Irish Insurers Told To Pay Litigants' Costs In Test Cases

By Martin Croucher
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Law360, London (August 6, 2020, 12:08 PM BST) -- Insurers should pay the legal costs of small companies that pursue litigation over rejected claims for business interruption in test cases, even if the insurer wins the dispute, according to directions issued by the Central Bank of Ireland

The central bank said in a so-called framework document Wednesday that businesses challenging the decisions of insurers are already struggling financially from being forced to close during the lockdown. Campaigners have accused the regulator of being "invisible" as disputes over business interruption policies in the country pile up.

The Irish central bank has outlined the obligations of insurers to pay out in full on claims where policyholders "have an entitlement to claim." It stressed it will intervene if it finds cases where customers were treated unfairly.

"Where cover is disputed and businesses have pursued litigation, insurance firms should be cognizant of the significant costs burden faced by their customers," Derville Rowland, the director general of financial conduct at the bank, said.

"We therefore expect that in circumstances where the firm obtains the benefit of a court's interpretation of issues at hand, a firm should agree to pay the reasonable costs of customer plaintiffs in agreed test case litigation and should not seek its costs against these plaintiffs," she added.

The country's legal system means that, typically, the court will order the losing to pay the winner 's legal costs. The rule will apply in "agreed test case litigation," the central bank said. When the court rules against them, insurers should take "urgent remedial action" to pay out on claims made by other customers with similar policy wordings. 

Ireland faces its first test court case on business interruption in October, when four pub owners will bring litigation against one of the country's biggest insurers, FBD. The case will determine liability for 700 other pub policyholders of FBD, and could cost the company €30 million in claims, it said last week.

Business interruption policies can sometimes be sold with "add-ons" that offer cover if a business was forced to close as a result of a notifiable disease outbreak in the vicinity. Insurers say their policies were never intended to provide protection against pandemics.

A campaign group, the Alliance for Insurance Reform, said in June that 63% of the 2,000 Irish businesses it surveyed that had claimed under their policies had been rejected. A third, 33%, of respondents were still waiting for a decision from their insurer.

--Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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