In France and Germany, two first court decisions on Business Interruption insurance and Covid-19 are shaking up the insurance industry

The French and German courts have recently ruled in two decisions that the closures of a hotel (in Germany) and a restaurant (in France) due to the Covid-19 pandemic could be covered by business interruption insurance. These two court rulings are interesting in that they could presumably result in a lower risk of insurance intermediaries being sued for negligence on the part of their clients.

In Ger­ma­ny, the Regio­nal Court of Mann­heim deci­ded in its ruling of 29 April 2020 (Case No. 11 O 66/20) that damages resul­ting from a busi­ness clo­sure ini­tia­ted by the hotel ope­ra­tor him­self could be cove­red by busi­ness inter­rup­tion insurance.

In this case, the hotel ope­ra­tor had taken out Busi­ness Inter­rup­tion insu­rance, and clo­sed down his esta­blish­ment on his own ini­tia­tive, without an offi­cial order having been issued against his busi­ness. Indeed, the conti­nua­tion of the busi­ness was no lon­ger eco­no­mi­cal­ly viable fol­lo­wing a series of deci­sions pro­hi­bi­ting the accom­mo­da­tion of tou­rists. Never­the­less, the insu­rance poli­cy cove­red the event that the com­petent autho­ri­ty clo­sed down the insu­red busi­ness due to noti­fiable diseases or patho­gens lis­ted in the Infec­tion Pro­tec­tion Act (IfSG). 

The court came to the conclu­sion that : “It is undis­pu­ted that boo­kings of busi­ness trips in the plain­tiff’s hotels are cur­rent­ly still pos­sible. Never­the­less, the cur­rent situa­tion is such that this res­tric­tion of hotel ope­ra­tions has the effect of a de fac­to clo­sure. (…) The effects of this offi­cial order the­re­fore have impli­ca­tions such as the clo­sure of a hotel in a spe­ci­fic indi­vi­dual case for disin­fec­tion or to contain a disease out­break in that hotel alone. The sense and pur­pose of the regu­la­tion to cushion inter­rup­tions of ope­ra­tions by offi­cial mea­sures due to the IfSG argues in favour of sub­su­ming such de fac­to clo­sures under this clause “.

Moreo­ver, the judge states that the coro­na­vi­rus is “a noti­fiable disease and patho­gen” in the sense of §§ 6 and 7 IfSG, although it is not expli­cit­ly men­tio­ned in the IfSG. 

The­re­fore, although no offi­cial order has been issued against the hotel ope­ra­tor, the deci­sions taken by the public autho­ri­ties to com­bat the COVID-19 pan­de­mic are consi­de­red as de fac­to offi­cial clo­sures. Accor­ding to the judges, the insu­rance poli­cy must be inter­pre­ted as mea­ning that these indi­rect effects of offi­cial deci­sions are also cove­red. 

The­re­fore, the concept of ‘de fac­to busi­ness clo­sure’ includes not only tar­ge­ted direct clo­sures of a hotel, but also admi­nis­tra­tive orders which have an indi­rect effect on the acti­vi­ties of the hotel.

In France, the Paris Com­mer­cial Court ruled on Axa Fran­ce’s refu­sal to indem­ni­fy the Busi­ness Inter­rup­tion suf­fe­red by a res­tau­rant owner

This deci­sion of the Paris Com­mer­cial Court, dated Fri­day, May 22, is unfa­vou­rable to the French insu­rer and could consti­tute a miles­tone. Indeed, the court orde­red that the res­tau­rant owner be indem­ni­fied for busi­ness inter­rup­tion without damage suf­fe­red in one of its four esta­blish­ments over a per­iod of two months. Axa will appeal the decision.

Since his esta­blish­ments have been clo­sed since the decree of 14 March 2020, the res­tau­rant owner deci­ded to sue Axa France before the Paris Com­mer­cial Court in mid-April.

Indeed, Axa refu­sed to indem­ni­fy its client : “We can­not depart from the very prin­ciple of the insu­ra­bi­li­ty of a risk which is based on mutua­li­sa­tion and contin­gen­cy. In the case of a pan­de­mic, because of its sys­te­mic and glo­bal nature, it pre­vents any mutua­li­sa­tion since the entire popu­la­tion is affec­ted at the same time. Moreo­ver, when a govern­ment makes a deci­sion to close busi­nesses, res­tau­rants and stores, we can­not talk about a hazard.

For the res­tau­ra­teur, the dis­tinc­tion bet­ween a clo­sure mea­sure taken “by the police or the health and safe­ty ser­vices” and “by the Minis­ter of Soli­da­ri­ty and Health” to jus­ti­fy the fact that it would not be an admi­nis­tra­tive clo­sure “as refer­red to in (the) contract is not jus­ti­fied “before a court”.

The inter­im order of May 22, 2020 seems to contra­dict the argu­ments put for­ward by Axa. The court rejects the debate on whe­ther a pan­de­mic is insu­rable or not. “This debate, as inter­es­ting as it may be and on which opi­nions dif­fer, does not concern us”. It consi­ders that Axa “does not rely on any legal pro­vi­sion of public order men­tio­ning the unin­su­rable nature of a conse­quence of a pan­de­mic”. It is the­re­fore incumbent on Axa to conven­tio­nal­ly exclude this risk. Howe­ver, this pan­de­mic risk is not exclu­ded from the signed insu­rance policy”.

As regards the admi­nis­tra­tive clo­sure of the esta­blish­ment, here again the court chal­lenges Axa Fran­ce’s argu­ments : “Axa France IARD claims that the appli­ca­tion of the admi­nis­tra­tive clo­sure clause must be trig­ge­red by the prior occur­rence of an insu­red event in res­pect of the busi­ness inter­rup­tion. This asser­tion is not sup­por­ted by any contrac­tual refe­rence. (…) Thus, this fan­ci­ful alle­ga­tion will be rejec­ted”, the magis­trates said.