In light of COVID19 pandemic, many businesses have and are continuing to experience great financial loss as a result of the government-imposed lockdown measures that continue across Europe and many parts of the world. Businesses are increasing reviewing their insurance policies in order to assess whether an indemnity for such losses can claim for business interruption. It is clear neither the insurer nor policyholder ever envisaged the current situation when insurance policies were entered into. The Central Bank of Ireland has indicated a reference that Insurers’ should side in favour of the policyholder in circumstances where there is ambiguity in the scope of cover under such policies. This restates the Contra Proferentem Rule where interpretation may fall against the Draftsman.
In general terms, commercial property insurance policies provide business interruption coverage in circumstances such as a flood or fire occurring on commercial property that suspends business operations. The purpose of the insurance coverage is to provide the policyholder with the decreased or lost earnings arising from the covered ‘ peril ‘. In most circumstances, business interruption insurance claims trigger on “direct damage, physical loss, or destruction” to the business property. In this situation, the financial loss is only covered in circumstance where the policyholder can prove material damage to its commercial property therefore resulting in financial loss. Insurers are stating that COVID19 does not cause material damage to business properties and therefore policies are not responding.
There are other reasons for business interruption policies not responding to the pandemic depends on the wording of individual policies. Most policies reasonably contain exclusion clauses for viruses and it is further suggested by Insurers’ that a ‘pandemic risk’ is excluded as it is not insurable due to the vast open ended implications. Other policies provide coverage in circumstances where it is a notifiable disease, and since the 20th February 2020 COVID-19 has been designated as such in Ireland. Importantly, it would appear from policy wordings, that there requires to be an outbreak of the notifiable disease/virus at the specific business premises and not just generally or in the locality.
These issues which are germane to most Business insurance policies are coming before the Courts in other jurisdictions.
A recent federal New York case (14th May 2020), Social Life Magazine Inc. v Sentinel Insurance Company, New York, 20 Civil. 3311, the Court of First Instance denied an injunction requesting immediate payment for the financial loss of the policyholder from their insurer while the main coverage action was pending. Although the Court expressed sympathy to small business owners in this current situation, it could not find any evidence of direct physical loss or physical damage to the business property. The Court stated the virus damages a person and not property. It further distinguished the COVID 19 situation to an outbreak of mould or Legionnaires disease in a business property. The Court stated that there was no evidence that the virus was in the property and the Court ruled that it was the Governor of New York’s stay at home order that caused the policyholder’s damage.
In a decision of the French Commercial Court Manigold -v- AXA (22nd May 2020), it was found that Stephane Manigold, an owner of four Michelin starred restaurants was entitled to an indemnity under an insurance policy as a business interruption loss. AXA the respondent insurer have vowed to Appeal but didconcede a small number of policyholders were covered for Covid-19 related business losses as they had purchased a specific policy.
Industry experts assess that if all Covid-19 relates losses were deemed covered by insurers, French insurers alone would require to compensate €20 billion per month. That would be unsustainable and is likely a doomsday scenario.
There is little doubt that prolonged legal wrangling will prompt Insurance Regulators to insist insurers put aside additional reserves to offset legal risks which will impact on insurers profitability for the foreseeable future.
In the Republic of Ireland a number of cases have commenced emanating from the hospitality sector against local insurers. It is understood that some of these risks were underwritten in January and February as the Covid crisis unfolded and with the awareness of same. Each policy will require to be carefully reviewed in the context of Business Interruption. The measurement of such losses will be of significant interest if a policy is found to respond for such Business Interruption as envisaged above. In an unprecedented time where normal commercial business is suspended by Government Order there will be significant arguments regarding the criteria for measuring such financial losses. There will be disputes regarding the periods in question and the limitations attaching thereto. If a commercial market which a policyholder would otherwise have exploited for financial gain does not exist, it appears difficult to ascertain how such financial loss can be maintained against an insurer.
There will be speculation and much erroneous comment until some of these matters and issues are litigated fully. It would be hoped that these can be dealt with by the Courts expeditiously (Commercial Court) to give clarity and certainty.