The control of the incorporation of clauses limiting insurance cover in the light of a judgment of the Provincial Court of Girona: the gateway to compensation for loss of profits due to COVID.
Over the last few days, the media have echoed the judgement of the Provincial Court of Girona of 3 February 2021, condemning an insurer to pay a pizzeria in Girona some 6,000 euros for having had to close due to COVID-19. This ruling, the first of many to be handed down in similar situations, brings some hope for the hard-hit restaurant sector and other establishments open to the public.
First of all, we must applaud the speed with which the Provincial Court of Girona has resolved the appeal. In less than 3 months since the first instance sentence was handed down, the Court has already reached its verdict.
The case decided by the Court was that of a pizzeria that had taken out an insurance contract. In the particular conditions of the contract, a clause was included to cover “loss of profit“, setting a daily amount and limited to a certain number of months.
However, it turned out that the general conditions included a clause stating that “we do not cover losses produced, caused, derived or resulting from limitations or restrictions imposed by any Public Body or Authority“, which was used by the insurer to argue that the closure due to a pandemic was not covered.
It is not surprising that the insurer would invoke clauses that it did not even know existed in the contract to get out of the obligation to pay. Coverage services are sold to the client, but in the small print these coverages are restricted and conditioned to the point of making them almost impossible. The policyholder pays his premium religiously, but when misfortune strikes, the insurer hides behind some legal ambiguity or mysterious clause that went unnoticed by the policyholder. Like a bad friend in a situation of need, the insurer throws a smoke bomb and thus gets rid of all responsibility. Or at least it tries to.
The Court of Girona, versed in the control of the incorporation of the general conditions, has not allowed itself to be swayed by the insurer’s thesis. It rigorously applies a control of inclusion to this clause limiting the coverage and reaches the conclusion that it should not be applied.
Combining the requirements of the law of the insurance contract and the law regulating the general conditions of the contract, it starts from the premise that the limitations to the coverage must be clear and precise. They must be highlighted in bold type and, moreover, “specifically” signed by the policyholder. Clauses limiting the assumptions of coverage “may be valid, but this requires that the insured has been aware of the restrictions they introduce – i.e. that they do not come as a surprise – and that they are reasonable“.
The hearing concludes that the limiting clause does not exceed the requirements of cognizability imposed by the insurance contract law. They were not sufficiently highlighted and were not even signed (which is strangely frequent). Thus, when the policyholder took out the loss cover, he was not aware that such a limitation was in place. His reasonable expectation was that he would be able to collect compensation if he was forced to close for any reason.
The immediate effect is that the clause is not incorporated into the contract governing the relationship between the parties. In other words, it does not apply and is expelled from the legal relationship.
However, we must warn the reader that the Audiencia’s ruling should not be used as a general rule. There are many variants in the judicial casuistry that can lead to different rulings in two very similar cases. They range from the arguments of the parties to the perception of the judge. And in these cases, the wording of the policy will be particularly important and will have to be carefully analysed.
In addition, the Court points to a new battlefield that in this specific case it does not analyse as it has not been raised by the insurer, but which in all probability will be in future cases. It is about whether the coverage for losses should be limited only to those cases in which the cessation of activity is a consequence of the losses foreseen in the policy. In other words, only losses due to closures caused by damage, theft, fire or any other apocalyptic scenario foreseen in the policy should be indemnified. But, we insist, the determining factor will be how the policy is worded and the expectations that the policyholder may have had at the time of taking out the policy. It must be taken into account that the doubt in the interpretation of these contracts must always favour the insured person due to his condition of adherent.
Therefore, if what you want to know is if an insurance policy can be obliged to compensate for the closure of the premises, you will have to retrieve the policy and check if it includes the concept of “loss of profits”. It usually states a daily indemnity amount and a maximum number of months. From here it will be necessary to examine whether there is any limiting clause that may exclude the specific case of closure due to COVID-19 and, if so, to see whether this clause exceeds the incorporation requirements.