Covid Losses and Insurance

Publié le 20/03/2024 par Jérôme Goy

Less noisy than the rulings of December 1, 2022, regarding the “Axa” clause applied to restaurants, the Court of Cassation’s ruling on January 25 deserves nonetheless to be brought to public attention. And this for two reasons:

It invalidates an exclusion frequently invoked by insurers against Covid loss coverage;
It recognizes the application of a commonly used extension of coverage.

1- The exclusion invalidated by the court is as follows:

“however remains excluded :

the closure following a collective closure of establishments in the same region or nationwide,
when the closure is the consequence of a voluntary violation of regulations, ethics, or professional standards”.

Several Court of Appeals have confirmed the validity of this exclusion clause and its application to administrative closures during lockdowns.

The Court of Cassation annuls one of these rulings by rigorously applying its constant jurisprudence: ambiguous exclusion clauses are deemed unwritten. This is the case when a clause requires interpretation.

In this instance, the court rules, the term “when” between the two paragraphs introduces this ambiguity. This can be understood by reading the clause in question: the presence of the term “when” makes it impossible to determine whether the two exclusion conditions mentioned are alternative or cumulative. Unfortunate is the drafter who introduced the term “when”, rendering the clause void… one might also wonder if, in the absence of said subordinating conjunction, the clause remains ambiguous and therefore unwritten.

2- This ruling of January 25 is all the more interesting as it falls within the scope of an extension of coverage, known as “customer/supplier default“.

This extension is present in a significant number of property damage insurance policies for businesses. Its application in the context of Covid is therefore likely to increase the number of insured businesses.

In this case, the Court of Cassation, a rarity in “Covid insurance” litigation, reviews the interpretation of the clause by the Court of Appeals.

This clause provides coverage in the event of the closure of the insured company’s clients’ or suppliers’ establishments, in this case, a catering company. The Court of Cassation states the following, in support of its decision to annul:

“In ruling thus, while [the Court of Appeals of Nîmes] noted that the insured’s customers and suppliers fell within the categories affected by the measures prohibiting public gatherings, from which it followed that they had been subject to closure by order of the authorities, constituting their default within the meaning of the policy, the Court of Appeals did not draw the legal consequences of its findings and violated the aforementioned text.”

The contribution of the ruling lies in the highlighted passage: the Court of Cassation approves the reasoning that measures prohibiting public gatherings constitute a “closure” (said closure being a coverage condition). One will recall, notably, the slew of judgments in 2023 involving McDonald’s/MMA, refusing to consider that the possibility of access to these restaurants for takeaway sales alone prevented the existence of a “closure order” as provided for in the policy as a coverage condition.

From the ruling under review, one can infer the opposite, for example, hotels are mentioned among the insured caterer’s clients. However, hotels have not, except in exceptional cases, been subject to closure orders or access restrictions during lockdowns. Yet, their “closure” within the policy’s meaning is established here.

Nothing but the policy, all about the policy: the insurance of Covid losses for businesses is far from finished occupying the courts and tribunals.