The High Court has upheld an ombudsman’s ruling that it was unreasonable for an insurance provider to refuse to pay out business disruption cover to a children’s play centre for closures due to Covid-19.
In a ruling delivered on Wednesday, Mr Justice Paul Burns dismissed an appeal by insurance provider Hiscox SA against the Financial Services and Pensions Ombudsman’s decision to uphold a complaint by NME Zone Limited, trading as The Zone in Co Meath.
Following the pandemic outbreak in early 2020, industry group Play Activity and Leisure Ireland informed The Zone that various government departments, including the Department of Health, recommended the closure of play centres. On foot of this, The Zone closed on March 15th.
The judge noted the centre’s policy included cover for business interruption caused by an inability to use the office due to “restrictions imposed by a public authority” following the “occurrence of a notifiable human disease”.
Hiscox declined The Zone’s claim in March 2020, concluding cover had not been triggered because restrictions or closure would have had to be imposed specifically on the policy holder’s premises and, it said, The Zone had closed without an instruction from the Health Service Executive to do so.
Hiscox emphasised that there was “no ambiguity in the policy wording”.
The Zone complained to the ombudsman.
In the meantime, London’s supreme court rejected a UK insurer’s interpretation of policy wording that was similar to Hiscox’s interpretation. On foot of this decision, Hiscox rescinded its earlier declinature and confirmed it would provide cover.
Subsequently, in May 2021, the ombudsman issued a final decision upholding the complaint, finding Hiscox’s refusal of the play centre’s claim was unreasonable, unjust and improper. She found the insurer’s view that cover was only triggered if the notifiable disease had occurred at the premises was “misconceived”.
The ombudsman was also satisfied that the closure of the premises occurred in order to comply with government guidelines. She directed the insurer to make an advance payment of policy benefits of €25,000, plus a compensatory payment of €5,000 to The Zone.
In appealing the decision in the High Court, Hiscox argued the ombudsman was seriously and significantly in error, considering the insurer had reviewed its policies immediately after the UK ruling.
Failure of recognition
The judge said it was the failure to recognise the play centre met the policy requirements that the ombudsman found to constitute unreasonable and improper conduct. While there were structural deficiencies in the decision, the ombudsman did identify the reasons for reaching her decision, said the judge.
Taking the decision as a whole, Mr Justice Burns was not satisfied Hiscox had established any serious or significant error.
The insurer had also submitted that the ombudsman’s direction that it must make a €25,000 advance payment was unnecessary as it had already conceded cover and was prepared to make a preliminary payment and had sought to engage with The Zone about losses.
It argued the sum arrived at by the ombudsman was irrational and could end up being more than the play centre was actually due.
Considering the pandemic caused The Zone to suffer a major drop in turnover figures, which had been in excess of €500,000 in the year to February 2020, the judge said the ombudsman was entitled to direct advance payment of €25,000.
Mr Justice Burns dismissed Hiscox’s appeal.