One of the biggest risks for companies is business interruption. Companies can insure this risk under so-called 'business interruption' insurance policies; however, these policies generally provide cover only if the business interruption is the result of an insured property loss (eg, if the operating equipment is destroyed due to fire, theft, storm or other natural hazards). Such cover is the norm, especially for industrial companies.
The situation is completely different with so-called 'business shutdown' insurance, which is – at least so far – uncommon. Most of the businesses that dispose of this kind of insurance are restaurants and hotels.
These types of insurance usually offer cover if an insured business is closed down by an official order to prevent the spread of a notifiable disease within the meaning of the Infection Protection Act (IfSG). The few companies that purchased business shutdown insurance now hope to be insured against the consequences of COVID-19-related restrictions affecting their operations. However, as with many other insurance conditions, strict attention must be paid to the details of the respective business shutdown insurance. For example, some conditions provide insurance cover in relation to notifiable diseases only in general terms without specifying this concept. Others refer to the IfSG in general or contain an exclusive list of diseases for which insurance cover may be provided. If the insurance contract contains such an exclusive list of diseases, insurers currently often claim that COVID-19 is not mentioned by name in the contract and therefore no cover is provided. Although the legal validity of these clauses is likely to be clarified by the courts in the near future, it is to be expected that insurers have the better arguments if the list contained in the insurance contract can be qualified as exclusive. The situation is different if the clause in question refers only to the respectively applicable version of the IfSG at the time in general terms, which will, in most cases, be a dynamic reference. In this case, insurers would probably find it difficult to question the coverage of COVID-19-related restrictions in principle given that, on 30 January 2020, the obligation to notify under Sections 6 and 7 of the IfSG was extended to infections relating to COVID-19.
Irrespective of this obligation, it must always be verified if a business shutdown has occurred at all. This question could arise if the company is only indirectly affected by, for example, the interruption of supply chains. In this context, several insurers have already referred to the fact that catering and hotel businesses are still allowed to offer pick-up and delivery services and, as a result, the businesses did not have to close completely. Although this argument may be a valid one, the facts of the case must still be assessed specifically based on the respective insurance contract and the insurance conditions. While some conditions require the complete shutdown of an establishment, other conditions may already allow less drastic measures to accept an insured event.
Based on an agreement between the Bavarian Ministry of Economic Affairs, some insurers and the Bavarian hotel and restaurant association, some insurers agreed to pay 10% to 15% of the agreed maximum payments of their policy without any further examination. In addition, the Federal Employment Agency has now clarified that no setting off will be made against the short-time work benefits. Although a cover of 10% to 15% at first appears poor, as it does certainly not compensate the total COVID-19-related economic losses, in the end it may be the better choice for many insureds, as they need quick payments and cannot wait for the completely open outcome of a lengthy and costly procedure. However, whether the offer is reasonable ultimately depends on the circumstances of the individual case.
As shown, the question surrounding the coverage of business shutdown insurance in connection with COVID-19-related restrictions cannot be answered in a universally valid way. Instead, what is required is an individual case-based examination of the respective insurance contract and the specific official measures implemented.
While businesses rely on government support in the form of short-time work compensation or emergency aid to compensate for any losses suffered, it is also necessary to analyse how insurance benefits and government aid interact in the context of the respective insurance contract and considering the current developments, to provide the best possible protection for businesses during the COVID-19 crisis.
