Health crisis and deficient commercial channel: are you sure you’re not insured?”

July 22nd 2020

The public health crisis has placed companies’ insurance operating loss clauses under the spotlight.

Whether due to a governmental order that forced them to close or whether they received a prohibition to welcome the public, many companies were unable to continue their activity for more than two months.

It was in this context that the Paris commercial court rendered an interim order in favor of a restaurant owner, an insured party, ordering its insurer to pay him a provisional amount of 45,000 € to indemnify him for the prejudice caused by the operating losses resulting from the administrative closure of its restaurant.

Caution should be taken with this decision, against which the insurance company lodged an appeal, given its specific context, related to the nature of the insured party’s activity and the ambiguity of the insurance contract.

However, it had the virtue of acting as a warning for insured parties to encourage them to read their insurance contract!

Another but nonetheless interesting case concerns companies which suffered operating losses due to a default by their commercial partners.

Certain economic players felt the impacts of the public health crisis, sometimes prematurely – even before the
lock-down in France -, no longer accepting deliveries of raw materials or spare parts from their suppliers located abroad (in particular, in Asia); later, when the public crisis was in full flight in France, many companies were confronted with the cancellation of orders, market loss and/or non-payments.

Yet, certain insurance contracts extend the “operating losses” warranty to supplier and/or client defaults.

Generally, this extension of “operating losses” is subordinated to the occurrence of a material damage suffered by the supplier or the insured party’s client (for example, a fire or a flood resulting in an interruption of the production chain).

Nevertheless, other agreements, more favorable for the insured parties (but also less frequent), do not require the occurrence of a material damage, but only the occurrence of an event not excluded by the agreement (in particular, in insurance contracts referred to as “all risks except”), for the application of the extended warranty.

In this exceptional context, for which the economic consequences continue to be experienced, it appears essential to be informed of the actual extent of your insurance coverage, with regard, in particular, to the operating losses likely to be covered.

It is probably not too late for you to have recourse against your insurance broker and/or insurer.

 

Our recommendations

Insofar as you have (i) subscribed for an “operating losses” insurance contract likely to be implemented and that you consider to have (ii) suffered an operating loss, and even after a first refusal, as the case maybe, we recommend:

  • To closely examine the clauses of your insurance contracts: have you subscribed for an operating losses warranty? Are any exclusion of warranties expressly stipulated?
  • To verify whether your contract provides for a warranty exemption entitled “suppliers, sub-contractors, manufacturers and clientele”.
  • To quantify your prejudice related to the operating loss: a certificate from your chartered accountant, comparative data from the previous fiscal year, for example.
  • To declare your loss with your insurer, by respecting the form required under your contract to ensure its validity.

 

Our firm remains at your disposal to assist you in order to analyze the terms of your insurance contract, evaluate your estimated success and, as the case maybe, assist you with the drafting of your insurance claim.

Candice Baron, Charles Herzecke, Faye Tadros