How business closure policies are interpreted by German courts

Whether COVID-19-related losses are covered under a business closure policy is one of the key insurance law issues in connection with SARS-CoV-2/Covid-19. This issue primarily concerns businesses in the health and food industries, the hotel and restaurant industry as well as their insurers. The relevant framework settlement arrangements concluded between affected interest groups have produced only partially viable solutions. Recently published case authorities with respect to this issue are now showing noteworthy tendencies.

On 20 April 2020, the Bavarian Ministry of Economics and Finance, in cooperation with representatives of various insurance companies, presented the DEHOGA (= Bavarian Hotel and Restaurant Association) framework solution (referred to in the market as the ‘Bavarian Solution’). The main element of this settlement arrangement are payments by the affected insurers amounting to 15% of the insurance benefits owed under the respective policy. The conditions of the settlement are based on the following legal position of the insurers:

• The Bavarian Solution prerequisites that general administrative rulings and legal regulations cannot, according to the insurers’ terms, constitute the insured event.
  
  
• There is no insurance cover for measures taken by the relevant desease control authorities in connection with SARS-CoV-2/COVID-19, as the pathogen SARS-CoV-2 is not specifically mentioned in the list of infections of the insurance conditions concerned.
  
  
• regardless of whether insurance cover exists, around 70% of the policyholder’s operating losses are compensated by state benefits and/or the policyholder’s own business not prohibited by such measures.

Based on these conditions of the settlement, throughout Germany insurers have reached agreements with policyholders. However, in future negotiations regarding business closure policies, insurers and policyholders should critically examine whether the terms of the ‘Bavarian Solution’ realistically reflect the factual and legal situation of the specific insurance contract.

The various insurers’ terms and conditions do not uniformly define the insured event of business closure. Accordingly, the above-mentioned objections against coverage of COVID-19-related business closures are weighted differently, depending on the particular case. The thesis that the Bavarian Solution only partly provides suitable solutions is sustained by recent case authorities.

Two decisions recently handed down by the courts concern the argument that insurance cover only exists where an official individual order was issued by the authorities against the policyholder.

The Mannheim Regional Court and the Munich I Regional Court have both decided on insurance conditions in which the definition of an insured event requires the closure of the business by the competent authority ‘on the basis of’ (‘aufgrund’) the German Infection Protection Act (‘IfSG’ or ‘the Act’). Both courts ruled that the coronavirus regulations and general administrative rulings were issued by the federal states and municipalities ‘on the basis of’ the Infection Protection Act and were therefore capable of constituting the insured event. The courts argued that an individual administrative act by the authorities against the policyholder because of an infection in its business was not required.  

A set of insurer T&Cs applicable to business closures widely used in the market grants insurance coverage ‘for the following diseases, contained in sections 6, 7 IfSG, that are transmissible to humans. In many of those T&Cs this phrase is followed by a long list of infectious diseases and pathogens. This list is essentially taken from the Act, as amended at the time the insurance policy is concluded. Subsequent amendments to the Act are not taken into account in the policy’s wording. This is why SARS-CoV-2/COVID-19 is usually not mentioned in those lists of diseases.

On this basis, the Hamm Higher Regional Court, the Ellwangen Regional Court and the Essen Regional Court have held that business closures in connection with the current epidemic are not covered. They have argued that insurance coverage was limited conclusively and in a manner that was recognisable for the average policyholder to the diseases and/or pathogens specifically named in that list. The Munich I Regional Court takes the opposite view, however. It said that limiting the insurance cover to the diseases/pathogens specified in the T&Cs was unclear and thus invalid. The court went on to explain that the express reference to sections 6 and 7 of the Act in the wording of the contract, in combination with the ‘promotional length’ of the printed list of diseases, gave the policyholder the impression that any measure issued by the authorities on the basis of the Act was covered by the policy.

Other T&Cs define the insured event without referring to the Act. The conclusive character of such definition method has been confirmed by the Bochum Regional Court, for instance.

These recent court decisions show that when it comes to business closure insurance policies, the specific details of the particular case need to be taken into consideration.

Please feel free to contact us in order to review your insurance cover.