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Business interruption insurance and coronavirus : insurers sentenced to cover companies’ losses in various countries
All over the world, the economic crisis unleashed by the outbreak of covid-19 is hurting economies, regardless of income level. According to World Bank forecasts, the global economy will shrink by 5.2% this year. This halt in business was due to the crisis itself, where stores, restaurants, and hotels closed because of the dangerousness from a health perspective, or due to administrative decisions taken to reduce freedoms temporarily. This is why I led a conference on Sept 17th in on business interruption insurance. My target was to give a realistic analysis about the real existence of guarantees provided in insurance contracts concerning this unprecedented context.
However, some companies thought they were at least partially protected at the end of the crisis in June because they had insurance that guaranteed the loss of margins due to operating losses. Sadly, insurers steadfastly have refused to provide business interruption coverage for the vast majority of claims.
I think it is fundamental to restore business leaders’ confidence to persevere and even, if necessary, to take the cases to court. Business interruption caused by the coronavirus is guaranteed for a vast number of contracts.
This problem is arising everywhere, but there are reasons for optimism.
In the UK, Sept. 15th decision of the High Court in London, seized by the Financial Conduct Authority on 21 insurance contracts in a “test case”, largely went in the direction of the insured. This could apply to approx. 370,000 British companies.
In the United States, the court decision Studio 417, Inc. v. The Cincinnati Ins. Comp., USA district court for the western district of Missouri southern division, Aug. 12, 2020 has allowed to consider that covid-19 was not the cause of immaterial but material damage. Indeed, the insurance contract did not include any definition in the material damage part. This allowed the insured to say that the virus caused material damage because it prevented the use of a “contaminated’’ object.
In France, according to the Bank of France / ACPR report, nearly 80,000 contracts are concerned by a possible reimbursement of operating losses related to covid-19. Already many court decisions went in the direction of the insured and obliged insurers to refund guaranteed losses, mainly when the businesses were directly related to customers’ physical reception.
These decisions are in line with my analysis of the best-selling contracts in France. Indeed, they have never been imagined in the context of a pandemic (even though there are some exclusion clauses that have appeared since the SARS epidemic). Thus, these contracts appear unclear in the light of the situation. Fortunately, French law provides that an ambiguous clause in a contract must be deemed unwritten, a principle reaffirmed by the Court of Cassation in a decision of July 16, 2020.
Finally, I have detailed the elements known to date of the new insurance plan desired by the French Government to guarantee the risk of epidemics. Previously, numerous legislative proposals have been made on this subject since March 2020, including that of Julien Aubert, Olivier Marleix, MP’s and myself, which advocates the implementation of a simple mechanism to guarantee operating losses, modeled on the one that already exists for natural disasters. This new system would be insured and managed by the insurers, and reinsured by the French State via the Caisse Centrale de Réassurance.