Denied coronavirus business interruption insurance claims have spurred lawsuits across several European countries, creating uncertainty about the insurance industry's ultimate liability. But disputes are not widespread across the continent, and the effect on the insurance industry overall looks likely to be manageable.
The U.K. Financial Conduct Authority's business interruption test case has grabbed much of the attention in Europe. While there are no comparable test cases elsewhere, individual companies, particularly in the hospitality sector, have sued insurers to recoup pandemic losses.
Odyssey Group Holdings CEO Brian Young during a recent S&P Global Ratings conference called continental Europe a "hotspot," especially for business interruption coverage. He said litigation is "slowing the assessment of potential claims" and projected that "there is going to be a lot of uncertainty" around business interruption coverage leading up to the Jan. 1, 2021, reinsurance renewal season.
Gray areas
Some European countries like the U.K. have a small but significant proportion of ambiguous business interruption policies. In France, a survey published June 23 by the country's financial regulator showed that, from a sample of 220 policies, 93.3% did not cover the pandemic, 2.6% did and 4.1% were unclear.
Hannover Re's German operation, E+S Rückversicherung AG, said Oct. 19 that of the €1.25 billion to €1.75 billion in coronavirus claims it was estimating for the German nonlife insurance market overall, it expected between €750 million and €1.25 billion to come from business closure policies. Jonas Krotzek, managing director of E+S Rückversicherung, said many clients had policies with wording that was unclear as to whether they covered losses from a pandemic.
These ambiguities have led to court cases. On May 22, for example, Paris's commercial court ordered Axa SA unit Axa France IARD S.A. to pay €45,000 to restaurant group Maison Rostang SAS over the closure of one of its restaurants. Reuters reported in June that the insurer had also reached a settlement with the group for its other restaurants.
After the U.K., France is "definitely" where there are the most cases, according to Benjamin Serra, senior vice president at rating agency Moody's.
Germany has also seen several cases. For example, Reuters reported Oct. 1 that the Munich regional court had ordered insurer Versicherungskammer Bayern to pay €1.01 million to the operator of the Augustinerkeller beer garden.
Insurers may be in jeopardy of losing these cases. Naz Gauri, principal associate in the insurance and reinsurance team at law firm Eversheds Sutherland, in an interview said if there is a "gray area" in a policy, particularly with small and medium-sized companies, "early indications" are that the cases will go against the insurer.
Ireland's Central Bank published a business interruption insurance supervisory framework on Aug. 5 stating that where there is doubt over the meaning of a term, the interpretation most favorable to the customer should prevail. The country's High Court heard business interruption cases between insurer FBD Holdings PLC and four pubs in October.
Limited scope
There have been fewer disputes elsewhere in Europe. In Italy, business interruption policies both exclude pandemics and are "rarely sold," Robert Mazzuoli, director for EMEA insurance at Fitch Ratings, said in an interview.
Evelyn Tjon-En-Fa, partner and head of the international insurance group at law firm Bird & Bird, said there have been no published judgments in the Netherlands so far, most likely because policies marketed in the country typically require physical damage to insured property to trigger business interruption coverage. Manuel Arrive, a director for the insurance group at Fitch, likewise said business interruption was "not an issue" in Belgium.
Partial settlements of claims have eased the burden somewhat for insurers that have been on the hook for losses. The German state of Bavaria's Ministry of Economic Affairs struck a deal with the state's big insurers in April to pay restaurants and hotels 10% to 15% of their losses regardless of policy terms. In Switzerland, Helvetia Holding AG agreed to pay 50% of costs and loss of profit to Swiss restaurants that had epidemic policies, despite pandemic exclusions, in return for accepting exclusions in future policies.
The effect on individual insurers will depend on their business mix. "For diversified players, it is an earnings event, no more than that," said Moody's Serra. "For commercial players, it can be more, but it depends on how the policies were drafted."
A closing window
Bird & Bird's online coronavirus business interruption tracker shows that while there are so far no court proceedings in Spain, small companies and the self-employed were pushing for the country's government catastrophe insurer to cover business interruption losses. If successful, the initiative could prompt more claims and court cases, the firm said.
The reintroduction of restrictions and lockdowns in several European countries to curb a resurgence in coronavirus cases could also change the picture. Another round of restaurant and hotel closures would lead to higher losses, which may make policyholders examine their coverage and try to make more claims, Serra said.
Insurers and reinsurers have been introducing clearer language and exclusions on business interruption cover at renewals, limiting policyholders' scope to make claims. Etienne Bouas-Laurent, group CFO at Axa, said on a Nov. 4 earnings call that one of the reasons the company was expecting a limited effect from a second wave of lockdowns was because it is rolling out clearer wordings.
As struggling hospitality businesses need money quickly, making deals with their insurers might be better than lengthy court cases.
"In two months' time it may be too late for them," said Stephan Kalb, senior director at Fitch.