On May 22, 2020, the President of the Paris Commercial Court issued a much-awaited interim Order relating to the dispute between AXA France IARD and Maison Rostang (a restaurant company), regarding compensation COVID-19 related business interruption losses business interruption. This summary aims at briefly recalling the context of the dispute, the arguments raised by the parties, the decision and its grounds, and finally considering the issues beyond the May 22nd court order.
Following the decree issued by the French Minister of Health on March 14, 2020, many restaurant chains, including Maison Rostang, were confronted with the compulsory closure of their establishments. Of the 20,000 restaurant owners who have purchased an all-risk property policy from AXA France IARD, 10% of them, including Maison Rostang, have taken out insurance covering business interruption losses. Seeking indemnification, Maison Rostang was nevertheless informed of AXA France IARD's refusal to compensate for its business interruption losses.
By its writ of summons dated April 29, 2020, Maison Rostang requested the payment by AXA France IARD of a provision of €72,878.33 in respect to the damages arising from the business interruption losses following the administrative closure of its restaurants, and also the appointment of a legal expert to assess the exact amount of damages.
In support of its position, Maison Rostang argued that AXA France IARD was evading its obligations by refusing to abide by the cover for business interruption losses, even though no exclusion was applicable.
In response, the defendant AXA France IARD claimed the lack of urgency in the present case, and the existence of serious challenges to its coverage obligations. Aside from the uninsurable aspect – and, therefore, the lack of coverage – of the risk relating to business interruption losses resulting from a pandemic, AXA France IARD raised the existence of a dispute over the interpretation of the policy taken out, rendering the judge in charge of summary proceedings incompetent in this case. Finally, AXA France IARD justified its refusal of coverage by noting the lack of an administrative closure pronounced by a local governor (Préfet) and specifically targeting the Maison Rostang establishments.
In his Order of May 22, 2020, the President of the Paris Commercial Court ruled in favour of the plaintiff, acknowledging the urgency of Maison Rostang's financial situation and the absence of any serious challenge as to the granting of a €45,000 provision to be paid by AXA France IARD. Furthermore, pursuant to Article 872 of the Code of Civil Procedure, the Order granted the request for the appointment of an independent expert to assess the business interruption losses.
It should be noted that the Order thus rejected the numerous challenges made by AXA France IARD, ruling that :
- Although constituting an "interesting debate", the uninsurable nature of the pandemic risk had no legal basis;
- The application of the "administrative closure" clause did not require any contractual prerequisite, and could not be interpreted as limited to the decisions of the local governor; and finally
- The ban on taking in consumers did indeed constitute a total or partial administrative closure of a restaurant, as covered by the policy taken out by Maison Rostang.
Some of the grounds for the Paris Commercial Court's interim Order are questionable, and specifically:
- the appointment of the court expert on the sole basis of Article 872 of the French Code of Civil Procedure without reference to Article 145 of the French Code of Civil Procedure is groundless;
- the interpretation adopted by the Judge of the exclusion clause in the insurance policy, which should have constituted a serious challenge itself, does not allow the Judge to grant of a provision under Article 873 paragraph 2 of the French Code of Civil Procedure;
- the qualification of "pandemic", which called for more discussion as to the date of France's entry into the pandemic phase, assuming that this phase had never been reached with regard to French health strategy (distinct from the one adopted by the WHO), is another issue that should not allow the Judge to grant of a provision.
Therefore, the decision rendered by the First instance commercial court of Paris is quite surprising as the judge of summary proceedings should have not had jurisdiction over the denial of coverage of the COVID-19 epidemic under the policy, and the interpretation of the policy on the one hand, and the decision of the Minister of Health enforcing lockdown on the other hand.
Beyond these considerations, it should be recalled that in property insurance policies, there are as many different drafting as there are policyholders (for example, only 10% of restaurants which have taken an AXA France IARD all-risks property insurance policy could be concerned by this decision).
As in other countries, the French government is considering the options to offer in the future coverage for such a magnitude of risks.
Discussions seem to turn around measures relating to a compulsory policy or a compulsory extension of cover. The key issue is of course the determination of the premium and its tax base and, therefore, entities who will be paying the greater share art of these premiums.
As to the contractual mechanism, it is discussed:
- a specific policy dedicated to pandemics or catastrophic events;
- the GAREAT (Gestion de l'Assurance et de la Réassurance des Risques Attentats et actes de Terrorisme or Risk Insurance and Reinsurance Management for Attacks and Acts of Terrorism) insurance pool, whose premium rates vary:
- for the "Large Risks" section, according to the amount of capital insured (20 to 50 million euros: 12%; over 50 million euros: 18%) or the type of risk;
- for the "Small and Medium Risks" section, according to the category of risks transferred (similar regime but no longer applied from policy to policy, but applied to the collection of annual premiums from ceding companies by the insurance branches, deducting, where applicable, the premiums transferred under "Large Risks").
If the tax base for premium relating to pandemic risk is, for instance, fire risks, it is likely that most the total premium would be paid by large companies that are less affected than small business, and therefore that large companies would not get much benefits from this coverage that they are paying at huge costs for them
