Covid cover denial cases could cost FBD €140m
Insurer facing payout to pubs over business interruption in pandemic
FBD Insurance is facing a potential bill of €125m to €140m in payouts to publicans if it loses the legal actions over its refusal to pay out on business interruption policies for businesses shut by the pandemic.
The cases against the stock market-listed insurer by four pubs – Sean’s Bar in Athlone and Dublin pubs Sinnott’s, Lemon & Duke, and the Leopardstown Inn – begin at the Commercial Court today
The court decision on the four sample cases will also determine the fate of claims from 1,300 other pub customers who hold similar policies.
Industry sources say a loss in the case for FBD could cost between €125m and €140m depending on factors including the calculation of lost profits.
One insurance claims expert familiar with the Irish actions estimated a loss could mean average payouts of nearly €100,000 per pub in a worstcase scenario for the firm – a figure considered plausible by another financial source.
FBD is also covering the full legal cost of the case for all parties, which could cost in excess of €10m depending on the length of the trial.
The insurer has already taken a €30m provision in its accounts to cover a loss in the case. Analysts at Goodbody have estimated the cost could double if the Irish court reaches a similar finding to a case in the UK last month which found in favour or policyholders.
FBD was not part of the UK action, which was taken by the Financial Conduct Authority (FCA) after a number of British insurers refused to pay out on business claims there.
The case is expected to last two to three weeks with a judgement in November, which means in the event of a loss FBD would be unlikely to have to pay before the first quarter of next year.
Shares in FBD have lost nearly a third of their value this year as Covid restrictions forced its hundreds of pub customers to close to comply with public health restrictions.
The company argues that the closures were not caused by an outbreak on or near the premises, as the policies stipulate, but by a nationwide order.
The company also maintains that “business trends” clauses in the pubs’ policies invalidate any claims, as there were no customers to lose during the
coronavirus lockdown.
A similar business trends argument was rejected by the English courts last month in the FCA case. The UK judgement found generally in favour of policyholders, although the insurance companies may yet appeal.
The UK case is a good indicator for how FBD’s case will go, according to a note by law firm Arthur Cox, although a range of outcomes is possible.
The worst result from the insurance company’s point of view would be a judgement that requires it to pay claims based on the pre-Covid profit margins of its pub customers. However, reinsurance provisions could cover up to 40pc of that, according to Goodbody.
FBD has already changed the contested wording in its commercial policies to explicitly exclude Covid and other communicable diseases. Since
August 1, pubs on new policies can no longer claim business interruption for Covid. The wording is being put into other commercial policies on a rolling basis, the company said.
Last week, interim CEO Paul D’Alton wrote to staff saying that the UK verdict “is regarded as favourable to the position of policyholders”. He also said FBD was contesting the case to “defend the integrity of the insurance contract”.