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Does a coronavirus-induced business closure constitute the occurrence of an insured event?

If the general terms and conditions of insurance (GTCI) make a blanket reference to Sections 6 and 7 of the Infectious Diseases Protection Act [Infektionsschutzgesetzes, IfSG] then the GTCI will cover the SARS-associated coronavirus pathogens that did not yet fall within the scope of the law when the insurance cover was taken out. This was the conclusion of Mannheim’s Regional Court [Landesgericht, LG] in its ruling from 29.4.2020 (case reference: 11 O 66/20). Moreover, the court also commented on what constitutes a business closure.

The terms and conditions of insurance required interpretation in the case of the closure of a hotel business

An hotelier took legal action, by way of temporary legal protection, against an insurance company for payment arising from the business closure agreement that had been concluded. It was the view of the Mannheim LG that the prerequisites for proceedings for temporary legal protection were not present. The court did however clarify that, in the course of ordinary court proceedings, it would have ordered the insurance company to make the payment. The insurance company’s terms and conditions of insurance made a blanket reference to the diseases and pathogens mentioned by name in Sec. 6 and 7 IfSG. It was the opinion of the court that this reference required interpretation. The benchmark for this interpretation was the level of understanding of an average policyholder with no special knowledge of insurance law that arises as a result of a reasonable assessment, attentive review and consideration of the discernible interrelationship of the respective contract clauses. Any remaining doubts will be to the detriment of the user.

In due consideration of this benchmark, the LG viewed the respective clause as a dynamic reference. Such a dynamic reference would include all reportable diseases and pathogens – even in the case of subsequent amendments to the legislation. Indeed, the terms and conditions of insurance did not contain a table with a list of the various pathogens or diseases. In this respect, the coronavirus may constitute grounds for a business closure by means of the blanket clause contained in the IfSG that is applicable to other diseases that have not been expressly mentioned.

Furthermore, the Mannheim LG assumed that the impact from the restriction on hotel operations that occurred due to the ban on tourist overnight stays was effectively like that of a business closure. Such a de facto business closure would constitute an insured business closure under the terms and conditions. In this respect, an official order to close was not required.

Classification of the ruling

Partial operating ban as a business closure

First of all, there is a need to clarify if the restrictions imposed by way of a general directive or an ordinance that apply to an essential part of the business operations and, in this respect, definitely enable the (uneconomic) continuation of operations would, in principle, be likely to cause an insured event. It is not possible to give a general answer to this question but instead case specific responses have to be provided. From the relevant perspective of an average policyholder, a ban on an essential part of the business operations that economically is tantamount to a de facto business closure would constitute an insured business closure. The definition of business interruption in the insurance provisions makes a possible interpretation in favour of the insurance company more difficult.

Lack of legally designated events

Furthermore, it is of relevance whether or not it was possible to insure against the coronavirus when the insurance cover was taken out given that it was not an expressly designated pathogen in Sec. 7 IfSG and the illness induced by it was not listed in Sec. 6 IfSG as one that was immediately reportable.

In the case of a blanket reference to Sec. 6 and 7 IfSG and the lack of a table with a list of the specific diseases or pathogens, the general clause there covers the diseases that have not yet been listed there. In this respect, the presumption by the Mannheim LG that the reference is dynamic is correct.

SARS-CoV-2 has now been added to the legal text as a reportable pathogen. Insurance provisions that include tables with exhaustive lists or a clear definition of diseases, in this respect, should be able to exclude the obligation to provide insurance coverage in the case of a pathogen/disease that has not been recorded in the list.

Please note: A generally applicable definition of the spectrum of insurance cover is scarcely possible given the many different coverage concepts. There is still a need to clarify the obligation for insurance companies to provide coverage for business closures in the case of diseases and pathogens that do not yet fall within the scope of the legislation. This should be taken into consideration when taking out insurance cover.

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