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COVID 19 AND BUSINESS INTERRUPTION: RECENT DEVELOPMENTS

May 25, 2020 in News

In light of COVID19 pandemic, many businesses have and are continuing to experience great financial loss as a result of the government-imposed lockdown measures that continue across Europe and many parts of the world. Businesses are increasing reviewing their insurance policies in order to assess whether an indemnity for such losses can claim for business interruption. It is clear neither the insurer nor policyholder ever envisaged the current situation when insurance policies were entered into. The Central Bank of Ireland has indicated a reference that Insurers’ should side in favour of the policyholder in circumstances where there is ambiguity in the scope of cover under such policies. This restates the Contra Proferentem Rule where interpretation may fall against the Draftsman.

In general terms, commercial property insurance policies provide business interruption coverage in circumstances such as a flood or fire occurring on commercial property that suspends business operations. The purpose of the insurance coverage is to provide the policyholder with the decreased or lost earnings arising from the covered ‘ peril ‘. In most circumstances, business interruption insurance claims trigger on direct damage, physical loss, or destructionto the business property. In this situation, the financial loss is only covered in circumstance where the policyholder can prove material damage to its commercial property therefore resulting in financial loss. Insurers are stating that COVID19 does not cause material damage to business properties and therefore policies are not responding.

There are other reasons for business interruption policies not responding to the pandemic depends on the wording of individual policies. Most policies reasonably contain exclusion clauses for viruses and it is further suggested by Insurers’ that a ‘pandemic risk’ is excluded as it is not insurable due to the vast open ended implications. Other policies provide coverage in circumstances where it is a notifiable disease, and since the 20th February 2020 COVID-19 has been designated as such in Ireland. Importantly, it would appear from policy wordings, that there requires to be an outbreak of the notifiable disease/virus at the specific business premises and not just generally or in the locality.

These issues which are germane to most Business insurance policies are coming before the Courts in other jurisdictions.

A recent federal New York case (14th May 2020), Social Life Magazine Inc. v Sentinel Insurance Company, New York, 20 Civil. 3311, the Court of First Instance denied an injunction requesting immediate payment for the financial loss of the policyholder from their insurer while the main coverage action was pending. Although the Court expressed sympathy to small business owners in this current situation, it could not find any evidence of direct physical loss or physical damage to the business property. The Court stated the virus damages a person and not property. It further distinguished the COVID 19 situation to an outbreak of mould or Legionnaires disease in a business property. The Court stated that there was no evidence that the virus was in the property and the Court ruled that it was the Governor of New York’s stay at home order that caused the policyholder’s damage.

In a decision of the French Commercial Court Manigold -v- AXA (22nd May 2020), it was found that Stephane Manigold, an owner of four Michelin starred restaurants was entitled to an indemnity under an insurance policy as a business interruption loss. AXA the respondent insurer have vowed to Appeal but didconcede a small number of policyholders were covered for Covid-19 related business losses as they had purchased a specific policy.

Industry experts assess that if all Covid-19 relates losses were deemed covered by insurers, French insurers alone would require to compensate 20 billion per month. That would be unsustainable and is likely a doomsday scenario.

There is little doubt that prolonged legal wrangling will prompt Insurance Regulators to insist insurers put aside additional reserves to offset legal risks which will impact on insurers profitability for the foreseeable future.

In the Republic of Ireland a number of cases have commenced emanating from the hospitality sector against local insurers. It is understood that some of these risks were underwritten in January and February as the Covid crisis unfolded and with the awareness of same. Each policy will require to be carefully reviewed in the context of Business Interruption. The measurement of such losses will be of significant interest if a policy is found to respond for such Business Interruption as envisaged above. In an unprecedented time where normal commercial business is suspended by Government Order there will be significant arguments regarding the criteria for measuring such financial losses. There will be disputes regarding the periods in question and the limitations attaching thereto. If a commercial market which a policyholder would otherwise have exploited for financial gain does not exist, it appears difficult to ascertain how such financial loss can be maintained against an insurer.

There will be speculation and much erroneous comment until some of these matters and issues are litigated fully. It would be hoped that these can be dealt with by the Courts expeditiously (Commercial Court) to give clarity and certainty.

For fuller advice regarding Insurance Contracts and Business Interruption please contact Mary Byrne (mbyrne@obl.ie) or Ruth Hereward (rhereward@obl.ie) of OBL Solicitors.

The Changing Landscape of the Summary Judgment Procedure

March 27, 2020 in News

The Supreme Court has recently held that a lender must provide sufficient detail in the Special Indorsement of Claim to a Summary Summons when enforcing an outstanding debt through the Summary Judgment procedure.

Procedure

The legal landscape for the summary judgment mechanism, in obtaining a judgment against a borrower, has significantly changed in the past 12 months. Summary judgment cases were previously heard by the Master of the High Court, who had the power to award judgment, where there was no “arguable defence” as to why the debt had fallen due. If an arguable defence was put forward by a borrower, the Master of the High Court was required to transfer the case to the Judge’s list for a High Court judge to ultimately decide the issue.

As of 2019 High Court summary judgment cases are heard exclusively on the Judge’s list. With the transfer of summary judgment cases to the Judge’s list the level of detail provided at the time proceedings are issued has under come increased scrutiny. Many special indorsements of claim in recent years have provided limited detail as to how the amount being claimed had been calculated. While there may not be uncertainty in an amount claimed in the cases involving 1.) fixed interest rate loans or 2.) guarantees, in the cases of variable interest rate loans, the borrowers may not be able to easily cross-reference or calculate the amount being claimed against their loan offer.

The Superior Courts are now pressing financial institutions to be more borrower-friendly and transparent by particularising any claims for summary judgment.

Case Note

In the recent case of Bank of Ireland Mortgage Bank -v- O’Malley [2019] IESC 84, Bank of Ireland Mortgage Bank (the “Bank”) were awarded final judgment in the amount of €221,795.53 in the High Court. Mr O’Malley appealed to the Supreme Court on the basis that the special indorsement of claim in the summary summons contained only bare details on the amount claimed. Despite the plaintiff exhibiting a statement of account in relation to the loan on affidavit, the appeal was successful.

The crux of Mr O’Malley’s appeal was that it was not possible to decipher from the initiating document which elements of the amount claimed constituted 1.) the principal, 2.) contractual interest, and 3.) whether bank surcharges and penalty sums had been included in the sum claimed.

Chief Justice Clarke found in favour of the appellant stating that the special indorsement of claim was insufficient, as it did not provide any details as to how the overall sum due and owing was calculated. In citing the previous case-law Clarke CJ stated that “the defendant to a summons is entitled to have sufficient particulars to enable him to satisfy his mind whether he ought to pay or resist”.

While a statement of account recording the amount claimed had been previously sent to the defendant, as well as exhibited to an affidavit in the proceedings, Clarke CJ noted that the statement of account contained little detail on the calculation of the sum claimed. Thus, Clarke CJ decisively stated, “I am not satisfied that it would have been obvious to a reasonable person as to how the sum of €221,795.53 was calculated.” He referred to Order 4 Rule 4 of the Rules of the Superior Courts wherein it states that the Special Indorsement of Claim shall state specifically “all necessary particulars”.

Whilst the Chief Justice remarked that the more detail that a borrower has been provided in advance, increases the possibility of justifying the “shorthand” way of describing how the amount due has been calculated; this was caveated by stating that if the lender wishes to rely on previously supplied information or details, they must at least make some reference to those details in the special indorsement of a claim.

The requirement to particularise was neatly summed up by the Chief Justice when he stated that “it does not seem to me to be too much to ask that a financial institution, availing of the benefit of the summary judgment procedures, should specify, both in the special indorsement of a claim and in the evidence presented, at least some straightforward account of how the amount said to be due is calculated and whether it includes surcharges and/or penalties as well as interest.”

The matter was remitted to the High Court to allow the Bank the opportunity to apply to amend the special indorsement of a claim by fully particularising the amount claimed.

Implications for non-bank lenders

While the precise implications of the Supreme Court’s decision remain to be seen, it is worth noting that there was no distinction made between financial institutions who originally advanced the loan and subsequent owners of the loan.

This decision undoubtedly creates a new challenge for loan purchasers, if very limited historical loan account information has been provided in the loan sale. It may be prudent for any prospective loan purchaser to seek historical statements of account for each loan purchased in future.

If you would like further information relating to the impact and remedies of the Supreme Court decision in Bank of Ireland Mortgage Bank -v- O’Malley [2019] IESC 84 please contact the author Ross Shaughnessy at rshaughnessy@obl.ie.

To view other topical legal articles which may be of interest please visit our website at obl.ie.

Business Interruption and Insurance Policies – Ruth Hereward Solicitor OBL Solicitors

March 25, 2020 in News

Covid-19:

Business Interruption and Insurance Policies

Ruth Hereward Solicitor OBL Solicitors

This Century has seen remarkable events but the Covid-19 crisis is unsurpassed in living memory drawing many comparisons with those who recall World War II.

In recent days the UK has performed a U-turn policy from the herd immunity position to complete lockdown.  This hopefully will avoid the macabre and depressing footage that we are seeing emanating from various Mediterranean Countries.

In the Republic of Ireland the cumbersomely titled Health (Preservation and Protection and other Emergency measures in the Public Interest) Act 2020 was signed into law on the 20th March 2020. Such provisions providing significant prohibitions and restrictions of common everyday events with accompanying powers of detentions would have been thought unimaginable at the commencement of this calendar year.

In these highly unusual times businesses across the Country are being directed to close and all interested parties appear to be buying into the “we are all in this together” mantra.

The question regarding Insurance Coverage for Businesses is now highly significant and topical.

Businesses, Brokers and Lawyers are urgently reviewing policies against a backdrop never previously imagined.  The Political establishment is calling on various Central Banks to issue guidance for insurers who are refusing to compensate businesses for business interruption. This populist grand standing does not take account the legal nature of coverage provided in such insurance policies and the contractual obligations that flow from same.  The viability of insurers could not withstand the types of suggestions being proffered by political and other various sources.

Most businesses take out insurance cover to protect against business interruption losses. These are normally in conjunction with Employers and Public Liability policies envisaging a situation where a business cannot operate often due to a catastrophic event such as a fire or a flood.  A defined period of the business being closed during reinstatement works is normally clear unlike the current situation and the uncertainty we are encountering.

Insurance policies for the hospitality sector will be particularly interesting on whether they respond to “notifiable” infectious diseases. It is noted that the Covid-19 crisis has been officially characterised as a Pandemic as of the 11th March 2020 and had been a notifiable disease for a period in advance of that.

Lloyds of London announced recently that they would “pay out” on claims (subject to the usual investigations) for business interruption where there is either a specific notifiable disease or Pandemic extension.  This will have a significant impact on the bottom line for the insurance industry and is an unanticipated major shock.

Insurance policies must be examined on a case by case basis in light of the particular circumstances a business faces and the terms contracted to between the parties.

Many insurers are currently refusing indemnities for the usual reasons that arise in regarding to infectious diseases where policies specifically exclude or limit coverage. There will be a plethora of legal disputes regarding whether business closures were mandated by law and specifically when.  The Pandemic itself as it has manifested itself almost fits perfectly into how one would view “force majeure”. The world economy is grinding to a slow halt in the face of a widespread Pandemic.

There will be many legal challenges against insurers and brokers for some of the above reasons by way of Arbitrations and legal proceedings. At the time of writing we are at the infancy of the crisis in Ireland with the much feared surge yet to arrive.  The consequences for the insurance industry are enormous and will have reverberations for many, many years to come when this crisis has come to pass.

For further information, please contact the author Ruth Hereward (rhereward@obl.ie) or Mary Byrne (mbyrne@obl.ie)