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Coronavirus - Covid-19 Updates: Insurance Contracts and Potential Disputes - Ireland

  • Ireland
  • General

17-04-2020

Significant economic disruption has been caused by the COVID-19 public health emergency (the “emergency”). The insurance industry in Ireland once again finds itself under the spotlight, with considerable media attention regarding insurance cover for claims arising from the emergency. 

The Regulator’s approach

The Central Bank of Ireland (CBI) in a letter dated 27 March 2020 to the Chairs and CEOs of regulated insurance firms, set out its expectations of how such firms should treat their customers in light of the emergency. Notably, the CBI set forth its expectation that where there is a doubt in policy wording, the interpretation most favourable to the customer should prevail, and that claims should be accepted and paid promptly where insurance cover is in place. 

The approach of the CBI has been termed “moral suasion” rather than clear regulation. Defending the CBI approach, Governor Makhlouf in a recent interview said that the letter sets out very clearly, the expectations of the CBI, as Regulator on these firms1

Business interruption – a word of warning

While travel and property policies have largely been straightforward given the strident and clear positions adopted by the international travel industry and the emergency legislation enacted by the Irish Government in relation to properties, the same cannot be said of business interruption policies.

The principal issue in dispute is whether or not the wording of the policies includes or is intended to include business closure or interruption because of COVID-19, an “infectious disease”. In addition there is much debate as to the applicability of “force majeure” clauses and their benefit to policyholders.

In the context of the emergency, the only issue that can be agreed upon by all parties is that it is an unprecedented and unforeseeable event. Therefore, when insurance policies were written and renewals negotiated, experience of the emergency did not form part of the historical data considered by underwriters. This impacted on the policy pricing. The huge difficulty with the emergency and business interruption is that irrespective of policy interpretations, it could bankrupt insurers, who sold business interruption policies based on a presumed low risk and associated policy pricing.   

In an attempt to avoid solvency issues, European governments and businesses need to adopt a concerted and collaborative approach to policy wording, policy interpretation and an insurance industry wide response to claims. A considered collective approach by the European Union, the Irish Government, CBI, businesses and consumers together with the insurance industry is advisable so as to ensure a “panic button” scenario is avoided. 

Other policies

Not without irony, it is indisputable that insurance related disputes will continue to rise over the coming weeks, months and possibly even years ahead. While issues around business interpretation are the most immediate, in the longer term the impact on financial lines may be the most significant.

Professional indemnity and directors’ and officers’ liability lines of insurance claims will fall to be considered in the context of the insured’s assessment of risks, and consequent decisions or strategies adopted in light of the emergency. With uncertain circumstances continuing to evolve daily as a result of the emergency, it is hoped that decisions made at a given time, are considered in the context of this evolution and not with the benefit of hindsight. These issues will apply equally to employer’s liability and public liability claims.

Force majeure

On the issue of force majeure, this is a creature of contract. This means it must be expressly included in the contract, it cannot be implied. It will be some time before we know the approach of insurers and the courts regarding the application of force majeure clauses to the current emergency. If there is no force majeure clause, the doctrine of frustration may apply. A high threshold must be reached however, before the courts will make a finding of frustration of a contract. The claimant must show that “but for” Covid-19 (and Covid-19 alone) they would have been in a position to perform their duties under the contract, and that the losses in question arise from the non-performance.

What can Irish businesses do?

Irish businesses should take steps to prepare for potential business insurance claims issues that may arise. Businesses should review with their brokers or insurers the extent of their policy coverage, the lines of cover available, and the policy wording and notification requirements. 

Businesses, in reviewing their risk management policies, should assess, mitigate and manage the risks and costs. It is imperative that clear and concise records are kept that demonstrate the decision making matrix at material times.

Key take-aways

Businesses are encouraged to speak with their brokers, insurers and lawyers experienced in insurance coverage issues.

Practical guidance in uncertain times regarding Insurance -

1. Maintain access to soft copies of your policies, review the wording noting specifics regarding notification, excess and limits of indemnity;

2. Assess, mitigate and manage your risk and costs, where possible noting compliance with your own internal policies;

3. Cross check decision-making against the principles of necessity and proportionality;

4. Retain soft copies of business metrics to support your business’ ‘thought process’ and decision making.

This is an evolving and anxious time, and a common and collaborative approach will be required. It is clear that globally the current challenges are unprecedented in their impact on public health, on markets and businesses’. Assessing, mitigating and managing risks and costs on a daily basis is now priority for all.

To discuss this briefing in more detail please contact Aisling Gannon or your usual Eversheds Sutherland contact. 

For support on legal issues facing your business in light of the outbreak of Covid-19, please visit our Coronavirus hub to get our latest information and guidance. 

1 Transcript of Governor Gabriel Makhlouf’s interview with Ian Guider, Markets Editor, Business Post, 13 April 2020

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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