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Crans-Montana, the worst-case scenario for Axa
The fire at Le Constellation bar on New Year’s Eve in Crans-Montana, Switzerland, raises not only the issue of human tragedy, but also the question of liability and financial responsibility on the part of the insurance companies involved. However, Axa is both the bar’s and the municipality’s insurer. This is a double exposure that the group could have done without, even if it remains minimal in terms of its finances.
Whose fault is it? Very quickly, in the dramatic fire of the Le Constellation bar in Crans-Montana in Switzerland, which caused 40 deaths and 118 injuries, the question of responsibility arose. That of the operators, notably regarding compliance with safety standards, is being called into question, but that of the public authorities, as to the means put in place to enforce these rules, is also being mentioned. In both cases, Axa Switzerland is the civil liability insurer. A type of situation that requires top-level crisis management for a dramatically out-of-the-ordinary loss.
Liability confusion
The event falls under two distinct insurance categories: one concerns immediate coverage for bodily injury to victims and is primarily covered by public or private health insurance, depending on the country of origin, social security, and supplementary health insurance for French nationals. Depending on the coverage taken out by each victim, death, disability, and provident insurance, such as personal accident insurance, may apply. Depending on the nature of the benefits, the various insurers of the victims may or may not take action against those responsible or their insurers. This is where the second, much more complex insurance component comes into play: civil liability.
The involvement by the courts of one and/or the other party could result in compensating the victims or their beneficiaries under the civil liability insurance contracts that they are required to take out. In this type of case, it is not uncommon for liability to be shared among several actors, starting with the municipality responsible for safety inspections. Other liable parties may be identified, such as the manufacturer of the false ceiling that caught fire, the company that carried out the insulation or electrical installation work, or even the manufacturer of the Bengal firework that most likely served as the trigger.
Guarantee amounts largely exceeded
The ongoing investigation and the upcoming trial will determine any apportionment of liability. But Axa Switzerland will very likely be the main insurer required to provide compensation, and the guarantee limits will not be sufficient, as the insurer announced from the outset. The cost of the tragedy will be significant. Beyond the immediate medical expenses, the courts will determine an amount to compensate for the damage suffered.
The issue therefore concerns less the deceased victims than those who were seriously injured. “For a young person in their early twenties who remains severely disabled and will need assistance for their entire life, the capital to be paid frequently exceeds one million euros and can go far beyond that,” recalls the insurer of one of the young victims, whose personal accident insurance provides coverage up to one million euros. “If the bar’s liability is established, it is possible that I will turn to Axa,” specifies this same insurer.
The liability cap of the bar/nightclub could be in the range of 10 to 20 million Swiss francs (between 10.7 and 21.4 million euros), while that of the Crans-Montana municipality’s civil liability is probably somewhat higher. In a scenario where both policies are fully triggered, the total of the caps remains far below the estimated needs given the severity of the injuries and the age of the injured parties.
“A special mechanism could be set up by the Swiss authorities to ensure assistance to all victims. Axa will fit into this framework and will of course take its share, but at this stage we cannot anticipate the exact amounts or modalities as long as the investigation has not been completed,” the French group indicates. “The holding of a round table with public authorities has been suggested by Axa; the Swiss Federal Council will examine this proposal in connection with the Swiss Insurance Association.”
A significant reputational risk
For the time being, Axa mainly has to deal with a reputational risk, which is why the insurer has taken the lead. “This case is being handled by Axa Switzerland in coordination with the group’s headquarters. However, it is above all Swiss law that will apply to determine liability. Axa has full confidence in the conduct of the investigation and the judicial process,” the insurer indicates.
“It is rare for an insurer to communicate when it comes to liability insurance. The fact that Axa has provided a certain amount of information to the Swiss press shows the importance of this case in terms of reputational risk for the group,” believes Jérôme Goy, partner lawyer in insurance law at Enthémis.
For an insurer, a tragedy like this is among the worst-case scenarios. The consequences, not so much financial as reputational, can be heavy and will evolve over time depending on the course of the civil liability proceedings. These will take time, undoubtedly several years. “This type of liability case is a factory of complications that will keep a number of lawyers busy over the next five years,” predicts Jérôme Goy.