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16 June, 2020

COVID-19-Litigation first results over business interruption insurance claims

COVID-19-Litigation first results over business interruption insurance claims

An Article by  Constantine Alexiou (Partner) & Nikolaos Vasileiou (Associate).

On May 22nd, 2020, the Commercial Court of First Instance of Paris, France issued what appears to be the first worldwide court ruling to grant insurance compensation on COVID-19 related business interruption revenue losses (Maison Rostang vs AXA France IARD). After deeming both prerequisites for interim relief under Article 873.2 of the French Code of Civil Procedure, the 1st being the urgency of the plaintiff’s financial situation and the 2nd being the absence of a serious challenge to the claim by the insurer, to have been satisfied,  the Order granted an initial reimbursement of €45,000 for two months' worth of COVID-19-related revenue losses, along with the plaintiff’s request to appoint an independent expert to assess the exact amount of the business interruption losses, and an additional sum of €5,000 for the legal fees incurred by the plaintiff in pursuing the above legal action. AXA stated that they are inclined to appeal the decision on the grounds of difference in interpretation over a particular type of contract entered into by a substantial number of restaurant businesses with a specific agency.

In the UK, the British regulator Financial Conduct Authority (FCA) reached out to 56 insurers and reviewed over 500 relevant business interruption insurance policies from 40 insurers, of which 17 policy wordings from 16 insurers where isolated that use at least one of the wordings in the representative sample that could be in dispute regarding whether and when property damage and business interruption insurance losses are paid. Of those 16 insurers a representative sample of 8 where chosen to take part in a test case before court initiated by the FCA, with the ultimate goal of constructively resolving any uncertainties and achieving contractual and policy clarity and security in the field of business interruption disputes. The FCA estimates that in most cases insurers shall not be obliged to reimburse their clients for COVID-19 related business interruption claims.

In Germany, a hotel operator took initiative and decided to close their business without previously an official order forcing them to do so having been issued, because the business had already lost its economic viability due to the prohibiting of the accommodation of tourists by an overall ruling which resulted in the collapsing of travel. The Regional Court of Mannheim, in its ruling of 29 April 2020 (Case No. 11 O 66/20), determined that in spite of no official order having been issued against the hotel operator, the general mandates issued to mitigate the spreading of COVID-19, which put a ban on overnight stays for touristic purposes, along with the respective halting of business trips, with more and more people working from their home offices instead, the cancellation of  trade fairs and major events and the closing of numerous businesses, collectively act as, and, amount to a de facto official closure in individual cases. Thus, it was the court’s opinion that the insurance conditions must be viewed and interpreted under the criteria that such indirect effects of administrative decisions are also covered by the related insurance policies. Regardless, the court refused to grant the hotel operator's insurance compensation claims for reasons of civil procedure law. 



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