Insurance against losses linked to Covid and clauses concerning the administrative closure of businesses. The Court de Cassation settles the debate in favour of policyholders

---

Publié le 30/09/2024 par Jérôme Goy

INSURANCE LAW

Clearly, in unprecedented situations unforeseen by risk professionals, doubt has benefited insurers… until recent rulings by the Cour de cassation. During the Covid crisis, although some restaurants and shops were able to call on their cover, insurance companies refused to consider the Covid decrees as constituting ‘closures’ within the meaning of the insurance contracts that provided for them, thereby depriving these businesses of compensation.

Many appeal courts have followed this restrictive interpretation of contractual clauses.

The issue is precisely this: the texts preventing access to points of sale, in particular the Order of 14 March 2020 (1st confinement), did not prevent takeaway sales or click & collect. Do these texts constitute a ‘closure’ within the meaning of insurance contracts, which use this term as a guarantee condition?

Appeal decisions more favourable to insurers

The case law of the appeal courts was not uniform on this subject. Some appeal courts considered that ‘the administrative closure of its establishment [restaurant] was pronounced by a competent administrative authority, external to the insured, following the epidemic of the coronavirus known as COVID 19’ (1).

Other Courts of Appeal have held that a closure was effectively recorded ‘in the presence of a ban on receiving the public and therefore an administrative closure from 15 March 2020 to 2 June 2020’ (2).

Some courts have clearly stated that ‘the ban on receiving members of the public […] must be analysed as a total or partial administrative closure without the need to refer a preliminary question on this point to the administrative court beforehand’ (3).

On the other hand, many courts have agreed with the insurers’ arguments, holding that since the policyholders were able to continue their business, albeit on a reduced scale, during the pandemic (takeaway sales or deliveries), there was no “closure” within the meaning of the contracts.

 

For example, ‘the closure of an establishment means that access to it is prohibited and/or impossible, whether in material or legal terms…(4)’ . Consequently, ‘the prohibition on these establishments receiving members of the public other than for delivery and takeaway services, or other restrictions relating to capacity or opening hours, […] cannot be construed as a closure’ (5).

These decisions have often taken the view that an administrative closure measure is an act that only prefects, mayors and, exceptionally, the Minister of the Interior can take, and that the Covid texts do not constitute a closure in this sense.

According to this reasoning, ‘the establishment in which the company […] operated a catering business was only subject to a general and temporary administrative measure prohibiting it from receiving the public and not an administrative closure’ (6).

The ‘Cour de Cassation’ puts the final nail in the coffin

In the first half of this year, the ‘Cour de Cassation’ put an end to the majority case law of the Courts of Appeal with two very clear successive rulings, in this case concerning catering and restaurant activities.

The first states: ‘the insured’s customers and suppliers [event organisers, hotels, castles, reception halls] fell into the categories covered by the measures prohibiting them from receiving the public, which meant that they had been closed down by order of the authorities, characterising their failure to act within the meaning of the contract’ (7).

The second of the two went further: ‘the decree of 15 March 2020 prohibited the restaurants from receiving members of the public, which constituted a closure of the establishment by order of the authorities within the meaning of the contract’ (8).

It is therefore no longer possible for insurers to scheme to oppose their refusal of cover on the pretext, for example, that click & collect and takeaway sales prevent the closure of insured establishments, and therefore their compensation, from being identified.

The consequences for the MacDonald’s/MMA dispute

This position of the ‘Cour de Cassation’ is in direct contradiction with the judgments handed down against MacDonald’s restaurants in 2023, and now under appeal. These rulings, which applied to a single insurance policy, found in favour of MMA in the following terms: ‘Although the order of 14 March 2020 and the decree of 11 May 2020 were clearly issued by competent authorities within the meaning of article 3.2.11 of the policy, an analysis of the texts shows that there is no mention of any closure order, except in the event of a breach of the ban on receiving the public […]. Equating a ban on receiving members of the public with a closure order is therefore tantamount to distorting article 3.2.11 of the contract’ (9).

The MMA contract for MacDonald’s provides cover in the event of ‘an order to close issued by any competent authority’. It has given rise to nearly a thousand disputes (one per establishment/franchisee), with claims reaching around €1.2 billion.

The debate, which is specific to this contract, may now focus on the application, or otherwise, of a single overall limit of cover (€2.5 million), the ambiguity of the wording of which has given rise to exceptional procedural methods : in June 2023, the Paris Commercial Court heard evidence from the negotiators and drafters of the insurance contract, from the policyholders, and from the law professors involved in the proceedings. So, as is often the case, we would strongly advise :

– drafters of insurance contracts should take great care with the final version of the contract, and with the versions of the cover notes that preceded it.

– and to the actuaries of the insurer and its reinsurers to adjust their claims reserves…

In this case, the editorial ‘detail’ is about to cost an insurer more than a billion euros.

Unfortunately, restaurant owners have suffered once again during the Paris Olympic Games. In addition to the desertion of restaurants during the summer of 2024, linked to the rise in the price of transport and accommodation and the drop in visitor numbers in certain areas of Paris, what will happen to compensation for restaurant owners penalised by traffic restrictions? Given that the national commission set up by the government to compensate these traders is laying down relatively strict conditions to enable them to obtain compensation.