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Does your insurance contract cover any suspension in activity due to Covid-19 lesgislation?

Analysis of the newfangled judgment 59/2021 passed by the Superior Court of Girona on 3rd February 2021, whereby, for the first time, the fair representation principle is applied in respect of the natural content of the contract and within the reasonable expectations of the insured in insurance contracts.

In many insurance contracts, within the cover for damages, it is established the possible “loss of profits due to the suspension of activity”, at the same time it is normal practice to insert either as General Conditions or as Special Conditions a generic and restricting cover clause when the damage is the consequence of acts of vandalism, Public Authority’s restrictions or any other instances of force majeure.

This is why the wrong and generalized idea that the closures suffered by our companies and stores in their compliance with COVID-19’s State or Autonomous legislation is considered force majeure, and therefore, many businessmen/women and self-employed individuals think that this cover is excluded from these type of insurances.

Well, the recent Judgment 59/2021 passed by the Superior Court of Girona on 3rd February 2021, after a meticulous study and delimitation of the concept of detrimental clauses, coverage delimitation clauses and exclusion clauses and after applying for the first time the fair representation principle in respect of the innate content of the contract and the reasonable expectation of the insured of a insurance contract, it has established that activity suspension due to COVID-19’s legislation, is included within the cover of insurance contracts and such cover cannot be restricted by way of a generic exclusion clause in cases of force majeure.

The insurance contract brought to trial, contained a section on “Loss of Profits/Activity Suspension”, covering a daily compensation of €200 (compensation period: 30 days) with no excess clause. At the same time on page 56 of the General Terms and Conditions of the Policy, COVER OF LOSS OF PROFITS was defined as follows: “2. The Insurer will cover, in accordance with the method of compensation agreed, up to and including the financial limit and temporary period of time as defined in the Specific Terms and Conditions, with regards to the financial loss caused by the temporary, total or partial suspension of the business activity insured, when it is a direct consequence of the loss covered by the insurance policy and within the scope of the cover defined in section 111 of these General Term and Conditions, “Damage Cover”, that had been specifically agreed”.

However, the Trial Judge dismissed the claim filed by the insured, he said “If we examine the general terms and conditions of the contract, pages 61 and 62 list and evaluate the exclusions of the daily standard compensation coverage, exclusions due to suspension of activity, among them letter f) literally reads as follows: “we do not cover losses incurred, caused, derived or as a result of limitations or restrictions imposed by any Public Organisation or Authority or due to any other case of force majeure, including requisition or destruction, in respect of the reparation of damage or for the normal development of the business’ activity”.

The Insured filed an appeal before the Superior Court of Girona arguing before the Court the matter to be resolved, which is essentially a matter of law and required to determine if the suspension of a restaurant’s business, due to passed Covid-19’s State legislation is covered or not by the insurance policy subject to this appeal. The response has been a categorically affirmative, rejecting the limitation pronounced by the Trial Judge.

Division 1 of the Superior Court of Girona established, for the first time, that fair representation, the foundation of the special regime of exclusion clauses, deals with particular strength in matters related to specific or preliminary clauses.

These exclusion clauses could be binding providing they comply with the formalities, they must be prominently displayed in a particular way and they have to be specifically agreed in writing (section 3 LCS, Insurance Act), this is essential in order to prove that the insured had an exact knowledge of the risk covered, it is also required that the Insured knew the restrictions included, this means that the Insured is not surprised, the restrictions are not unreasonable and do not deem the contract empty of its content, do not frustrate its financial means and do not deprive the contract of its consideration.

However, in accordance with the judgment hereby analysed, when the general terms and conditions do not specifically include a section “suspension due to a Government directive because of a pandemic”, and the Insurer establishes its objection to the Insured, we find ourselves before a clear limitation of the Insured’s rights in a standard-form contract, therefore its validity and objection will be subject to the compliance with the specific requirements.

The fact that the policy, subject of this analysis, does not specifically contemplate the risk coverage with regards to business suspension as a result of a pandemic, imposes that its exclusion from the Insurer General Terms and Conditions demands the compliance with the requirements of section 3 of the Insurance Act (must be prominently displayed and agreed in writing by the Insured), this is in accordance with the principles mentioned above with regards to the innate content of the insurance contract and the reasonable expectation of the insured expected to be insured when he agreed the insurance policy and specifically seeing the detailed coverage of “Loss of Profits/Suspension of Activity”.

Consequently the insurance companies must specifically include pandemic situations in their policies, as stated by the Supreme Court judgment dated 19th July 2012: “Coverage delimitations of risk clauses establish objective policy exclusions or limits their cover in respect of certain events or circumstances, they always respond with the purpose to eliminate ambiguities and to define the nature of the risk in accordance with the purpose of the contract (established in the specific terms and conditions, detailed in a preferential section of the policy, or within the legal applicable provisions, unless otherwise agreed) or in accordance with the established use. These clauses cannot limit the risk in a contradictory way in respect of the purpose of the contract or the specific terms and conditions of the policy or in any unusual or infrequent way”.

At the same time the insured should have their insurance policies reviewed by insurance legal experts to establish if the policy risk coverage includes the “Loss of profit due to the suspension of the business activity” and confirm that such contracts do not have clauses that specifically exclude pandemic situations.

Este artículo está disponible en: Castellano