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An overview of Covid-19 insurance pitfalls in Portugal
Does your property insurance cover damages arising from Covid-19?
Many policies in Portugal contain an expression when detailing coverage as ‘loss or destruction of, or damage to, the property caused accidentally’.
It is found that Covid-19 is a disease that only affects individuals and not property. It is caused by a virus (Cov-Sars-2) which subsides on objects and physical surfaces, thus rendering them unsafe for use, even if this is for a limited period of time, until it perishes. Nevertheless, the majority of case law tends to consider damage as a physical transformation in the property and in that regard this wording would not be applicable to the Covid-19 situation.
Even if your policy covers business interruption, would damages arising from cancelled contracts following a business interruption Covid-19 outbreak be covered?
In this case, if a covered event, such as business interruption, causes contracts to be cancelled, Portuguese Law considers that for multiple causes or responsible parties, all are fully liable for the damage.
However, would that contract cancellation be acceptable?
Portuguese law determines that whenever there is: (1) an abnormal change to the circumstances that motivated the intention to enter the contract; and (2) demand for the injured party to fulfil its obligation that would severely affect general good faith principles, the injured party may cancel or adjust the terms of the contract, properly refunding any amounts which may have received.
In this case, the notion of ‘abnormal change’ is similar to the concept of force majeure. However, although it has been understood that force majeure is an unforeseeable and inevitable event that deems the obligation impossible to fulfil, in the case of an abnormal change, the position would be economically disastrous.
For example, it is an abnormal change if a contractor is hired to perform building works and is paid €50,000 to obtain the building materials themselves, but due to Europe’s viral containment measures, the price of these materials has risen by over 80 per cent. In these circumstances, the contractor would be able to adjust the terms of the contract or cancel it. Nevertheless, the other party may intend to fulfil the contract and supply the materials themselves, in order to reinstate the economic balance between the parties. However, there is no abnormal change if the hypothetical rise is only five or ten per cent because such a price increase is acceptable, if not usual, in normal market conditions.
Another practical example is where someone hires a restaurant to cater for their wedding day, but due to the state of emergency restrictions, the restaurant is closed and forced to shut down its business. In this scenario, the restaurant would be able to cancel the contract due to force majeure as it would be impossible to fulfil.
Conversely, if a lawyer was hired to present a petition in court, when ordered to work from home, it would still be possible to present the petition by email or online from home. Therefore, force majeure would not be applicable in this instance, as it does not involve an absolute impossibility.
At a time when we work and live from home, and everything may only roam entirely free on the internet, many contracts were and will continue to be cancelled due to the current second wave of the pandemic. Therefore it has never been so important to review your insurance wording and make sure it is Covid-19 proof.