Reencuentro del mercado de Miami el martes 2 de noviembre de 2021 / Upcoming Miami Market Get Together – Tuesday Nov 2nd 2021

Queremos invitarles muy cordialmente al primer reencuentro del mercado de Miami en la terraza al aire libre (Patio West) del American Social, será una magnífica oportunidad para vernos y ponernos al día mientras disfrutamos de bebidas y appetizers y planeamos los temas de nuestros próximos seminarios.

We are happy to invite you to our Miami Market first gathering. This will be a social only get together after a while at American Social’s Patio West to seek the views of market members as to future events and seminars. Join us and enjoy drinks and appetizers.

Fecha/Date: Tuesday Nov 2nd 2021
Hora/Time: 4:30 PM – 7:00 PM (Appetizers will be served from 5:00 to 6:00 PM)

American Social
690 SW 1st Ct,
Miami, FL 33130


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Peru regulatory update: public tender questioned

Lima, Peru: 1930s bank façade on Miró Quesada st. – photo by M.Torres

On 16 September 2021, the Third Chamber of the so-called “Court of Contracts” of the Peruvian State issued Resolution 02815-2021-TCE-S3.

The Resolution imposes sanctions on La Positiva Seguros y Reaseguros and Rímac Seguros y Reaseguros (members of the La Positiva Rímac Consortium), disabling them from participating in tenders to contract with the Peruvian State for four months. However, it is important to note that these sanctions do not affect the capacity of either La Positiva Seguros nor Rimac as insurance or reinsurance companies in the Peruvian market.

The Court determined that there were inaccuracies in the documentation submitted by the consortium to qualify for Public Tender 101-2016-SEDAPAL.

Following a review, SEDAPAL (Servicio de Agua Potable y Alcantarillado de Lima) allegedly found inconsistencies in the work certificates provided by La Positiva Seguros, specifically that one of their employees did not have the required five years’ experience. In this regard, La Positiva Seguros argues that it was simply an immaterial error on the dates specified in the work certificate.

The effects of the Resolution have been suspended in respect of La Positiva Seguros whilst an appeal they have lodged is considered.

Rímac did not participate in the sanctioning procedure since it was not duly notified. However, it has also been sanctioned as a member of the consortium. Rimac has filed a court injunction for not being notified correctly and are now awaiting a decision on this.

Sanctioning a consortium of reputable insurers for information that did not seek to obtain a benefit (even if it may have contained errors), and was seemingly compliant with the requirement of five years’ experience, represents a clear threat and risk for markets willing to participate in these type of tenders.

Punishing long-standing carriers for apparent technicalities may do more damage than good to the State tender process in Peru and its ability to find reputable insurance capacity.

Without a doubt, this story will continue to unfold. We will keep you informed.

Authors: Alex Guillamont, Head of Latin America and Caribbean; Marco Rivera, Partner; Lorena Avila and Noriko Hasegawa, Senior Associates at Kennedys.

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Observed patterns and trends in BI related Covid-19 litigation in the US and Spain

Irregularly shaped wooden blocks background

United States*

In this post-pandemic time, a major concern of the (re) insurance market is the massive volume of claims that have arisen as a result of Covid-19. As it is surely the same in other jurisdictions, in the US most of the claims that have arisen from Covid-19 come from policyholders having Property policies that cover BI, who allege that this coverage should be applicable due to quarantine orders established by their governments. Contrary to the jurisprudence that has been established in the UK and Europe, most US courts have taken the position that direct physical damage is required to trigger this BI coverage. Below we will mention some specific relevant cases.

The first BI case related to Covid-19 that was decided in the US was Gavrilides Management Company, LLC v. Michigan Insurance Co. The judge’s decision, dated July 1, 2020, specifically denies the insured’s claim for lack of physical damage. According to the judge, physical loss or damage, under its most common definitions and according to federal jurisprudence, requires a physical alteration of the property. However, the judge mentioned in his ruling that there could be a distinction if the insured property was indeed infected with Covid-19. Following Gavrilides’s reasoning, on May 4, 2020, the courts of Washington D.C. granted their judgment in Rose’s 1, LLC, et. Al v. Erie Insurance Exchange. Although not a class action, this case was brought by ten owners of restaurants or commercial properties in Washington. In this case, the court ruled that there was no coverage for the plaintiffs, reaffirming that “the physical integrity of the property” had to be affected in order for BI coverage to be triggered.

Another relevant case comes from Texas, Diesel Barbershop, LLC, et. to v. State Farm Lloyds. Diesel’s policy had a clause covering losses from civil orders. Naturally, following an order in Texas stating that businesses should not operate between March 24, 2020, and April 9, 2020, Diesel filed a claim for loss of income due to this civil quarantine order. The court denied this claim, ruling that coverage for civil orders was intended to cover situations where there is BI that arises from a civil order issued because of physical damage to the premises in proximity to the insured’s property. In this case, there was not the required physical damage. Furthermore, the policy had an exclusion for losses caused by viruses.

However, there have been some cases where the court has not accepted Motions to Dismiss (MTD) reasoning that BI coverage is not triggered by lack of physical damage. In Studio 417 v. Cincinnati Insurance Co., insurers in Missouri filed an MTD arguing that, because the claimants did not allege physical damage, their claim should be dismissed. In this case, the claimant submitted his claim under an all-risk policy. The court rejected the insurer’s MTD, finding that the claimants did claim physical damage when they claimed that Covid-19 is a physical substance that is emitted into the air and that was attached and deprived claimants of their property, rendering it unusable. Another example of a claim surviving an MTD arguing lack of physical harm is Derek Scott Williams PLLC et al. v. Cincinnati Insurance Co., a class action filed in Illinois. However, we must note that these results do not carry much jurisprudential weight since it only rejects the insurer’s MTD, which means that the claimant presented his claim fulfilling all the procedural requirements. The merits of these cases have not been considered.

Finally, we must highlight the only case, that we know of, where the court ruled on the merits of the case against the insurer. In North State Deli LLC et al. v. Cincinnati Insurance Co. et al., The court in North Carolina reasons that BI coverage requires a direct physical loss and found that the term “direct physical loss” includes the “inability to use… something in the real world, material, or bodily resulting from a given cause.” For this reason, the court ordered insurers to pay for BI losses suffered by the insured. We note that this decision was immediately appealed by the insurer and we expect to have the decision of the appellate court within six months to one year.

As you may see, this last decision has proven to be the exception to the rule established by the courts throughout the US requiring physical damage in order to trigger BI coverage in policyholders’ policies. We look forward to the results of the appeal in the North State Deli case. However, it is clear that in the US, unlike the decisions granted in Europe, current jurisprudence overwhelmingly favors insurers.


Traditionally in Spain, the existence of prior material damage has been a requirement to trigger the Loss of Profits guarantee on a damages policy. Jurisprudence has determined the concept of pecuniary damage requiring tangible, physical damage.

At the same time, under Spanish law there is a distinction between clauses delimiting the risk and clauses limiting the rights of the insured. The first ones define the covered risk, and once the risk is defined, the latter limit the rights of the insured, typically through exclusions. Spain’s Insurance Contract Law establishes, in Article 3, the requirements needed for limiting clauses to be valid, which must be highlighted (underlined, and/or highlighted in bold), and must be specifically accepted in writing (signed), even though these requirements do not apply to large risks, which is basically defined depending on the insured company’s business size/volume. Based on this distinction, the concept of a limiting clause has been extended by jurisprudence to “surprise” clauses, these being those that do not correspond to the reasonable expectations of the insured.

Within this legal framework, it has traditionally been admitted by the Courts that the Loss of Benefits would not be covered in the absence of prior material damage.

However, with the arrival of the Covid-19 pandemic, certain Spanish Courts have adopted a “creative” solution to cover said Loss of Profits without material damage, as follows:

i. Judgment by the Provincial Court of Gerona of February 3rd, 2021. A pizza restaurant claimed € 6,000 from its insurer for loss of benefits suffered during lockdown. The policy covered loss of benefits as a result of a claim covered by the policy according to the definition of “damage coverage” included in the General Conditions, also including an exclusion in the General Conditions for damages or losses caused by organisms or public authorities. Since the General Conditions had not been signed by the insured, the Court found that the exclusion is not applicable. Furthermore, the Court understands that the insured could reasonably have expected the loss of benefits to be covered by the payment of the premium. It is interesting that the question of whether or not there is pecuniary damage has not been raised by the insurer’s lawyers, so there is no pronouncement on the matter, when it is actually the most anticipated question by the Spanish insurance market.

ii. Judgment by the Provincial Court of Gerona of June 16, 2021. In this case also, a restaurant claimed € 18,000 for loss of profits during the lockdown. The insured claimed that he was not knowledgeable and that he never received a copy of the General Conditions, which established the conditions of coverage. The Court ruled in favor of the insured on the same basis as the previous judgment: if the General Conditions are not signed (and in this case are not even known) by the insured, the insurer cannot invoke them.

iii. Judgment by the Court of First Instance of Granada of July 21st, 2021. In this case again, a restaurant claimed € 80,000 from its insurer for loss of profits. The Court again refers to the doctrine of limiting and delimiting clauses, and the need for the limiting clauses to be accepted (signed) by the insured. The problem in the present case was that it was a multi-risk insurance, and that apparently the coverage for loss of benefits was described as “loss of benefits derived from any claim”. The Court decided that, since it is a multi-risk policy, the Loss of Benefits coverage, even derived from the pandemic, falls within the reasonable expectations of the insured, for which it condemned the insurer to pay compensation.

In any case, the following must be taken into account regarding these three judicial pronouncements:

  • None of them have binding effects or constitute jurisprudence (for this, two judgments of the Supreme Court are required in the same sense), depending on the specific circumstances of the case, and on the wording of the policy in question.
  • None of them are large risks. The requirement of knowledge and acceptance of the limiting clauses is not applicable to large risks.
  • So far there is no judicial pronouncement on the substantive question: Can the pandemic be considered damage in the context of a damage policy?

* This section was developed by Kennedys Miami regional hub for Latin America and the Caribbean. Alex Guillamont, partner, Head for Latin America and the Caribbean and Javier Vijil, Senior Associate, Javier is qualified in New York and Florida.
** This section was developed by Kennedys office in Madrid: Olivia Delagrange, partner and Javier Montero, Senior Associate.

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