We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
26 January 2021
Before the COVID-19 pandemic, business shutdown insurance was known only to specialists in Germany. However, business shutdown insurance has become a key area of focus and is being tested in the courts nationwide. Business shutdown insurance offers cover if insured businesses are shut down by an official order to prevent the spread of communicable diseases. Although market estimates show that even in relevant economic sectors (eg, gastronomy and hotel business) approximately only 10% of companies have business shutdown insurance, this insurance product was the most-discussed insurance topic of 2020 in Germany, among not only specialists but also the general public. The main reason for this widespread attention is probably the insurance industry's knee-jerk rejection of policyholders' claims, which has been met with little public understanding, particularly due to the existential threat to policyholders.
From a legal perspective, there are numerous issues that make business shutdown coverage uncertain, particularly because the conditions vary considerably from insurer to insurer. The key questions include:
The first court decisions concerning business shutdown insurance are now available. Although at first glance these cases have produced different results, some similarities in jurisprudence can be derived therefrom.
The main issue that the courts have addressed in recent months is whether COVID-19 constitutes a communicable disease according to the terms and conditions of the respective insurance policy. The fact that there have been decisions in favour of both insurers and policyholders in this regard is primarily due to the fact that different conditions exist on the market. Sometimes insurance conditions contain no list of possible diseases, but merely refer to the dynamically designed Infection Protection Act and the diseases listed therein. This was the case in a recent ruling by the Mannheim District Court.(1) Insofar as the conditions contain an exhaustive list of diseases in which COVID-19 is not mentioned, coverage has regularly been denied by the courts.(2) If, on the other hand, the conditions do not clearly express the exhaustive nature of the list, this is to the insurer's detriment. However, some terms and conditions contain unclear regulations which, although they seem to contain an exhaustive list, also refer to the Infection Protection Act. There is still no clear line of jurisprudence on these conditions. While some courts have considered them sufficiently clear and qualified the lists as exhaustive,(3) other courts have rejected the clauses as non-transparent and granted the insured coverage.(4) In particular, a recent decision by the Munich District Court 1 found much resonance and led to numerous further lawsuits, particularly because the court dealt in great detail with the various legal issues in this regard. However, it remains to be seen which legal opinion will succeed in this respect.
In another context, two decisions of the Munich District Court 1 – in which the court considered whether a business's shutdown fell within the meaning of a 'shutdown' in the insurance policy's conditions – have received widespread approval.(5) Many businesses have not been completely shut down throughout the pandemic, but have been allowed to continue offering delivery services, for example. In this regard, the legal concept of a de facto shutdown has developed in case law; however, the prerequisites of such a de facto shutdown are unclear. For example, the Munich District Court 1 held that there had been no such de facto shutdown when a childcare centre had continued to offer emergency care.(6) Conversely, in a case concerning a large gastronomic business, the court held that the business had been de facto shut down because its delivery service resulted in sales in a single-digit percentage range. In this case, the opening of the business was not a reasonable alternative due to the associated costs, which was why the court held that it had been a de facto shutdown.(7) Further development on this matter remains to be seen. However, it is conceivable that the criterion of the reasonableness of a business's limited opening could be regarded as decisive; although, according to the decisions available so far, unreasonableness is more likely to be the exception.
The third question, which the courts have dealt with only marginally so far, concerns the amount of insurance benefit available when insurance cover is actually provided. Contracts often seem to contain daily lump sums. However, it depends on the conditions and their evaluation by the courts as to how these clauses are to be interpreted. There are essentially three possibilities – namely:
Insofar as one of the two latter interpretations is applied, the decisive factor is how the damage is to be calculated and which compensations are to be taken into account in this respect. Case law in this regard is unclear, especially since the income from partial openings on the one hand and state compensation on the other can certainly lead to considerable income or cost savings.
In 2021 the first higher court decisions will likely be issued and will hopefully unify the line of jurisprudence to be taken in future, including with regard to:
In all likelihood, 2021 will bring no final clarity to these questions, as no decision by the Federal Court of Justice is expected. However, hopefully by the end of 2021 business closure insurance will have faded from the public spotlight again, particularly because the German Insurance Association has published new model terms and conditions for business closure insurance which, according to insurers, provide greater clarity on coverage issues.(8) However, only another pandemic will demonstrate whether this has actually been achieved.
For further information on this topic please contact Quirin Vergho or Christian Genz at Arnecke Sibeth Dabelstein by telephone (+49 89 388 08 0) or email (firstname.lastname@example.org or email@example.com). The Arnecke Sibeth Dabelstein website can be accessed at www.asd-law.com.
(8) Available here.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.