Europe

In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for Europe.

France - HMN

Key developments in 2020

On 24 September 2020, the French Supreme Court "Cour de cassation" rendered its decision in the relation to the aggregation of claims in PI insurance, in the case of breach of the duty to inform and advise committed by an insured towards its clients. The Cour de cassation itself marked this decision as important given its public interest. 

It is widely accepted that multiple damaging events in the present matter are the breaches of duty to inform and advise committed by the insured against each of its clients. The point discussed was to determine whether these damaging events have a common technical cause and are then deemed a unique damaging event. 

In a quite dogmatic way, Cour de cassation closed the door for discussion, deciding that “provisions of article L.124-1-1 of French Insurance Code confirming claims aggregation are not applicable to liability incurred by a professional in case of breach of the duties to inform and to advise, these duties being individualised by nature and excluding that there is a technical cause, under article L.124-1-1, allowing to deem them a unique damaging event”. 

This decision is open to criticism. Though the duty to advise is indeed “individualised by nature”, it is much less true regarding the duty of information. And individualisation of a duty does not exclude that multiple breaches of this duty have a common technical cause, for example a defective analysis made by the professional or a failure to seek information or to proceed to a verification, from which derives a series of wrong advises provided to the clients. 

One should also keep in mind that excluding aggregation of claims is not in favour of the insured and the third party. Even when the law allows applying the limit per claim on multiple occasions, the liability of the insurer remains capped by the limit per period of insurance. And refusing aggregation can be detrimental to the insured (and eventually the third party) when the numerous claims are of a small amount and there is a significant deductible per claim. 

What to look out for in 2021

Last year, we mentioned coverage of operating losses when there is no physical damage as a likely trend to watch out for. The issue will continue to be a key theme in 2021, in particular exacerbated by the COVID-19 pandemic. 

The key question will be whether there is coverage of operating losses sustained by professionals following the lockdown. Answers provided by insurers varied from cases to case. 

Some insurers declined coverage which was subsequently challenged by some insureds (especially by restaurant or hotelkeepers). 

Several courts of first instance (commercial courts) rendered decisions that appeared to contradict earlier decisions. 

Some judges ruling on summary proceedings decided that they could not rule upon its validity and application of the exclusion, the court ruling on the merits having jurisdiction. 

Some courts ruling on the merits found that the exclusion is valid and applicable, and therefore dismissed the insured. 

Some Judges on summary proceedings and some courts ruling on the merits decided that the exclusion is invalid. 

This variety of decisions leaves an impression of chaos. Appeals were lodged. We may add that certain decisions were harshly criticised by legal scholars for their defective motivation. 

The impression of chaos is aggravated by the fact that some insurers made great publicity about the fact that they spontaneously pay a lump sum to their insured (this being presented as a commercial gesture made although they are not liable to pay under coverage). 

ACPR (French authority supervising insurance) conducted an audit of damage insurance contracts available in France and as at 23 June 2020, the result was the following:

• 93% of the contracts expressly excluded an event as exceptional as the pandemic;
• Only less than 3% of the contracts covered an event like the Covid-19 pandemic (contracts covering operating losses without making distinction as to the cause, and containing no exclusion aiming epidemic or pandemic risk);
• In 4% of the contracts, the contractual provisions could not allow a definitive opinion as to coverage of operating losses caused by Covid-19 epidemic. < li/> < ul/>

Thus, the pandemic risk was largely not insured and the Covid-19 pandemic aggravates this situation, as insurers are now inserting  specific exclusion in their new contracts. 

Capacity on the insurance market for this kind of risk being limited, FFA (French Insurance Federation) suggested that an "exceptional disaster" guarantee fund is created, similar to the “natural disaster” fund. 

Italy - NCTM

Key developments of 2020

The spreading of the first wave of the COVID-19 pandemic during the first half of 2020 has impacted the Italian insurance sector both from a commercial and from a regulatory standpoint. Among the most relevant developments it is worth mentioning the quite unique shift in the Italian personal accident insurance landscape. 

With the introduction of Art. 42 of the Law Decree n. 18 of 17th March 2020 (the so-called Decreto Cura Italia) death or sickness caused by COVID-19 was deemed as an “accident” for the purposes of the compulsory personal accident policy for employees provided by the “National Institute for Insurance against Accidents at Work” (INAIL). This was essentially aimed at extending the statutory mandatory insurance system for employees to Covid-19 related death or illness.

This new statutory provision led to controversies over whether this inclusion of the Covid-19 infection among the “accidents” relevant for INAIL insurance should have been considered extended by analogy to private “personal accident” insurance as well. Such debate is quite relevant for this area of the Italian insurance sector, as it would imply that death or illness due to Covid-19 infection would end up being covered under “personal accident” insurance policies, rather than under the health insurance policies normally covering death or personal injury due to illnesses or diseases.

While there are serious doubts that the “extension” to private “personal accident” policies is viable and possible, the debate is open and it will be interesting to see court rulings on this matter.

What to look out for in 2021

The business interruption (BI) covers are likely to be one of the main areas of concern for insurers in Italy in 2021, following the lockdown measures which, in the spring of 2021, either introduced strict limitations or forced closure. Enterprises have, as a direct or indirect result of such measures, incurred significant losses of revenue and additional costs, for which cover may (and is starting to) be sought.

Although in comparison with other European countries, Italy has less policies covering this risk and, thus, a lesser exposure for insurers, the pandemic has induced a rise in awareness and sensitivity to the BI risk of the Italian Insurance market and an appetite to insure the relevant risk (even more so in a moment when a new wave of lockdown measures are implemented). According to recent studies, it appears that in 2020 BI ranked as the number one risk by Italian enterprises. Considering this data as well as the magnitude of the loss of profit caused by the Italian containment measures, the Italian insurance sector seems to be expecting a rise in both BI-related claims and demand for cover.

As to the expected legal controversies, since Italian BI policies or extensions do not generally provide for specific exclusions of losses determined by pandemics, it is reasonable to believe that at least some of the expected BI claims will revolve around the cover for Covid-19 under the BI policies (or BI extensions) currently offered by the Italian insurance market and, particularly, under the “denial of access” and “civil order authority order” clauses.

Whether a loss of profit relating to the Covid-19 is covered depends, more often than not, on the specific wording and on the interpretation of the policy; in Italy BI coverage is usually offered as an extension of Property or All-Risks policies and coverage is normally - but not always - triggered only if the BI is caused by “direct physical loss or damage” to the insured property (i.e., damage businesses interruption). However, non-damage business interruption covers are less frequent but not uncommon. In the absence of precedents and past experiences, attempts at extending to the extent possible the scope of BI cover (including “damage BI”) is to be expected.

Even when “civil authority order” or “denial of access” clauses come into play, physical damage to the insured or their adjoining properties or areas are sometime required by the policy and – even when BI cover is “non-damage” – disputes are likely to arise as to the existence or extent of the specific local lockdown measure and on whether the Authority’s order was sufficient to trigger cover (especially in absence of outbreaks at the insured premises and following contamination of the insured site).

Disputes are expected and – though maybe in a smaller number compared to other countries – will most probably start in the course of 2021. It will have to be seen how Courts will rule, also considering that in many cases (especially of non -damage BI cover) interpretation of the wording will be frequently necessary and that the contra proferentem principle embodied in Italian Insurance Law is likely to favor insured-oriented interpretations of policy clauses which – invariably – have been designed to operate in situations very different from the pandemic outbreak of early 2020.

Download our full Annual Insurance Review 2021 for more insights.