Coronavirus as an insured event in Germany

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Peter Etzbach
Oppenhoff & Partner, Cologne
peter.etzbach@oppenhoff.eu

While the Covid-19 pandemic, caused by the nasty virus SARS-CoV-2, interrupted many businesses across the globe, in Germany from an insurance perspective it was not so much an issue of the business interruption insurance, more of the business closure insurance. Such insurances were regarded as a niche product on the German market. Business closure insurance is different to business interruption insurance in that the latter usually requires a property-related damage causing the business interruption which, despite all the havoc Covid-19 virus had reaped, it could not achieve.

Business closure insurance, on the other hand, covers the loss of income that a business suffers if it has to close down because of an infectious disease. The underwriters apparently had businesses in mind which were exposed to the risks of infectious diseases and, if contracted, were put under quarantine loosing revenue for some time. Evidently, such covers were taken out by doctors’ surgeries, hospitals, hotels, meat factories, food distributors or restaurants. Otherwise disregarded, now in the Covid-19 pandemic, these insurance policies gained great importance and attention, with some insures even writing them as late as January 2020.

Due to state ordered lockdown measures, especially regarding accommodation and gastronomic businesses, many of those had to close their business at least temporarily. In this context disputes arose between policyholders and insurance companies, regarding the question of whether the business closures were covered by specific insurance policies. The two main controversial questions are on the one hand whether there was a business closure in the specific case and on the other, whether the insurance conditions cover a business closure due to the Covid-19 pandemic.

In April 2020 the Regional Court in Mannheim ruled, that the operator of a hotel business has a claim against the insurer due to de facto closure. The insurance conditions covered the case that the competent authority closes the insured business on the basis of the Infection Protection Act (IfSG) due to notifiable diseases or pathogens. In fact the authority did not close the insured hotel business specifically, but issued rulings to combat the Covid-19 pandemic, which heavily influenced the accommodation business. Therefore tourist accommodation was barred and the number of business trips decreased significantly, due to these general measures. The Court regarded the general rulings as a de facto official closure in the individual case. The Court further ruled, even though it is not explicitly stated in the policy conditions, the indirect effects of official decisions are also covered by the insurance.

The second question in lawsuits regarding Covid-19 pandemic-related business closures is, whether the pandemic itself is covered by the wording of the insurance policy. Apparently, most of the coverage clauses of the business closure insurance policies referred to the Infection Protection Act (IfSG). This Act specifically lists diseases and pathogens which must be notified and based on which authorities can order quarantine and closure measures. Obviously, none of these clauses specifically named the previously unknown ‘SARS-CoV-2’ as a relevant pathogen and only in early 2020 was the Infection Protection Act amended to reflect this. To determine cover under the policies, the German courts have followed a certain logic. Clauses referring to the Infection Protection Act are examined by the German courts as to whether they are ‘static’ or ‘dynamic’. While a static clause only covers diseases named at the time of entering into the insurance contract and, therefore, does not include Covid-19, a dynamic clause is usually interpreted to include new pathogens such as the Coronavirus.

The Regional Court Mannheim ruled that ‘notifiable disease and pathogen in the sense of sections 6 and 7 Infection Protection Act (IfSG)’ is a dynamic reference, and therefore includes Covid-19, although it is not explicitly mentioned in the IfSG. In July 2020 the High Regional court Hamm ruled that the wording ‘only those listed below (sections 6 and 7 Infection Protection Act (IfSG)) [specific enumeration not including Covid-19]’ is a static reference and therefore does not include the Coronavirus. In July 2020 the Regional court Bochum also followed this method.

Policy wording must therefore be examined closely in order to differentiate between dynamic and static references. If the clause refers to the Infection Protection Act (IfSG) in general and specific diseases and pathogens are only listed by way of example, it is likely a dynamic reference. If the clause refers to a definitive catalogue of diseases and pathogens and the clause refers to a specific status of the Infection Protection Act (IfSG), it is likely a static reference.

In this regard one must note that German law has fairly strict and consumer-friendly rules on general terms and conditions, which also apply to insurance policies. Consequently in October 2020, the Regional Court Munich ruled that:

‘According to established case law, General Terms and Conditions of insurance companies are to be interpreted according to the understanding possibilities of the average policyholder without special knowledge of insurance law, who reads the general terms of insurance carefully and evaluates them completely, weighing the interests of the parties involved and taking into account the recognisable context[…]’

In other words, had several insurers chosen the wording of their cover more carefully, a new disease could have been removed, as probably may would have liked since the premiums are be difficult to calculate if the cover includes unknown pathogens. The insured may understand the mere reference to the Infection Protection Act as to include any kind of disease allowing the authorities to close their business.

Similarly, also in the reinsurance side of the German market, questions of coverage arise as the underlying policies were mainly not thought to respond to a pandemic caused by a new disease. Obviously, the type of reinsurance is important. Additionally, the scale of losses around the globe over several months triggers aggregation issues. In particular, one will have to look at the event definitions and whether any time limits apply similar to other natural catastrophes in order to establish one or more events.

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