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Germany – Corona and Insurance Cover for Business Interruption and Closure

  • Germany
  • Coronavirus

19-03-2020

First of all, the current Corona crisis is an enormous challenge for the maintenance of the people's health. However, the Corona crisis also poses big challenges for the economy. The measures required to protect the health of the people impair the economy in a negative way. Numerous trade shows and flights have been cancelled, suppliers are unable to deliver and companies work less effective due to numerous precautionary measures or must even be closed entirely on a temporary basis. Financial losses are unavoidable. Insurance policy holders are wondering whether such financial losses are insured or can be insured in the future.

Business impairments are usually included in business interruption insurances. An individual review of the business interruption insurance contracts of the respectively affected company is therefore reasonable. Most known standard insurance contracts do typically not include financial losses of companies unless they cover the mere closure of the business.

In the past, there have already been situations which made companies wish for insurance cover for global epidemics and similar crises. In 2010 for example, the eruption of the Icelandic volcano Eyjafjallajökull led to a global halt of airborne traffic negatively affecting the world economy. SARS, EHEC, bird flu etc. were not limited locally either and caused financial losses. However, for such events and the resulting impairments of companies, there was typically no insurance cover. In order for business interruption insurances to acknowledge an insured event, a frequent precondition is property damage. Such property damage is, however, often not given when an insured company suffers financial losses due to a virus or the remote effects of a volcano eruption. In almost all cases, the insurers are entitled to reject the insurance claim by the insured company since the interruption or impairment was not caused by property damage.

However, after the volcano eruption in 2010 numerous insured companies led intensive discussions with their insurers regarding their future insurance cover for business interruption without property damage causing the impairment. Such insurance cover is neither granted by every insurer nor available for every company. It goes without saying that this kind of insurance cover is much more costly than a standard insurance cover depending on property damage. To the extent a company has converted its insurance cover to a cover independent from property damage already before the Corona crisis, considering the current situation the increased insurance premium was probably a useful investment into the company's economic stability.

With regard to the Corona crisis, we would recommend to review whether the current contracts of insurance do include elements not related to property damage. Even now, there might be insurance claims due to the current economic impairments. For the future, the insured companies will have to carry out a risk assessment. How likely is a situation like the current one to repeat itself? Can financial losses independent of property damage even be insured for the respective company? If so, what are the insurance premiums for this enhanced insurance cover? Is it sensible to acquire such insurance cover for the future?

We would be pleased to review your current insurance cover and provide advice on the acquisition of your future insurance cover.