Event cancellation in connection with the coronavirus
The scope of event cancellation insurance coverage
Due to the pandemic course of SARS-CoV-2/Covid-19, event cancellation insurers have in some cases started refusing coverage for coronavirus-related cancellations and bans on (major) events, objecting an ‘increase in risk’ (“Gefahrerhöhung”). Policyholders have reason to question this position.
Across Europe, event bans are among the most important measures taken by disease control authorities against the spread of SARS-CoV-2/Covid-19 and it is unlikely that these restrictions will be relaxed for commercial events such as trade fairs, sports competitions or concerts in the first half of 2020. From the point of view of event cancellation insurers, an accumulation risk therefore arises. By arguing that the risk situation is incalculable, some insurers are deriving rights from sections 23 et seq. of the German Insurance Contracts Act (Versichungsvertragsgesetz, VVG). However, the huge scale of the SARS-CoV-2/Covid-19 epidemic does not per se entitle insurers to refuse coverage.
Sections 23 et seq. of the German Insurance Contracts Act entitle insurers to refuse payment, to cancel the insurance policy or to adjust the conditions of existing contracts. The key requirement is an ‘increase of risk’, which has been defined by the courts along the lines of a new development that triggers a course of risk,
- which is not covered by the insurance policy’s risk description and
- which was unforeseeable by the insurer using reasonable actuarial methods.
There is much to suggest that these conditions are not met in the case of event cancellation insurance in connection with the outbreak of the current SARS-CoV-2/Covid-19 epidemic.
Firstly, cancelling an event due to an external risk is typically an insured risk under event cancellation policies. It is intrinsic to such an insured event that an organiser only decides to cancel an event if there is a qualitatively serious risk which has specifically increased. With the outbreak of SARS-CoV-2/Covid-19, the previously abstract pandemic risk becomes a specifically increased risk to the insured event. The outbreak of the pandemic is therefore an event that justifies cancelling an event. In other words, the insured event occurs. The occurrence of the insured event triggers the insurer’s liability, but does not entitle it to cancel the policy.
Secondly, pandemic risk is not new. SARS-CoV-2/Covid-19 poses a significant risk to the life and health of individuals. Moreover, the infection has a massive impact on all areas of social and economic life. Nevertheless, these consequences are not unexpected for insurance companies. In recent history, infections have repeatedly been designated as a pandemic by the WHO: for example, the Spanish flu 1918-1920, the Asian flu 1957-1958, the Hong Kong flu 1968, the Russian flu 1977-1978 and, more recently, the swine flu/H1N1 2009-2010. This latent risk has been incorporated both into the emergency plans of the Federal Office of Civil Protection and into the risk management of insurance companies. The latter is evidenced by the fact that many insurance segments define pandemics as an excluded risk.
Thirdly, time is running out for insurers that want to claim rights arising from an increase in risk . Sections 23 et seq. of the German Insurance Contracts Act are subject to a time limit. As a rule, the insurer’s rights arising from an increase of risk expire within one month of the date on which the insurer becomes aware of the risk-increasing circumstance. The Chinese authorities first notified the WHO of the epidemic course of Covid-19 at the end of 2019. Since then at the latest, the spread of the virus has been accompanied by massive media coverage. Most of the measures taken by the German disease control authorities date from March 2020, which is why this one-month period has probably already expired for many insurance contracts. However, the courts have yet to decide as to which point in time is relevant for the expiry of risk-increase rules.
We advise companies confronted with their event cancellation insurer refusing to provide coverage to critically review the underlying insurance contracts. This article shows that the general argument of insurers invoking sections 23 ff. of the German Insurance Contracts Act is not convincing. On the other hand, the legal situation may differ in the particular case concerned, due to the provisions contained in the specific insurance contract.
Noerr will be glad to assist you in negotiating solutions.
Any questions? Please contact: Dr Oliver Sieg or Philipp Koch
Practice groups: Litigation, Arbitration & ADR, Insurance & Reinsurance