French Court Orders Insurer to Indemnify Restauranteur's COVID-19-Related Business Interruption Losses
While U.S. policyholders are primarily still in the early stages of the claim process and likely coverage litigation regarding COVID-19-related business interruption claims, a French court has struck an early blow against an insurer seeking to avoid its insurance coverage obligations for these losses.
In a significant early victory for policyholders, this past week the Paris Commercial Court issued an interim order ("référé") determining that AXA―one of the world's largest insurers―must indemnify the COVID-19-related business interruption losses of Paris restauranteur, Stephane Manigold.
When AXA refused to indemnify the operating losses to his restaurants caused by a mid-March government order closing Paris bars and restaurants to the public in order to mitigate the spread of COVID-19, Mr. Manigold filed a lawsuit seeking a declaration of AXA's coverage obligations. Determining that Mr. Manigold had satisfied the two prerequisites for interim relief under Article 873.2 of the French Code of Civil Procedure―(i) urgency of the situation and (ii) the absence of a serious challenge to the claim―the Paris Commercial Court on May 22, 2020, ordered AXA to pay two months' worth of the restauranteur's COVID-19-related business interruption losses (subject to quantification by a court-appointed expert), as well as €5,000 for the legal fees incurred by the restauranteur in pursuing his insurance coverage action.
In reaching its decision, the Paris Commercial Court determined that the restauranteur's "seriously overburdened financial situation" (i.e., a cash deficit of €201,413, which would worsen by €45,903 by the end of May) was sufficient to establish urgency. Likewise, the Court determined that AXA had failed to present a serious contractual challenge to the restauranteur's claim.
In particular, notwithstanding AXA's attempt to argue that the subject order had not effected a closure of the restaurants insofar as it still permitted takeaway service, the Court concluded that the subject order constituted an administrative closure of the restaurant sufficient to trigger the policy's business interruption coverage, since the French Government has prohibited restaurant owners from pursuing traditional restaurant business models. Moreover, the Court summarily rejected AXA's unsupported contention that the COVID-19 pandemic risk was uninsurable. The Court explained that AXA had failed to cite any legal authority for the proposition that insuring the pandemic's consequences would be against public policy and further held that AXA should therefore have expressly excluded the pandemic risk from its insurance policy had that actually been its intent.
As the first of its kind with respect to COVID-19-related business interruption losses, the recent decision of the Paris Commercial Court may soon be followed by similar pro-policyholder rulings of other courts, particularly when insurance policies expressly reference administrative closure as an extension of coverage for operating losses. In the meantime, commercial policyholders should continue to treat the insurance industry's broad pronouncements of lack of coverage for COVID-19-related losses with skepticism and remain mindful that there are various potentially available avenues for the recovery of COVID-19-related business interruption losses under the terms of many commercial property insurance policies.
