This article is a follow up of our article dated 5 October 2020 “Munich court awards pub-keeper’s business interruption claim against insurer”
Businesses all over the world have suffered from the consequences of the COVID-19 protective measures, especially in countries where lockdowns have been imposed. There have been attempts by businesses in several jurisdictions to recover part of their losses by suing their insurer for business interruption compensation. All cases face the same challenge: how to interpret the contractual provisions and does the insurance contract cover situations like a pandemic?
In our first article, we referred to an order made by a Munich court in favour of a restaurant to claim compensation for its losses due to its business being forced to close during the COVID-19 lockdown. The insurer was ordered to pay EUR 1,014,000 to the owner of the restaurant. The appeal has been filed and is ongoing.
This decision is expected to be the first one of numerous cases in Germany where insurers have announced that they could, in specific circumstances, agree to cover part of their client’s losses depending on the terms of the insurance contract. However, as the protective measures to fight the virus continue to apply and are expected to last for some time, one can anticipate that insurers will increasingly seek to rely on exclusions to avoid covering business losses so that businesses will have to seek any compensation by litigating.
As various nations imposed lockdowns, similar cases have been filed in other European jurisdictions where judges have most of the time adopted a similar approach against insurers.
ID&T, a company specialized in the organisation of festivals in The Netherlands, filed an EUR 8 million claim against its group of insurers to cover losses suffered from business interruption. In a provisional order, the judge granted an advanced payment of EUR 1.3 million to be paid by its insurers.
The court was of the opinion that the total amount of the compensation needed further assessment but, in the meantime, wanted to award an advance payment to compensate part of the losses caused by the events that were cancelled since March 2020 due to the COVID-19 pandemic. The group of insurers, i.e. Nationale-Nederlanden (as main insurer), Reaal, Amlin and Chubb, filed an appeal against this provisional decision but still had to comply with the advance payment award.
Anticipating that many other cases could arise, suggestions have been made to create a special fund with the support of the government to help the catering sector and a decision is expected anytime soon.
In other countries, such as France, businesses impacted by the COVID-19 lockdown continue to file claims against their insurers to seek coverage for the losses suffered . In most cases, insurers refuse to cover damages based on business interruption due to the pandemic, again, claiming the application of an exclusion clause mentioned in the general terms and conditions of the insurance contract.
The first award was made in May 2020 by a first instance Judgment in Paris awarding Stephane Manigold, a French owner of 4 restaurants in Paris, compensation for losses caused due to the closure of his restaurants since 14 March 2020. The judge’s interim decision ordered AXA, the insurer, to make an advance payment of EUR 45.000 pending a final decision following an expert assessment to calculate the exact amount of the losses. The claim was upheld based on a provision of the insurance contract stating that losses suffered as a consequence of business closure following an administrative decision in case of epidemic were covered by the insurance.
AXA immediately filed an appeal against the decision, claiming that in case of pandemic, this provision does not apply. The insurer indeed believed that an exception mentioned in the insurance contract exempted it from covering the losses. The clause it was referring to stated that coverage shall be excluded if the administrative decision impacts other restaurants of the same region for the same reason. There is heated debate in France as to whether this exemption should apply in the case of a pandemic given that an administrative decision of closure because of a pandemic would be highly unlikely to impact just one restaurant.
In August 2020, Groupama was also ordered to pay a EUR 70.000 indemnity to an event’s organizer based in Ille-et-Vilaine for a total loss estimated at EUR 220.000.
Also in August 2020, the commercial court of Toulouse adopted a different approach by dismissing a claim filed by the famous chef Michel Sarran against its insurer AXA. This was the first decision made by a tribunal on the full merits of such a case and rather than the other interim decisions. The commercial court concluded that the exemption of coverage in case of collective closure of restaurants because of an administrative decision should apply and was valid.
Finally, another claim based on the same considerations was filed recently in Lille by Emmanuel Mena, a French restaurant owner, against AXA based on the same facts. That decision is still pending.
In response to the scale of the losses suffered by businesses in many sectors of the economy during the lockdown coupled with the inability of insurers to cover them all, the French ministry of economy decided to create a working group to debate whether a new insurance regime should apply to pandemics. The conclusions published in July 2020 are, however, disappointing as they only highlight possible options, without providing recommendations that could be implemented.
The UK Financial Conduct Authority bought a test case in the High Court to provide clarity in the interpretation of policies for policyholders making business interruption claims das a result of losses caused by lockdowns. The case focused on establishing whether insurers should accept liability under clauses within their business interruption policies providing protection for infectious or notifiable disease or denial of access due to public restrictions. A sample of policy wording from 8 insurers representing 370,000 policyholders was considered. In September 2020, the Court issued an expedited Judgment and held that most disease clauses and some denial of access clauses provided cover. Interpretation is highly dependent on the drafting of the policy and whether there was complete mandatory closure of the business or not.
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Deminor is closely monitoring the evolution of judicial cases made in various European jurisdictions and in the UK against insurers and is examining the opportunity of funding similar cases. For more information, please contact our team at the following email address : email@example.com
Written on October 30, 2020 by
Emily O’Neill is General Counsel UK, Olivia de Patoul is Senior Legal Counsel for the Asia Pacific Region at Deminor.