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Coronavirus Coverage – Policy Issues to Ponder

  • United Kingdom
  • Insurance and reinsurance
  • Litigation and dispute management

04-03-2020

The global impact of Coronavirus is now undeniable, as one might expect from a highly contagious disease originating from the world’s second largest economy and most populous nation.  Insurance claims are bound to follow and whilst market commentators rightly highlight the numerous exclusions or restrictions of cover under traditional insurance policies, no two wordings are the same and there are issues open to debate.  In this article we try to predict the types of commercial insurance claims and coverage issues that will flow from an outbreak of COVID-19.

Business Interruption Insurance (“BI”)

The most likely losses to be suffered by affected business will be lost income and clean-up/decontamination costs (consider Disneyland Shanghai or the H10 Costa Adeje Palace hotel in Tenerife).  The market might therefore expect to see an uptick in claims enquiries on BI and contingent BI policies. 

Most of these policies will fail to be triggered due to the lack of physical damage to or physical loss of property insured.  However, if the governing law of the policy allows, it could be triggered where the virus renders the insured property uninhabitable or unfit for intended use.

In such cases the coverage analysis might move on to consider whether any relevant exclusions apply.  Virus exclusions are relatively commonplace in BI policies and where present would probably apply so as to defeat the claim. 

On the other hand, the same policies could include extension endorsements such as those providing cover for losses suffered due to enforced closure of insured property by “civil authorities”.  Of course it is possible that sub-limits will apply and there could be a debate over the meaning of the term “civil authorities”, or indeed over whether the closure was in fact enforced as opposed to voluntary – certainly the trend in this jurisdiction (which reflects) prudent risk management makes the latter more likely. 

Similar issues appeared to impact the cancellation of the recent Ireland-Italy 6 nations rugby match due to the threat of coronavirus spread. The Irish RFU eventually cancelled this match only after being given a formal instruction to do so by the Irish government, rather than taking this step voluntarily following the earlier recommendation of a quasi-governmental agency.  Whether the IRFU was motivated by insurance or other concerns is not clear, but the case is illustrative of debates that could arise in an insurance claims context.

BI policies may also provide cover for losses caused by a notifiable infectious disease.  However, such policies will often also contain an exclusion for avian flu, SARS and foot and mouth disease, given insurers’ previous experience of those outbreaks.  Notifiable infectious diseases are listed under the Health Protection (Notification) Regulations 2010.  Coronavirus only recently became a notifiable infectious disease in the UK (on 22 February 2020 in Scotland, on 28 February 2020 in Northern Ireland and on 3 March 2020 in England and Wales).  Any losses caused before then would not be covered.

Liability Insurance

We can foresee a range of liabilities potentially suffered by impacted business which could result in claims on CGL, D&O, E&O, EL/Workers Comp, Product liability and PL policies.

Operators of premises could find themselves sued by third parties for their failure to exercise reasonable care to protect them against the spread of the virus or to warn against the exposure.  Obvious examples are hospitality and travel companies (cruise ships, hotels, restaurants, airports, airlines etc). 

Employees of such businesses (and others, including those in the health sector) could bring similar claims against their employers.  However, EL/Workers Comp policies typically cover occupational disease rather than ordinary disease.  Thus a claim arising out of contraction of the virus in a laboratory might be covered, whereas a claim contracted through human contact might not.

Health care businesses may also carry professional indemnity insurance which may be triggered by negligent provision of medical services, or failure to provide certain services, although one might expect these policies to be triggered only after an accepted diagnosis and treatment protocol has emerged.

Pharmaceutical companies could turn to their product liability policies if facing lawsuits based on losses said to be caused by drugs which they manufacture.

Pollution liability coverages may respond to businesses required to incur decontamination/clean-up costs.

Finally, in certain jurisdictions D&O policies may respond to economic loss claims brought by shareholders following diminution in share value (consider the recent share price falls of certain luxury products companies).  However, these policies could contain broad exclusions of cover for losses indirectly related to bodily injury.

Other Insurances

Of course a myriad of other policies could respond depending on the particular circumstances of the loss.  

For example, cancellation and abandonment insurance may respond where music, sports and other events have been cancelled.  These policies usually cover irrecoverable expenses and loss of net profit, but they could also contain exclusions of the type we have already referred to above.

Trade credit insurance normally provide coverage for non-payment by a debtor of a sum which it is legally obliged to pay, but query whether the debtor could invoke a force majeure clause where it has been impacted by coronavirus.

At the far end of the scale one might even see political risk claims where a policyholders business operations have been unjustifiably interrupted by the actions of a governmental authority, ostensibly based on the need to mitigate against the risks of infection, but in reality for more political reasons.

Aggregation

It would be remiss of us not to identify the potential for aggregation disputes, albeit that they are highly fact-sensitive and dependent on the wording used in the relevant policies.  We note also that previous pandemics have manifested themselves in “waves”, which could lead to vigorous debate over whether certain claims aggregate or not. 

Conclusions

If the consequences of COVID-19 match the current forecasts, then a variety of insurance claims are possible.  As ever, they will depend on the wording and the facts, but consistent themes will emerge across various lines of business.  Please do not hesitate to contact us if you wish to discuss any Coronavirus-related insurance issue.