Clyde & Co secures landmark judgment in defending Covid-19 Business Closure coverage claim

Clyde & Co has successfully defended an insurer against a coverage claim in the German Federal Court of Justice in relation to Business Closure insurance.

In the case, the policyholder (a restaurant operator) claimed loss of profits due to the administrative orders enacted by the local German government in March 2020 following the outbreak of the COVID-19 pandemic requiring closure of the restaurant on site. Under the measures, guests were not allowed to dine at restaurants or stay at hotels for leisure, whereas take away food and non-tourist hotel guests were still permitted.

Policy wordings usually contain a catalogue of insured diseases and pathogens, in which COVID-19 is not mentioned. However, the wording also includes mention of Sections 6, 7 of the German Infection Protection Act (IfSG). The Infection Protection Act is the legal basis for the business closure measures implemented in Germany and lists notifiable diseases and pathogens in those provisions. Therefore the case concerned whether the contractual catalogue is exhaustive and effective, thereby excluding cover for COVID-19, or includes a dynamic reference to the statutory provisions under which COVID-19 was listed first by means of an administrative order as of 1 February 2020 and in the Act itself as of 23 May 2020. The case is exemplary for hundreds of similar coverage actions brought by policyholders against various insurers across Germany with coverage in a three-digit-million amount being in question.

The German Federal Court of Justice ruled in favour of the insurer that there is no coverage for business closures based on COVID-19 since the policy wording is decisive and enforceable, contains an enumerative definition of insured perils which does not mention COVID-19 and, in particular, is not to be interpreted as including a dynamic reference to the Infection Protection Act. The judgment will thus have wide ranging affects for the insurance industry in Germany.

Commenting on the judgment, Clyde & Co Partner Dr Henning Schaloske says: “This decision we have secured has a very wide legal and financial impact and is an important milestone bringing legal certainty for insurers, reinsurers and insured. I would like to thank our team which has worked extremely hard over the past two years representing insurers across the country that our advice has been confirmed and that we have been able to secure one of the most important coverage decisions in recent years.”

The Clyde & Co team was led by Dr Henning Schaloske and included Counsels Eva-Maria Goergen and Dr. Nikolaus Wank, Senior Associates Dr. Boris Derkum and Dr. Florian Poetzlberger, and Associates Sita Rau, Yesra-Cecile Pauly, Dennis Tontsch, Dr. Saskia Michel, Marilena Mross,Bastian Pöhler and Maria Weber.

Clyde & Co’s team in Germany supports domestic and international insurer clients across all major insurance business lines, including financial lines (D&O, E&O, PI, Crime), casualty, property and CAR/EAR, and have built a reputation as a leading team for emerging risks such as cyber and W&I. In addition, the team advises insurers, reinsurers and other market participants on all aspects of regulatory and insurance distribution law, run-off solutions, insurance competition law, as well as on other insurance legal and compliance matters.