The corona pandemic is putting a lot of financial pressure on business owners. Agreements are usually not set up for how to proceed in the event of a pandemic. To determine who bears the costs to what extent, parties often have to rely on the negotiating table. This is also true in the relationship between business owners, property owners and their insurers. Outside of corona time, an insurer will be allowed to demand an additional premium if there is an increased risk. Is that different now? Or on the contrary, does the corona crisis give reason to reduce insurance premiums now as a result of reduced risk?
Risk Change
Typically, both business owners (/renters) and property owners (/landlords) will purchase insurance with respect to the same business premises. The business owner will want to insure its inventory and goods and the property owner its real estate. The insurer - logically - sets the amount of the premium depending on the risk to be insured. If the risk increases, the insurer will proceed to reassess the risk in order to increase the premium. Based on article 6.4 of the Nederlandse Beursvoorwaarden voor Zaak- en Bedrijfsschadeverzekering (NBZB), the insurer may also amend the insurance contract in response to a change in risk. As far as is known, the insurer still makes little use of this. Insurers are now mostly lenient with payments with respect to smaller risks. In contrast, when it comes to larger risks (read: hotels, hospitals, large office buildings, etc.) this leniency is often not there. In the large commercial insurance market (co-insurance), you have to come up with a substantiated story in order to be able to defer premium payments or to split an annual payment into semi-annual payments.
Corona pandemic leads to more/less risk
Does the corona pandemic result in a change in the allocation of risk between insurer and insured? And would it be reasonable to change the premium because of a reduction in risk or, on the other hand, an increase in risk? In short, it depends on the specific situation.
Example 1: increase in risk
For a vacant office building in a remote business park, the insurer's risk may only increase. This is because the risk for squatting, theft and burglary, among other things, is greater in the absence of social control. If the commercial property is vacant or occupied by squatters, there is even a duty of disclosure on the part of the insured to inform the insurer of the situation. Indeed, the insurer could claim an additional premium for these cases. The same principle applies to leaks and/or gas leaks. If no one is present in a building, the likelihood of a greater loss only increases.
Example 2: risk mitigation
For hotels, the risk distribution is probably different. There is continuous social control, so the risk of squatting, theft and burglary is minimal, while the restaurant, for example, is closed. In terms of fire risk alone, this is a huge risk reduction. There may also be a risk reduction for casinos. Currently, there are no risks related to cash, taking counterfeit money or robbery. In general, the corona pandemic may reduce risk for damage to inventory or due to failure of refrigerators or freezers, oil or other liquids, smoke and soot, or work stoppages. Of course, adjusting an insured sum of goods present is possible if it is continuously lower than before the corona pandemic.
In short, assessing whether at the bottom of the line there is aggravation or alleviation of risk will, in almost all cases, be customized.
Reduced risk as a contingency?
As a result of the reduced risk, business owners may hesitate to cancel their insurance from the perspective of cost savings. If there is risk mitigation, can the insured take another route, that of premium reduction? That will depend on whether the reduction in risk is an unforeseen circumstance within the meaning of Article 6:258(1) of the Civil Code. Given a certain line that has emerged in tenancy law jurisprudence, it is reasonable that the court would also consider the reduced risk as a result of the coronapandemic to be an unforeseen circumstance. Decline in turnover due to the corona pandemic is usually a contingency. Between tenants and landlords, rent reductions are currently contingent on the degree of turnover decline. Moreover, the NBZB lacks an exoneration clause with respect to a pandemic, making it more likely to be a contingency. With this knowledge, it may pay off for companies and property owners to ask the insurer to the negotiating table, especially since many insurers have indicated that they want to look at individual cases.
If the insurer does not give in, the insured will have to go to court. Here, in practice, the claim will often fail. Only for a high premium will it be worthwhile to force a reduction in court. Also, in court it will often be difficult to prove that the risk is less than before.
Triangular relationship between tenant, landlord and insurer
If a business owner expands its business operations, it may pose more risk to an insurer with respect to the building, for example, with respect to fire hazards. Consider, for example, a store which becomes an eatery-to-go and acquires all kinds of fire-hazard equipment. The insurer will then usually demand an additional premium from both the property owner and business owner . This creates a triangular relationship: the business owner changes its business operations and the property owner must pay an additional premium to the insurer. Usually, the landlord can pass that additional premium on to the tenant. In fact, the General Provisions (Articles 22.1-22.3) that are part of the standard ROZ agreement provide for that possibility. Outside corona time is also reasonable.
It becomes interesting when business operations come to a standstill because of the corona pandemic and, as explained above, the insurer increases the property owner's insurance premium because of a lack of social control due to vacancy, thus increasing the risk of theft, burglary and squatters. Who then bears the risk? The insurer, landlord or tenant? After all, no one can be blamed for the increased risk. On this point, the "share-the-pain" principle, much heard since the beginning of the crisis, could offer a solution. Thus, should an insurer propose a premium increase at this point, it would be wise to sit down together for the sake of cost-sharing.
Conclusion: negotiation can pay off
In the event of an increased risk, the insurer may require an additional premium. If that risk is attributable to the tenant, the landlord can pass it on. For risk increase due to corona pandemic, cost sharing is the most reasonable starting point.
Just as between landlords and tenants, between insurers and insureds the coronapanda pandemic may well qualify as a contingency. If, upon notification of a change in risk, the insurer itself does not come up with a reasonable proposal, it is possible to file a claim in court. From a cost-benefit perspective, this will only make sense in the wholesale insurance market. In all cases involving risk mitigation, both small and large business business owners, it might pay off to get to the negotiating table with the insurer.
Written i.c.w. Nick Schieving (Zuiderhuis Nijmegen)
