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During the last three years there has been some litigation in relation to claims by employers against their insurance companies for loss of profits suffered as a result of business interruption due to the pandemic
These are lawsuits filed by business owners, whose business activity was affected as a result of the governmental measures adopted due to the outbreak of the pandemic caused by COVID-19, in their capacity as insured under a damage insurance policy, whose guarantees included coverage for loss of profits or loss of earnings.
Loss of profit coverage
The specialty of this coverage is that it is only activated when the partial or total interruption of the activity has its origin in a previous loss that has caused material damage to the insured property, and that such loss is covered under the guarantees of the Insurance Policy in question.
Let us imagine that, in the insured company, a fire occurs, as a loss guaranteed in the Policy, causing material damage and that, as a consequence of this damage, the business is paralyzed or interrupted, with the consequent loss of profits that the insured has not been able to receive.
The interpretation of the aforementioned "loss of profits" clause must be made in the light of its regulation in articles 63 to 67 of the Insurance Contract Law, precepts which require that the stoppage or interruption be the consequence of a material damage previously foreseen and covered in the insurance contract, an essential requirement for the activation of this type of coverage.
However, losses that are produced, caused, derived or resulting from limitations or restrictions imposed by any Public Body or Authority, or by any other case of force majeure, for the resumption of the activity of the insured risk are not indemnifiable. Therefore, the interruption of business due to decisions of the authority during the State of Alarm is not covered in the policy conditions.
The judgment of the Provincial Court of Girona on the coverage of loss of profits
Having said that, we all remember the judgment of the Provincial Court of Girona which, overturning the first instance, sentenced an insurer to compensate 6,000 euros to the owner of a pizzeria for the losses caused by the closure of the business due to the pandemic.
The Court of First Instance dismissed the claim, understanding that the claim for loss of profits was excluded under the policy subscribed, since among the exclusions of the daily indemnity coverage for stoppage of the activity inserted in the General Conditions of the Policy, it was literally stated that "we do not cover losses produced, caused, derived or resulting from limitations or restrictions imposed by any Organism or Public Authority, or by any other case of force majeure, including requisition or requisition or force majeure, it was literally stated that "we do not cover losses produced, caused, derived or resulting from limitations or restrictions imposed by any Public Body or Authority, or by any other case of force majeure, including requisition or destruction, for the repair of damages or for the normal development of the business activity". In addition, the Court pointed out that the insured had received the policy and knew that it was accompanied by general conditions.
On the contrary, the Provincial Court of Girona considered that we were "faced with a clear limitation of the rights of the insured in an adhesion contract, and therefore, its validity and enforceability would be conditioned to compliance with the specific requirements of appearing in a special way in the policy and having been specifically accepted in writing, of art. 3 LCS".
Adding that "the fact that the examined policy does not expressly contemplate the coverage of the risk referred to the paralysis of the business due to the pandemic, imposes that its exclusion in the general conditions by the insurer, claimed the requirements of art. 3 LCS (to be highlighted in a special way and acceptance in writing by the insured) and this, by application of the aforementioned principles, referring to the natural content of the insurance contract and to the expectations that the insured could have had, when he accepted the policy to see covered, in an express manner, "Loss of profits/Paralization of the activity". To accept the contrary, would be as much as to restrict the coverage expected by the insured, leaving the paralysis of the business covered, (...), by the contracted insurance policy denaturalized".
Change of criterion in the Provincial Courts
However, the most recent rulings are taking an important turn and, consequently, are rejecting these claims of the employers. In fact, the Provincial Courts are upholding the insurers in relation to claims for loss of profits suffered as a result of the interruption of business activity linked to the COVID-19 pandemic.
These rulings are interpreting the loss of profits clause in the sense that coverage is only provided for losses due to temporary interruption of the business activity, in the event that the interruption of the activity is the consequence of material damage to an insured property in the policy, i.e., of an event previously defined in the Policy.
The last sixteen rulings issued between February and September 2022, coincide in rejecting those claims in which the Policy does not specify coverage for loss of profits due to pandemic.
Of these, we highlight the judgment of the Provincial Court of Granada of September 21, 2022, which overturned the judgment of First Instance, which ordered the insurer to compensate a hotelier in the amount of 80.80,000 €, for the cessation of activity derived from the closure of his restaurant during the confinement in the middle of the pandemic, understanding that in the insurance contract "it does not appear as a covered risk that the stoppage of the activity is due to an order of the Administration in general, much less as a consequence of having decreed the state of alarm due to the COVID-19 pandemic in particular". The sentence has been appealed in cassation before the Supreme Court.
In short, and by way of summary, there is no doubt that the coverage of loss of profits is conditioned to the fact that the same is derived from material damage covered by the insurance contract, as established in Art. 63 of the Insurance Contract Law. In the declaration of the State of Alarm there was no previous material damage, so loss of profits cannot be covered in these cases of cessation of activity linked to the pandemic.
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