The Provincial Court of Girona has ruled on appeal on a case in which the insurer was sued for refusing business interruption cover to a restaurant that was forced to close its business during the pandemic (59/2021 Section Nº1 Civil Court of Girona). The court confirmed that the insurance policy should respond in this case, following a 30 day-closure which was imposed by Covid-related State legislation. In this respect, several insurance associations (Adecose, Aunna, Cojebro, Consejo General, Espabrok and Fecor) have shared their views with their members, advising them to be careful about the conclusions to be drawn from this judgment.

In Spain, BI cover deri­ved from busi­ness clo­sures due to deci­sions of public autho­ri­ties and ari­sing from state of alarm are gene­ral­ly not avai­lable on the mar­ket. When they do, they are not desi­gned for “mass” poli­cy­hol­ders, but for spe­cial risks, most of the time on Anglo-Saxons mar­kets, and are asso­cia­ted with very high costs.


In this case, the insu­red owned a piz­ze­ria, and was for­ced to stop its acti­vi­ties because of the pan­de­mic during 30 days. The owner made a claim to his insu­rer, based on his BI cover. The insu­rance com­pa­ny denied cover, sta­ting that the poli­cy didn’t men­tion the fact that the costs ari­sing from Busi­ness Inter­rup­tion — resul­ting from a govern­men­tal deci­sion in the event of a pan­de­mic — would be cove­red. The insu­red brought the case in front of the Court of First Ins­tance of Giro­na, which dis­mis­sed his request, in a ruling han­ded down on 20 Novem­ber 2020.. That’s why he filled an appeal, and on Februa­ry 2021, the Pro­vin­cial Court over­tur­ned the first ins­tance jud­ge­ment. The court found in favour of the Insu­red, relying on a broad inter­pre­ta­tion of a poli­cy clause, which was consi­de­red by the magis­trate as limi­ting the rights of the insu­red, and – accor­ding to him — should have been typo­gra­phi­cal­ly dis­tinct from the rest of the clauses, and express­ly accep­ted by the insu­red. It is impor­tant to note that the jud­ge­ment, from a cham­ber of the pro­vin­cial court, won’t create a pre­cedent, and takes the oppo­site side of a simi­lar judg­ment, which was han­ded down in 2013. 

This deci­sion ini­tia­ted a debate in the Spain insu­rance indus­try. Indeed, many sta­ke­hol­ders out­li­ned the fact that, for a Busi­ness Inter­rup­tion cover to respond, the occur­rence of a mate­rial damage is neces­sa­ry, as recalls Maciste Argente, CEO of Argente Ges­tión de Ries­gos Cor­re­duría de Segu­ros, S.L.: “Not lin­king the acti­va­tion of the gua­ran­tee to the exis­tence of prior mate­rial damage could lead us, fol­lo­wing the spi­rit of this judg­ment, to incom­pre­hen­sible situa­tions, such as […] the inabi­li­ty to open a busi­ness due to air­port clo­sures that prevent employees from acces­sing it after a trip (remem­ber the pro­blems cau­sed in 2010 by the ash from an erup­tion of a vol­ca­no in Ice­land, which can­cel­led more than 6 000 flights in Europe)”.From a more “legal” point of view, José Anto­nio Badillo Aria, Direc­tor de ‘R.C. Revis­ta de Res­pon­sa­bi­li­dad Civil, Cir­cu­la­ción y Segu­ro’, out­lines that this deci­sion will give rise to some contro­ver­sy in the coming months. Indeed, it seems clear to him that where insu­rance contracts link a BI to the exis­tence of direct mate­rial damage cove­red by the poli­cy, poli­cy­hol­ders are dea­ling with a deli­mi­ta­tion of risk clause. This type of clause is dif­ferent from the clauses limi­ting the rights of the insu­red, which the magis­trate iden­ti­fied in our case, as they do not need to be typo­gra­phi­cal­ly dis­tinct from the rest of the clauses in the contract, nor does it need to be express­ly accep­ted by the insu­red by means of his signa­ture. The­re­fore, the argu­ment of the nature/typography of this type of clause will no doubt be rai­sed in the future, and will be sub­ject to debate. Anto­nio Badillo Aria also high­lights the fact that, in order to resolve simi­lar cases in the future, it will be neces­sa­ry to ana­lyse on a case-by-case basis how such clauses are draf­ted. The­re­fore, there will be no single rule, but the out­comes of future cases will depend on the draf­ting of the clauses.

This court deci­sion is like­ly to ini­tiate a wider move­ment in Spain, which seems to have been ger­mi­na­ting in recent weeks. Indeed, 200 Spa­nish hotel and res­tau­rant owners are now clai­ming to be indem­ni­fied for their BI losses ari­sing from the pan­de­mic, through a class action. They claim a total of 8 mil­lion euros from seven insu­rance com­pa­nies. 

What does it mean for insurance brokers ?

In some ins­tances, poli­cy­hol­ders with poli­cies that do not respond could be temp­ted to sue their insu­rance inter­me­dia­ry for not advi­sing them to take out a poli­cy that could have cove­red BI losses rela­ted to a pan­de­mic. This move­ment is alrea­dy begin­ning to take shape in the Uni­ted-King­dom, Ire­land or France, whe­reas we are not seeing any such claims in Spain or Ita­ly. Never­the­less, Insu­rance asso­cia­tions recall that the court’s inter­pre­ta­tion of the clause does not cor­res­pond to the “spi­rit” of the cover when gran­ted as, when the insu­rance contract was taken out in Februa­ry 2020, “nobo­dy in any sec­tor, nei­ther in the Insu­reds nor insu­rance com­pa­nies, had the objec­tive of cove­ring a pan­de­mic”. Indeed, most of insu­rance poli­cies were not desi­gned to tar­get this type of risk, which wasn’t even consi­de­red by poli­cy­hol­ders. Bla­ming insu­rance inter­me­dia­ries for not having fore­seen a risk that nobo­dy thought of would the­re­fore be a nonsense.

Fur­ther­more, insu­rance asso­cia­tions empha­si­zed the fact that : “pan­de­mic can­not be cove­red by the insu­rance sec­tor in its enti­re­ty. There are no enough reserves or pre­miums to cover it”. Indeed, Maciste Argente under­lines the fact that – when insu­rance poli­cies were incep­ted, before the onset of the pan­de­mic — the pre­mium char­ged by insu­rers for BI covers were not inten­ded to be cal­cu­la­ted in contem­pla­tion of the risk of a glo­bal pan­de­mic “It is both unfair and dan­ge­rous to expect cove­rage to go fur­ther. This is the rea­son why Spa­nish insu­rance asso­cia­tions are cur­rent­ly pro­po­sing solu­tions in public sta­te­ments, such as the crea­tion of a public-pri­vate part­ner­ship at Spa­nish and Euro­pean level, to pro­vide a means of bet­ter mana­ging a future pan­de­mic. Howe­ver, this solu­tion was alrea­dy stu­died in other coun­tries, but seems quite dif­fi­cult to imple­ment. For ins­tance, France was plan­ning to set up a new com­pul­so­ry insu­rance scheme cal­led “CATEX” to cover busi­ness inter­rup­tion ari­sing from a future pan­de­mic. That’s why a wor­king group was set up and qui­ck­ly pro­po­sed a sce­na­rio aimed at offe­ring a lump sum “resi­lience capi­tal” to VSEs and SMEs in the event of an admi­nis­tra­tive clo­sure due to a pan­de­mic (but also due to a natu­ral disas­ter, an act of ter­ro­rism or popu­lar riots). This idea was recent­ly drop­ped by the French govern­ment, because it would have meant impo­sing new com­pul­so­ry contri­bu­tions on SMEs, which may not be able to afford them. Fur­ther­more, rein­su­rers sha­red their views on the dif­fi­cul­ty they would have in relea­sing capa­ci­ty if a mul­ti-per­il scheme were adop­ted. Pla­nète CSCA, the pro­fes­sio­nal bro­ke­rage union, has also expres­sed some reser­va­tions, wishing to limit its cove­rage to pan­de­mic risk. As no consen­sus was rea­ched, the pro­ject was dropped.

In Europe, unprecedented growth in rulings in favor of policyholders

This deci­sion is in line with other coun­tries whose courts have ruled on pan­de­mic-rela­ted BI losses, but is like­ly to have a more limi­ted impact. Indeed, UK regu­la­tor, the Finan­cial Conduct Autho­ri­ty (FCA), took the ini­tia­tive to bring the case against a sample of over 60 insu­rers because it felt that a large num­ber of com­mer­cial package poli­cy wor­dings would cover claims ari­sing from the pan­de­mic, whe­ther deli­be­ra­te­ly or not. After a first ins­tance jud­ge­ment in favour of poli­cy­hol­ders, this test case was fast tra­cked to the Supreme Court for a final deci­sion, which was han­ded down on 15th Janua­ry 2021, and gene­ral­ly found in favour of the FCA. It is the ‘final reso­lu­tion’ of the test case and there is no fur­ther recourse through the English courts.In Ire­land, a simi­lar deci­sion was han­ded down by the High Court, a few weeks after the UK Supreme Court’s deci­sion, in a test case oppo­sing the insu­rance com­pa­ny, FBD, to four publi­cans. This deci­sion pro­vides cla­ri­ty to poli­cy­hol­ders see­king indem­ni­ty for busi­ness inter­rup­tion as a result of the Covid-19 pan­de­mic. FBD announ­ced that it won’t be appea­ling the deci­sion. This deci­sion is quite dif­ferent from the FCA’s Test Case though, as unlike the UK wat­ch­dog, the Cen­tral Bank of Ire­land did not take the ini­tia­tive to bring such a test case to Court, cer­tain­ly due to sta­tu­to­ry res­tric­tions, and let the mar­ket liti­gate the case. Des­pite its absence in the test case pro­cee­dings, the Cen­tral Bank is appa­rent­ly willing to super­vise this issue, as it announ­ced that it “wel­comes the judg­ment of the High Court” and that it will be “clo­se­ly exa­mi­ning the poten­tial impact of this judg­ment for cus­to­mers in the context of its sus­tai­ned and ongoing enga­ge­ment with insurers”.

Unlike the Spa­nish deci­sion, these two deci­sions are like­ly to set pre­ce­dents in the Irish and UK mar­kets, and reflect a broa­der move­ment, due to the inter­ven­tion of the watchdogs.Therefore, there is no single approach to this pro­blem at Euro­pean level, due to the spe­ci­fi­ci­ties of each market.