Patrick Hanley, a former general manager of the Park Hotel Kenmare and the Sheen Falls Lodge in his native Kerry, had long dreamed with his wife, Aileen, of striking out on their own. In early 2018, they took the plunge, taking on a Wexford coastline eatery, The Strand Cahore, perched on a hill overlooking the Irish Sea.
“We developed the food end of things and won some nice awards. Business for the first two months of this year was up 65 per cent on 2019, even though this is really a seasonal summer business,” said Hanley. “We were flying it and had huge plans to add to the offering.”
That was before coronavirus struck, triggering the closure of thousands of Irish pubs, cafes, restaurants and leisure facilities in the middle of last month – initially to follow Government social-distancing guidelines, and subsequently to comply with more onerous restrictions.
“We froze any payments we could but maintained some for smaller companies and suppliers to do our bit to keep some money flowing through the system,” said Hanley.
He then turned to his insurer to tap the business interruption part of his policy, which offered infectious diseases coverage. He was immediately rebuffed as his business hadn’t been shut down as a result of a notifiable disease on his premises or within a 25 mile radius, with the insurer subsequently arguing that the eatery wasn’t initially closed because of coronavirus, also known as Covid-19, but because it couldn’t implement social-distancing guidelines.
“Anyone reading the policy would think we were covered. It’s insulting and immoral what’s going on,” Hanley said. “The Government is going to be relying on small businesses up and down the country like ours to help pay the enormous bill it faces as a result of Covid-19. There’s going to be so many that will not be able to re-open.”
Hanley is far from alone. His tale is echoed around Ireland and farther afield as insurers rely on fine print and technicalities to avoid payouts on business interruption policies as the spread of coronavirus has plunged the world economy into recession.
This approach has been met with everything from regulators urging insurers to treat customers fairly to a class action being filed earlier this month in Canada against a group of the insurers for alleged breach of contract in their refusal to meet business interruption claims from the Covid-19 crisis, citing unforeseen circumstances.
In Ireland, the reputational damage from the standoff has compounded a view that insurers have replaced bankers as the bogeymen of financial services in recent years, with public and political uproar over soaring motor and commercial insurance rates as firms seek to recoup losses earlier in the decade.
"Insurers are pulling down the hatches and doing everything they can to avoid payouts," said Adrian Cummins, chief executive of the Restaurants' Association of Ireland. "I think they are playing a war of attrition here with small business and are willing to grind them down when they are already on the ground."
About 150,000 businesses in Ireland have some form of insurance policy, with about half of these paying for business interruption contracts covering basics such as fire and flooding, according to industry sources.
Roughly half of the business interruption contracts – covering some 37,500 businesses – are said to mention notifiable diseases.
Niall Donaghy, managing director of Allay Claim Management, one of the State's leading independent claims consultants, said that clients looking to claim under infectious diseases provisions in policies are holding contracts carrying different conditions.
“You can have policies written in a way that there’s a territorial limit on a notifiable disease outbreak of, say, 25 kilometres from the business. Or they’re written in a way that excludes specific diseases such as AIDS or SARS. Insurers are saying that Covid-19 is a type of SARS and not paying out,” said Donaghy.
But even in cases where policies are clear cut and insurance must be paid out, most have monetary limits.
“Very few policies are written in a way to put you back into the financial state you were at prior to the loss. The average limit on the policies we come across is €20,000, but there are ones that go up to €50,000,” he said.
While FBD, Ireland’s only indigenous insurer, offers coverage for outbreaks of contagious or infectious diseases on premises or within a 25 mile radius, it is rejecting Covid-19 claims under this clause.
“The closure on any view was not caused by outbreaks of disease on or within 25 miles of the premises, rather it was caused by national considerations resulting from the general pandemic including, in particular, the requirements of social distancing,” the insurer said in a letter sent to a claimant, seen by The Irish Times.
Secondly, the insurer argued that the Covid-19 pandemic “manifestly does not fall within the scope” of the infectious diseases clause. “The WHO Covid-19 declared pandemic is by its nature, scale and consequences, entirely different to localised outbreaks of contagious or infectious diseases that might reasonably have been contemplated by the parties when this policy was entered into.”
Thirdly, it said that business interruption losses sustained by businesses are a result of social distancing practices being observed by people in general – including under Government restrictions – and not an infectious disease outbreak within 25 miles of a premises.
In a statement to The Irish Times about its stance on such claims, FBD said: “FBD insurance policies provide protection against defined risks which is matched to a corresponding premium. This allows us to provide a service, pay claims and hold appropriate reserves for the benefit of all policyholders, from motor to farm to small business to homes.”
Hiscox, one of the Lloyds of London members that services the Irish market, has told customers that its policies do not include diseases linked to pandemics such as coronavirus "due to the difficulty of insurers being able to quantify the potential risk".
"Insurance is based on the idea of 100 per cent of a group paying in for coverage for the likelihood of 5 per cent making a claim. It was never envisaged for a scenario where 100 per cent of people making a claim at the same time," said Gerry Hassett, interim chief executive of the Insurance Ireland lobby group.
“Policies that offer coverage for notifiable diseases are not written for the context of a pandemic: they’re for incidents like salmonella on a premises, where a restaurant is forced to close down for a month and insurance kicks in.”
When there was evidence last month that some insurers were dismissing claims on the basis that businesses initially closed as a result of Government guidelines rather than orders, Minister for Finance Paschal Donohoe and the Central Bank quickly said that both amount to the same thing.
The industry finally conceded last Friday, under Insurance Ireland, that Government advice would be recognised as the same as a direction.
UK insurance giant Aviva’s Irish unit is also among firms knocking back claims.
“Business interruption cover is generally not intended to provide cover for a global pandemic such as Covid-19 and the scale of the Government support and interventions we have seen in recent days demonstrates the widespread impact on all aspects of the Irish economy,” a spokeswoman for Aviva said.
“Only a very small minority of businesses have chosen to buy any form of cover that includes local closure due to an infectious disease. As a result, the majority of standard business insurance policies, including those offered by Aviva, do not provide cover beyond physical damage to a premises that renders the business unable to continue trading. We cannot pay claims for risks that have not been priced or covered in our policies.”
However, French-owned Axa Insurance Ireland said three weeks ago that it would accept Covid-19 business interruption claims from more than 4,000 business clients in the Republic, typically covering shops and offices where the virus does meet the description of a general "notifiable disease" as set out in the relevant policies.
Policies that cover listed diseases will not be paid out on, however, as none specify Covid-19.
In addition, Axa said that reinsurance companies, which take on much of the risk attached to business interruption policies globally from mainstream insurers, have told it that they will be excluding Covid-19 at the next renewal of reinsurance contracts. This means that Axa will not be able to offer coronavirus coverage in future, it said.
Insurance Ireland has also warned that the solvency of many of its members could be called into question, affecting their customers, if they paid out on claims that are not covered by policies and could not be recouped from their reinsurers.
Peter Boland, director of the Alliance for Insurance Reform, which represents 36 business organisations, says the business interruption policies with infectious diseases clauses that have been sent to him by people who feel they have a claim fall into three categories. They include cases that offer cover when an authority orders business closures, ones that clearly offer no protection, and policies where the wording is open to interpretation.
“Many SMEs in the third category won’t have the resources to pursue their insurer and will just collapse,” said Boland. “I’m amazed by how many different policies there are out there. Even if the front of documents purport to offer the same cover, they often are worded quite differently inside.”
Boland says that while some businesses are preparing to go to the Financial Services and Pensions Ombudsman, Ger Deering, with complaints, and others may be considering going straight to the courts, they face challenges.
“I don’t think people are generally interested in going down the Ombudsman’s 12-week dispute resolution mediation process, as there’s a view that it’ll just be stonewalled by insurers on the other side of the table. If they go for a legally-binding decision from the Ombudsman, they face waiting 12 to 18 months, by which time the business could long have gone into liquidation,” he said.
Hassett accepts that there’s a “grey area” of policies that are open to interpretation for what is covered, but he says that these “are in the minority”.
The Central Bank has been engaging intensely with the industry in recent weeks and has instructed insurers it regulates to come back by the end of the month with a detailed breakdown of business interruption policies, including data on contracts with ambiguous language and how these are being dealt with.
In a letter sent out to insurance chief executives late last month it said: “Although the Central Bank expects that most policy wordings are clear in terms of what cover is provided and what cover exclusions are in place, where there is a doubt about the meaning of a term, the interpretation most favourable to their customer should prevail.”
Sources say that regulators have made it clear privately to insurers that they are looking at the industry not only through the Central Bank Consumer Protection Code but also the EU Unfair Terms in Consumer Contracts Regulations 1995, which stipulate that contracts must be written in language understood by an average consumer and not contain terms that unreasonably restrict the rights of consumers.
The legislation gives the Central Bank the power to seek a court order to prevent the use of unfair contract terms or use its so-called administrative sanctions procedure, leading to fines.
The clear risk for insurers is that they find themselves caught up in a Central Bank examination similar to the tracker-mortgage debacle, according to industry and regulatory sources.
The tracker issue has cost the banking industry €1.5 billion in refunds, compensation, administration expenses and provisions for expected multimillion-euro fines. It has also seen banks capitulate on contracts where they would have had a reasonable chance of winning their case in court.
Meanwhile, the European Insurance and Occupational Pension Authority – responsible at EU levels for the protection of insurance policyholders among others things – has said that insurers should act in the best interest of consumers.
“Imposing retroactive coverage of claims not envisaged within contracts could create material solvency risks and ultimately threaten policyholder protection and market stability, aggravating the financial and economic impacts of the current health crisis.”
Back in Wexford, Hanley says it’s important that any reopening of the economy takes place slowly to ensure that coronavirus is contained and the number of victims is minimised.
“I know that’s the most important thing,” he says. “But it probably means a re-opening of a seasonal business like ours around autumn – which would be a disaster.”