France: Losses incurred as a result of the COVID-19 pandemic: the battle is intensifying between insurers and merchants before the French courts

As a matter of fact, in March 2020, the French Government ordered, by several decrees, drastic measures to curtail the spread of the coronavirus pandemic, including the closure of facilities such as restaurants, bars and cinemas.

Following these governmental measures, French restaurateurs tried to activate their insurance contracts and claimed compensation from their insurers, but generally without success, which resulted in several judicial actions aimed at claiming both financial compensation and the nomination of judicial financial experts in view of assessing the amount of the losses incurred.

The above-mentioned decision issued by the Paris Commercial Court was the first one of a quite long, and still ongoing series of decisions, which are difficult to generalize and not necessarily consistent between them.

The decision issued by the Paris Commercial Court against Axa France

The Paris Commercial Court ruled, in an interlocutory proceeding, in favor of a restaurant owner regarding his claim for compensation from his insurer. The restaurateur sued his insurance company, Axa France, after it refused to indemnify the operating losses his establishment incurred as a consequence of the administrative measures ordered in the context of the COVID-19 pandemic.

According to the claimant, the insurer was in breach of its contractual obligations which provided the compensation of operating losses in the event of an administrative closure imposed by the police or the health services.

Axa France claimed that the risk of a pandemic was uninsurable, both from a legal and economic standpoint.

Indeed, under French law, a risk can only be insured when it is measurable. This is why the risk of a pandemic is theoretically neither insurable nor uninsurable, as it has never been measured before the French courts.

The Judge refused to decide on the insurable nature of the risk of pandemic, stating that its role only consisted of analysing and interpreting the insurance contract. Pursuant to article L.112-4 of the French Insurance Code (which stipulates that guarantee exclusions must be expressly displayed in prominent and legible characters), the Court considered that the insurer should have excluded the risk of pandemic in order for the insurance company not to be liable for the operating losses incurred by the claimant.

One might be surprised that the President of the Court considered the Court competent to rule on this matter. In fact, the interlocutory judge is supposed to rule on clear and obvious issues. The judge will usually refer the case to be ruled on the merits when parties do not have the same interpretation of a contract.

In this case, as the President declared the court competent, one might wonder if this was because the judge considered the clause simple and self-evident, or if the court wanted to take the opportunity to send a message to the public and the government regarding criticism of insurance companies and their lack of action.

While the decision was considered a victory for the catering and hospitality sector, and more generally for the retail industry which has been greatly impacted by the measures taken to fight against the pandemic, its scope must be put into perspective as its effects cannot be generalized.

Indeed, the Court conducted a thorough analysis of the insurance contract in order to assess the situation. The decision does not condemn the insurer, but rather considers, in the context of a provisional emergency proceeding, that the restaurateur’s request is admissible and grants a provision pending a judgment on the merits. A new debate will therefore take place before the Paris Commercial Court, which will not be bound by this provisional judgment.

Furthermore, Axa France has already lodged an appeal before the Paris Court of Appeal.

Subsequent decisions issued by the French Courts

The same insurer, Axa France, was also sued before other courts, both on the merits and within interlocutory proceedings, by restaurateurs challenging the insurer’s refusal to cover their operating losses.

One of the main arguments opposed by Axa is the existence of an exclusion clause in the insurance contracts at stake, which expressly specifies that epidemic must be limited to a sole insured establishment.

From a legal perspective, such exclusion clause might be considered as inconsistent with the provisions of article L.113-1 of the French Insurance Code, according to which the losses and damages caused by fortuitous events or by the insured’s fault are covered by the insurance, except formal and limited exclusion provided in the policy.

Any contractual clause drafted in breach of the above-mentioned provision shall be deemed to be unwritten (non-existent). According to the French case-law, if an exclusion clause is subject to interpretation it is neither formal nor limited.^[1]

So far, the position adopted by the various courts regarding the interpretation of Axa’s exclusion clause is quite unsettled. Whilst some of them considered this clause as not valid with respect to the provisions of article L.113-1 of the French Insurance Code^[2], other courts ruled that the exclusion clause is valid.^[3]

Other insurers are also being sued before the French courts for compensation resulting from business interruption. The Annecy Commercial Court ruled in a case opposing the insurer SA Assurances du Crédit Mutuel and a restaurateur, and the judges ruled this time in favour of the insurer.^[4]

Restaurateurs are not the only claimants against the French insurers - hoteliers are also involved in this battle. A recent decision has been issued against the insurer Albingia.^[5] Five hotels have engaged an action against the insurer, in order to obtain a provisional payment of €450.000 aimed at covering two months of operating losses resulting from the COVID-19 pandemic – their claim proved to be successful.

Comment

It is quite clear that insurance coverage in the current COVID-19 context is, and will continue to be, a matter to be assessed on a case-by-case basis by the courts.

Axa has indicated that it had received “less than a dozen subpoenas from professionals who disagree with the non-compensation decisions", yet a lawyer at the Paris bar has launched a collective and joint action, aimed at professionals (from all sectors) who have taken out business interruption insurance and who are wrongly refused coverage by their insurer.

The French Prudential and Resolution Control Authority^[6] (Autorité de contrôle prudentiel et de résolution - ACPR) launched a survey amongst some French insurance companies, from which it resulted that only 3% of the insured could claim compensation resulting from COVID-19.

[1] Cour de cassation, 22 May 2001 n°99-10.849 ; Cour de cassation 27 October 2016 n°15-23.841

[2] Marseille Commercial Court, interlocutory decision issued on 23 July 2020

[3] Marseille Commercial Court, interlocutory decision issued on 18 August 2020

[4] Annecy Commercial Court, interlocutory decision issued on 18 June 2020

[5] Nanterre Commercial Court, interlocutory decision issued on 17 July 2020

[6] The French supervisory body of the banks and insurance companies