This article analyses the new judicial pronouncement of the provincial court of Girona, in its ruling 59/2021 of the 3rdFebruary, relating insurance contracts when the commercial activity of a hospitality industry establishment as a result of the pandemic caused by COVID-19 is paralysed.
The case in fact brings us to an insurance contract agreed between a hospitality company and an insurer. The hospitality company was forced by the government to shut the doors of its business as a result of the pandemic caused by COVID-19, and so it claimed financial compensation from its insurer for the days which its business remained without activity; this claim was based on the fact that, in the terms agreed in the specific clauses of the contract, there was a clause allocated to an indemnity insurance of 20 euros per day for a period of 30 days for cases of the “paralysation of activity”.
However, the defendant insurer alleged that in the policy there was no coverage of expenses resulting from the paralysation of activity by a government resolution in the face of a pandemic. They justified their standpoint by alleging that, in the general conditions, it is expressly established that: “we do not cover losses produced, caused, derived or resulting from limitations or restrictions imposed by any Organisation or Public Authority, or by any other case of force majeure, including requisition or destruction, for the repair of the damages or for the normal development of business activity”.
Before we continue, in order to understand the issues behind the case, a brief explanation must be made about some of the provisions of the Insurance Contract Act (LCS – Ley de Contrato de Seguro). Article 44.2 of said law establishes that its mandatory provisions do not apply to insurance contracts for large risks.
In relation to these large risks, the Supreme Court has recently pronounced that the classification of an insurance contract of this kind means that the contract is governed by:
- the autonomy of the will of the parties as set out in article 1255 of the Civil Code (CC – Código Civil),
- the provisions of the general and specific conditions of the contract and,
- additionally, by the provisions of the Insurance Contract Act.
The fact that the contract takes precedence over mandatory legal provisions means that we have to distinguish between various types of clauses:
(i) clauses which are harmful to the insurance company,
(ii) clauses which define the risk and,
(iii) limitation clauses.
The first type of clause is directly invalid, for it makes it practically impossible to access any coverage for the accident; the second simply defines the purpose of the contract; and the last restricts and places conditions on the insured party’s right to compensation.
Regarding the limitation clauses, according to article 3 of the LCS, they must comply with two requirements in order to be deemed applicable:
a) They must be highlighted in a special way.
b) They must be expressly accepted in writing.
The requirements above are designed to make sure that the insured party
is aware of the content.
Regarding the limitation conditions, it is important to point out that these can be valid or invalid. They will be valid if the insured party has been aware of the restrictions that they introduce, and also if they are reasonable in that they do not remove any content from the contract in a way which frustrates its economic goal. Otherwise, the limitation conditions will be invalid.
In light of the different types of clauses, and returning to the case examined above, the insurance company’s argument – that the general clauses of the contract do not consider coverage for the case of paralysation of activity by a government resolution in the face of a pandemic – implies a clear limitation of the rights of the insured party in the adhesion contract of which they are a party; this is given that, in the specific clauses, a compensation for the paralysation of activity is established. It is a limitation clause which does not meet the requirements mentioned above to be valid, for which reason the Provincial Court agrees with the defendant insured party.
Jaime Madero
Vilá Abogados
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26th March 2021
