Exceptional loss events

Around 3 January 2018, hurricane-force winds caused damage and accidents in many places in Switzerland. Not only private individuals, but also businesses were damaged by fallen elements. Commuters had to put up with closed roads and disruptions to traffic routes. However, how should companies deal with business interruptions caused by storm damage?

Sooner or later, the question arises as to who is liable for what damage. Liability law knows both the non-contractual law and the actual contractual liability law. In addition, there are more individual cases than standard cases, for example in the case of recourse claims. Finally, the area of property damage includes "collective damage acceptance systems".

In principle, the social insurances stand behind the injured party/parties and the liability insurances stand behind the liable party/parties. The obligation to pay compensation does not follow from the actual infliction of damage, but from the unlawfulness or immorality of the action taken. The tortfeasor is liable per se for a wrong for which he is responsible.

But what kind of insurance could help private enterprises out of trouble that have been hit by natural catastrophes, by so-called force majeure?

Specific protection of legal interests
According to the current view, the debtor is liable for non-performance (for example, default) or improper performance (see also bad performance). He is also liable if his performance is otherwise not in conformity with the contract. Of great importance here are the ancillary, conduct and protection obligations.

In Switzerland, so-called "absolute rights" such as life and property are protected. Relative rights (pure pecuniary loss) are only protected to the extent that they are defined by certain rules and agreements.

Brief overview of the elements of liability and types of liability The elements of liability can be divided as follows:

a) Contractual liability Breach of main, ancillary and subsidiary contractual obligations

b) tortious acts Liability for fault and causation under the OR, ZGB and special laws

c) public law State and civil servant liability - grounds for liability under private law

Non-contractual liability

(a) fault-based liability

b) Mild causal liability e.g. Art. 54 OR Liability of persons incapable of judgement Art. 55 OR Principal's liability etc.

c) strict causal liability Art. 58 SVG liability of the vehicle owner Art. 27 EleG liability of the electricity company Art. 1 EHG liability of the railway undertaking etc.

Art. 420 OR Liability of the managing director for management without mandate (GoA)

Causal liabilities, elements of crime:

• Damage (possible immaterial harm)
• Illegality
• Causal link

business interruption insurance
Floods, hailstorms, windstorms and storms each caused varying degrees of damage in Switzerland, with a large proportion of these losses being borne by the insurance industry.

Pure damage to property or buildings can therefore be passed on through insurance contracts and protection standards. But what happens when a natural event like Burglind sweeps across a country and shuts down the operations of entire regions? Swiss Re is familiar with economic losses caused by natural events.

Whether and to what extent the private insurance companies or the cantonal building insurers in Switzerland have to pay for such events depends on "where the catastrophe" occurs (key words: near the lake, forest, public building, secured construction site) - whether any measures have already been taken by the companies against potential damage.

It is estimated that business interruption insurance and private insurance pay out a good 65 percent of business losses caused by natural disasters on an ad hoc basis. The prerequisite for compensation from business interruption insurance is property damage at the insured location that causes the interruption. The property damage must have been caused by an insured peril and affect an object "serving the business".

Not only the actual property of the policyholder is protected under such an insurance contract, but also other elements. For example, business interruption following storm damage to a transformer on the premises is also insured if the transformer is owned by an energy supplier.

For example, loss of earnings due to the interruption of supply chains (such as after the volcanic eruption in Iceland in 2010) or insolvency of the supplier can be insured. However, these products are not yet widely available and are only offered to major customers.

Liability law in the event of force majeure
Normally, liability law and contractual tort law are not mutually exclusive. However, it is only the "reproachability of the damage" that could lead to compensation and not the actual damage or the extent of the damage. In individual cases, however, those responsible have already been punished, for example Italian civil defence chiefs and seismologists because of missing, imprecise warnings in the earthquake area around Aquila. In a first instance, they were sentenced to six years' imprisonment.

In the case of hurricane-like storms, experts usually speak of force majeure. In this case, insurance companies are only liable under special contractual agreements. In practice, business interruption insurance is used for major loss events. Similar to a normal insurance policy, however, the actual property damage must lead to a complete standstill of production.

However, a business interruption by definition also exists if the business cannot be resumed in the previous manner.

As in standard insurance policies, however, deductibles (see box "Complex estimation of the sum insured") should also be agreed in the event of losses caused by more massive natural events. However, the amount of the deductible has a significant influence on the premium. In addition to deductibles measured in financial terms, time-based deductibles are also found on the market, especially in business interruption insurance for machinery components.

Period of detention and assessment
Business interruption insurance replaces the lost profit as well as the unearned ongoing (fi-xed) costs during the so-called liability period. The liability period is usually 12 months from the occurrence of the property damage (and not the business interruption). The liability period can be extended by means of special agreements, for example if it is not foreseeable that operations can be resumed within this period.

Thus, for example, over-year periods of liability of 24 or even 36 months are common. The business interruption ends when the complete commercial and technical operational readiness has been restored. However, this is always difficult to determine; moreover, the policyholder usually no longer receives compensation for further breakdown damage in the event of climate-related natural hazards.