Hotelier Exclusion from Operating Loss Insurance Amid COVID-19 Coverage

French Court limits Business Interruption Coverage for Hotels Outside Lourdes Pilgrimage Site

Paris, France – The French court of Cassation has ruled against a hotelier seeking business interruption coverage related to COVID-19 closures, clarifying the geographical limitations of specific insurance policies. The decision, handed down recently, reinforces a growing body of case law concerning “all-risks” insurance and pandemic-related losses.

The case centered on a hotel located approximately 40 kilometers from lourdes, a renowned pilgrimage site in the Hautes-Pyrénées department. The hotel possessed a policy, mirroring those offered by Axia insurance (“pupils and taste buds” guarantee) and previously litigated by MMA and Assurances du crédit Mutuel Iard, guaranteeing coverage for business interruption due to administrative closures stemming from health crises. While the guarantee was activated for hotels within Lourdes itself following COVID-19 shutdowns, the Court of Cassation upheld the lower court’s decision denying coverage to the hotel in Gavarnie-Gèdre.

The court’s reasoning hinged on the specific geographical scope of the policy. The guarantee, designed for businesses operating in Lourdes, did not extend to establishments located outside the immediate area, despite their proximity and presence within the same department.

This ruling adds to a significant wave of litigation – nearly thirty decisions by the Court of Cassation since 2022 – concerning the interpretation of “all-risks” clauses in business interruption insurance. Legal scholars, including B. Beignier and S. Ben Hadj-yahia ( Insurance Law, 5th ed., LGDJ, 2024, p. 927 s.), have closely followed the evolving case law.

The decision underscores the importance of carefully reviewing the precise terms and conditions of insurance policies, particularly regarding geographical limitations, when seeking coverage for unforeseen events like pandemics. Further analysis of the ruling is available from Dalloz News (Dec.13, 2023; June 16, 2025; March 27, 2025).

What legal arguments did hoteliers use to claim buisness interruption losses due to government-mandated shutdowns during COVID-19?

Understanding Business Interruption Insurance for Hotels

The COVID-19 pandemic presented unprecedented challenges for the hospitality industry. Hotels, reliant on travel and in-person events, faced widespread closures and drastically reduced occupancy rates. Many hoteliers turned to their business interruption insurance (also known as operating loss insurance) policies, expecting coverage for lost revenue. Though, a significant number of claims were denied due to policy exclusions, specifically those related to viruses and government-mandated shutdowns. This article delves into the complexities of thes denials, focusing on the hotelier exclusion and its implications.

The Core of the Dispute: “Direct Physical Loss or Damage”

Traditional business interruption insurance requires “direct physical loss or damage” to the insured property to trigger coverage. This has historically been interpreted to mean tangible damage – fire, flood, or structural collapse. The central argument in COVID-19 related insurance disputes revolves around whether the presence of the virus constitutes “physical loss or damage.”

Traditional Interpretation: Courts generally sided with insurers,arguing that the virus itself didn’t cause physical damage to the hotel property. The lack of structural alteration meant no coverage.

The “Loss of Use” Argument: Hotelier advocates argued that the government-ordered shutdowns,stemming from the viral threat,resulted in a loss of use of the property – effectively a functional loss,and therefore covered. This argument gained some traction but faced significant legal hurdles.

Key Term: Force Majeure – While ofen invoked, force majeure clauses typically suspend obligations rather than trigger insurance payouts.

Specific Exclusions Targeting Viruses & Pandemics

Many commercial property insurance policies, including those held by hoteliers, contained specific exclusions for losses caused by viruses, bacteria, or other microorganisms. These exclusions, often pre-existing, were amplified in the wake of SARS, MERS, and other outbreaks.

Virus Exclusions: These clauses explicitly denied coverage for losses resulting from the presence, transmission, or effects of viruses.

Pandemic Exclusions: some policies included broader exclusions for losses stemming from pandemics or epidemics, nonetheless of the specific cause.

Government Order Exclusions: While not always explicitly virus-related, exclusions related to government shutdowns or civil authority orders were frequently used to deny claims, even when the shutdown was directly linked to COVID-19.

The Impact of the Hotelier Exclusion Clause

The hotelier exclusion isn’t a single, standardized clause. Instead, it refers to the way insurance policies were interpreted and applied specifically to the hospitality industry. Insurers argued that the inherent risk of fluctuating occupancy rates and reliance on external factors (like travel patterns) meant hotels were already exposed to significant operational risks not covered by standard business interruption policies.

This led to a pattern of claim denials, even for hotels that had seemingly thorough coverage. The reasoning often centered on the idea that the pandemic represented a systemic risk,not a localized physical loss.

Case Studies & Legal Battles

Numerous lawsuits were filed by hoteliers against their insurance providers. Here are a few notable examples:

The Rosewood Hotel Group vs. The hartford (2020-2021): This case highlighted the debate over “direct physical loss or damage.” The court ultimately sided with The Hartford, finding that the presence of the virus did not constitute physical damage.

Several state-level class action lawsuits: Multiple class action suits were filed across the US, seeking to compel insurers to cover business interruption losses. Results varied considerably depending on state laws and policy language.

Ongoing Litigation (as of 2025): While many initial cases have been decided, litigation continues regarding specific policy interpretations and the applicability of various exclusions.

Navigating Insurance Policies: Practical Tips for Hoteliers

Given the lessons learned from the COVID-19 pandemic, hoteliers should proactively review and adjust their insurance coverage.

1. Policy Review: Thoroughly examine your current commercial insurance policy, paying close attention to exclusions related to viruses, pandemics, and government orders.
2. Negotiate Coverage: When renewing or obtaining new coverage,actively negotiate with your insurer to address potential gaps in protection. Consider adding pandemic insurance or riders that specifically cover losses related to public health emergencies.
3. Contingent Business Interruption (CBI): Explore CBI coverage,which can protect against losses resulting from disruptions to key suppliers or customers.
4. Understand “All-Risk” Policies: While seemingly comprehensive, “all-risk” policies still contain exclusions. Understand what is not covered.
5. Document Everything: Maintain detailed records of all communications with your insurer, as well as documentation related to your losses.
6. seek Legal Counsel: If you face a claim denial, consult with an attorney specializing in insurance law.

The Future of Business Interruption Insurance for Hotels

The COVID-19 pandemic has prompted a re-evaluation of business interruption insurance.

Legislative Changes: some states have introduced legislation aimed at clarifying the definition