COVID-19: an insurer condemned; it is time to review one’s insurance contract

Dear Sir or Madam,
On May 22, 2020, the Paris Commercial Court ordered the insurance company AXA to compensate a restaurant owner for “operating losses resulting from the administrative closure” of his establishment.
Faced with business losses resulting from the ban on receiving public (decree of March 14, 2020), a restaurant owner filed an emergency court procedure against his insurer for compensation for the losses suffered.
The Paris Commercial Court ruled in his favour, considering that:

  • The urgency was characterized by the alarming financial situation of the restaurant (decrease in cash-flow of € 201,413 between March 14 and May 22, 2020)
  • The counterarguments provided by the insurer were not serious.

Indeed, the insurer tried to demonstrate the uninsurable nature of the pandemic risk, both from an economic and legal point of view. However, he did not rely on any imperative legal provision mentioning the uninsurable nature of the consequences of such a pandemic. It was therefore incumbent on him to exclude this risk by convention, which he did not do. The Court found that the contract contained an “administrative closure clause” giving rise to a right to compensation and applicable in the present case.
Moreover, the insurer considered that the decree of 14 March 2020 did not impose the closure of the establishment but merely prohibited it from receiving members of the public. Thus, according to the insurer, nothing prevented the restaurant from maintaining a delivery or takeaway activity. However, this was a traditional restaurant for which physical reception is considered fundamental. The Tribunal therefore held that “the prohibition on receiving public indeed qualifies a total or partial administrative closure of the restaurant”.
Consequently, the Tribunal ordered the insurance company to pay, as a provision, compensation for operating losses in the amount of € 45,000, subject to a daily penalty payment of € 1,000.
This decision undoubtedly helps to clarify the role of insurers in the current context, which was a much-debated topic since the beginning of the health crisis.

However, attention is drawn to the fact that one cannot conclude that all insurers have an obligation to compensate operating losses related to Covid-19. An analysis of the insurance contract’s provisions, on a case-by-case basis, is necessary. However, this decision opens at least the possibility of such compensation if the contract contains a clause covering administrative closure.

Nous ne saurions que vous recommander de faire analyser vos contrats We recommend that you have your insurance contracts analysed in order to verify whether they provide for an administrative closure clause and whether the latter opens any right to compensation, enabling you to act as quickly as possible.

Best regards,

Société juridique & fiscale franco-allemande

153 bd Haussmann – 75008 Paris – France
Tel: +33 (0) 1 53 93 94 00
Fax : +33 (0) 1 40 74 04 06