with the estimated net cost of Covid-19-related business-interruption claims to the company.

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

Davy analyst Diarmaid Sheridan said that FBD may have to top up its provisions by €20 million to €50 million. Still, he said FBD’s comment that the final cost is expected to be within a expected range and that the company remains strongly capitalised is “reassuring”. Goodbody Stockbrokers analyst Eamonn Hughes estimates the final cost could come to €60 million.

Shares in FBD rallied 5.9 per cent in Dublin to €7.50.