Second lockdown and business interruption insurance : companies must persist in the face of insurers


The second lockdown has stopped or considerably slowed down the activity of many economic sectors that had already been severely affected since the beginning of the covid-19 crisis. Many companies in most countries have already declared a claim to their insurer about the business interruption coverage provided in their insurance contracts [1]. The vast majority of these claims have been refused by the insurance community. However, these losses are insurable: at least 80,000 contracts in France are concerned by possible compensation for operating losses related to the crisis [2], a strongly underestimated proportion according to specialized brokers. The courts have already ordered the reimbursement of losses in several contracts, condemning many insurers.
As the economic situation of businesses deteriorates, it is important to take stock of the current coverage situation for business interruption in the context of the pandemic, especially since the second lockdown may constitute a second loss for businesses. It is thus essential not to wait any longer to act in these circumstances that jeopardize the survival of businesses while insurers do not hesitate to modify or terminate existing contracts (I). Also, companies should not resign themselves when many contracts are going in their direction event though their claimed have been refused (II).

I. Why it is important to act now
A. The second lockdown can be a second loss in many cases

The health crisis is becoming more and more difficult for companies. And we are more and more ignorant as to the terminology to adopt: two confinements, two “waves”, a pandemic, one or more viruses? If things seem to be becoming more complex from a semantic point of view, we should take advantage of this moment to no longer wait to report claims to insurers. Coverage limits are sometimes low in relation to their losses. But the presence of two periods of lockdown imposed by public authorities does not allow the insurer to aggregate the claims.
This is for instance the case for “administrative closure” clauses which cover the difficulty of access and/or use of the insured goods. So this would allow companies to claim up to twice as much compensation for operating losses.

B. Receiving a denial from one’s insurer says nothing about the possibility of business interruption coverage

It must be said that the reality of business interruption insurance contracts is quite different from what insurers demonstrate in many cases when they deny coverage. Indeed, it is often argued that damages related to the pandemic are not covered by the clauses. However, the courts or many insurance professionals are going in the opposite direction. This is the case in France, where more and more judgments are in favor of policyholders, but also in the United States and the United Kingdom, where the Financial Conduct Authority has estimated the total amount to be paid by insurers for business interruption coverage at more than 1.3 billion euros.

In addition, as the policy renewal period approaches, most contracts have not yet been able to be modified by insurers since the onset of the crisis. New “anti-Covid-19” exclusions are currently being introduced into contracts by insurers, justifying that the current exclusions are probably insufficient. It is therefore urgent to report claims to insurers without delay, in clear and precise terms.

II. Why persisting in the face of your insurer’s arguments often pays off
A. Contracts in favor of the insured because they are vague and not thought out for the risk of a pandemic

As indicated above, all insurers have announced a refusal in principle for all contracts, regardless of the actual nature of the damages covered. If this position seems at first glance to pay little attention to the content of contracts, it is mainly due to the drafting of the business interruption clauses. Indeed, these contracts did not anticipate the possibility of a pandemic of this type. The only nuance that can be made on this point is the addition by some insurers of certain exclusion clauses in response to the SARS epidemic in 2003. In France as in many countries, an unclear clause can only be interpreted to the benefit of the insured.
Article 1190 of the French Civil Code provides that “in case of doubt, a contract by mutual agreement shall be interpreted against the creditor and in favour of the debtor”.

Insurance contracts, which can often be reviewed annually, guarantee a set of damages that can sometimes change over time and according to economic risks. Thus, by reusing clauses from other contracts, by buying back exclusions and by other procedures, clauses sometimes lose their meaning and their relevance (especially with regard to an unprecedented event such as Covid-19). This is most often the result of the work of brokers in favour of their clients. These clauses are also the result of a long period of 15 years, ending in 2019, during which competition between insurers was exacerbated: prices fell and guarantees were broader.

B. Damages that would not be guaranteed or that would be excluded

Many coverage clauses are drafted very broadly, sometimes with omissions in the definitions, therefore in favour of the insured. The High Court of London noted in its decision of September 15, 2020 concerning a test case about the insurance of business interruption due to Covid-19, that, to put it mildly, some insurance policies “are not exactly a model of clarity in terms of drafting”.
In spite of the institutional communication that has often been made on this subject, few exclusions stipulated in the contracts are valid against the risk of Covid-19. First of all, the exclusions must respect the legal form in order to be applicable. Then, on the substance, numerous examples of exclusions make the insured think that damages related to Covid-19 are excluded. However, the terms fungal contamination, intoxication, pollution and others clearly do not correspond to the case of Covid-19, as several decisions in France and the decision of the High Court of London cited above have already shown.
Finally, it should be noted that some contracts impose geographical conditions, such as the occurrence of the loss within a radius of 25 miles. However, contrary to the argument widely used by insurers, this condition almost never implies an exclusion in the case of an epidemic taking place both within and outside the 25 miles radius. This is also one of the analyses of the decision of the High Court of London, which by the test case procedure is several months ahead of French and most other countries jurisprudence on the subject of the pandemic.

All of these elements allow, today, many insured companies to hope to obtain the benefit of their guarantee from their insurers.

[1] According to the Fédération Française de l’Assurance (French Insurance Federation), 50% of companies have taken out a business interruption insurance policy. 

[2] According to the Autorité de contrôle prudentiel et de résolution, an institution integrated into the Banque de France.