High-profile insurance coverage litigations in the wake of Swedish government’s soft approach to Covid-19

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Susanna Norelid
Norelid Advokatbyrå, Stockholm
susanna.norelid@norelidlaw.com

Fredrik Seemann
Norelid Advokatbyrå, Stockholm
fredrik.seemann@norelidlaw.com

Agnes Carlsson
Norelid Advokatbyrå, Stockholm
agnes.carlsson@norelidlaw.com

In recent months, Sweden has attracted global attention for how its government and authorities have chosen to handle the outbreak of Covid-19. The Swedish ‘soft approach’ strategy with respect to preventing spread of disease has largely revolved around personal responsibility. Rather than imposing strict lockdown measures the Swedish authorities have generally issued non-binding recommendations on maintaining social distance, working from home, and staying at home at the onset of symptoms. In accordance with this soft approach, Sweden has therefore been kept relatively open for mobility and activities, including general business operations.

The Swedish Public Health Authority (Folkhälsomyndigheten) has however issued a binding regulation (HSLF-FS 2020:97) which affects most businesses in the hospitality sector such as restaurants, bars, cafés, nightclubs and cultural venues. The Regulation states that operators of hospitality premises must ensure that visitors are able to keep appropriate distance between each other, that there is no congestion, that visitors may only eat and drink while seated at a table, and that standing service is not permitted. The Regulation also states that public appointed infection control physicians (smittskyddsläkare), after consultation with the competent Swedish local authority, may decide to order temporary closures of businesses which do not meet or comply with the Regulation’s requirements.

Most businesses in the Swedish hospitality sector have been deeply affected by the Regulation and many of them have been forced to substantially adapt their operations to comply. Certain businesses, for instance those who operate nightclubs, have halted their operations completely as it has been argued that their ordinary activities are not at all possible to be carried out in compliance with the Regulation.

By tradition, most broker-represented Swedish businesses in the hospitality sector have procured specific epidemic business interruption (BI) insurances, as part of their broader scope of property, casualty and BI coverage. Epidemic BI insurances aim to indemnify in the event of business interruption occurring as a result of a public health measures implemented specifically at identified insured premises. Following the entry into force of the Regulation, many businesses in the hospitality sector have therefore lodged claims for business interruption coverage under their respective epidemic BI insurances, usually based on the assertion that the Regulation constitutes a public health measures implemented against the insured and, in any event, that the Regulation makes it impossible for the insured to maintain operations.

As far as is known, however, insurers have generally declined coverage under the assertion that the Regulation does not correspond to the prerequisites for cover under the standard epidemic BI policies. This has led to a steadily increasing stream of highly publicised lawsuits being lodged against Swedish insurers at the Swedish courts, most turning on substantially similar legal issues and factual circumstances, and many of which have been filed by operators of some of Sweden’s best known establishments, venues and museums. Due to the fact that the pandemic has been in progress throughout almost all of 2020 and that the Regulation is still in force in Sweden, it can further be assumed that there will be more similar cases ahead.

To date, the most publicised of these is the so-called 'nightclub case'. In May 2020, it became known that one of Stockholm’s largest and most well-known nightclubs, which had completely halted its operations since the Regulation came into force, has sued a major insurer for epidemic BI-coverage following the insurer’s declinature of the insured’s claim for coverage.

In the nightclub court case, the terms of the insurance policy at hand state that the insurance covers interruption resulting from public authority measures taken during the insurance period and which are caused by a contagious disease. The terms also state that the public measures must be made pursuant the Swedish Communicable Disease Act (2004:168) (Smittskyddslag) or the Swedish Food Act (SFS 2006:804) (Livsmedelslag) in order to prevent the spread of contagious diseases among humans. According to the policy terms, the public authority measure must also have been taken against the insured premises.

In its lawsuit, the insured has claimed that it is entitled to compensation from the insurance due to the fact that the nightclub’s halted operations have arisen from such government actions as stated in the insurance policy. The insured has stated that the Regulation should be considered as public action against the insured premises to the extent that the Regulation limits the actual possibility for the insured to conduct its operations, as the operations are not possible to be conducted under the requirement that guests may only eat and drink while sitting at tables, without congestion and without standing service.

In the nightclub case, as in all known court cases so far, insurers have fully disputed liability for coverage on substantially similar grounds. They have revolved around the assertion that the Regulation cannot be considered as public measure taken against the insured premises. According to insurers’ line of argument, the epidemic BI-insurances only apply if and to the extent that a public intervention is made specifically at the particular insured’s premises and operations. According to insurers, a general regulation targeting an industry sector as a whole – such as the Regulation – cannot be deemed to constitute as an intervention or public measure against a specific insured’s premises as envisaged in usual epidemic BI-insurance policy wordings.

Another central question, especially regarding nightclubs, is whether the insured should be deemed to have a general legal duty to adapt its operations as far as possible instead of closing down. In the nightclub case, where the insured closed down completely, the insurer has argued that the insured’s decision to close was in fact voluntary since the insured had the possibility of adapting and/or carrying out other activities compliant with the Regulation at its premises, in which case the epidemic BI-insurance cannot in any event afford coverage pursuant to general legal principles of damage reduction duties.

None of the well-noticed cases have yet been decided by the Swedish courts, so there is still a broad uncertainty regarding the outcome of the central issues of the cases. What is already clear at this stage, however, is that Swedish insurers themselves do not seem to have envisaged or underwritten epidemic BI-insurances with general regulations as basis for coverage in mind, that insureds are of the complete opposite opinion, and that the uncertainty in this regard to a great extent arises from the legislative and regulatory measures following the Swedish government’s soft approach strategy.

As such, if the cases end up being decided in favour of the insureds, insurers will find themselves in a situation where the scope of their liability under epidemic BI-insurances differ widely from the basis on which they originally underwrote the risks at hand, which may lead to far-reaching consequences for the Swedish insurance sector’s future BI-underwriting practices, risk assessment and premium calculations.

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