Coronavirus/ COVID-19 – Insurance coverage – Is it triggered?

Emergency planning for the Coronavirus pandemic is well under way for all organisations and we are all too aware that the position is changing by the day.

It is also now very clear that while emergency measures are being taken and business continuity plans implemented most organisations are not going to be able to avoid the financial impact of the disaster.

The insurance industry is, of course, in the business of risk and is well placed to respond to this pandemic. While it is still too early to determine potential impact of the COVID-19 outbreak and some insurers consider the impact on them will be relatively limited, insurers will certainly be bracing themselves for a wave of notifications. And while organisations should not expect their insurers to be covering all financial losses flowing from the outbreak, they would be well advised to review their suite of policies, and consult with their brokers, as soon as their most immediate response plans are in hand or as part of that process.

There is no quick and easy answer as to what may or may not be covered. Each case will turn on the facts and the wording of the policies in place.

Pertinent policies to review are:

• Business Interruption (standalone or by way of extension to another commercial policy)
• Event cancellation
• Travel
• Trade Credit
• Directors’ & Officers’ Liability
• Professional Indemnity
• Cyber
• Accident and Health

First identified early this year, Covid-19 was declared a ‘notifiable disease’ by way of government legislation on the following dates:

• 22 February 2020 - Scotland
• 29 February 2020 - Northern Ireland
• 5 March 2020 - England & Wales

Coronavirus is part of a family of RNA viruses which includes SARS and atypical pneumonia.

Coverage issues:

Some general issues that likely apply to more than one of the policies listed above.

1. For policies that incepted or renewed before the outbreak emerged, COVID-19 will almost certainly not be specifically referenced in the policy. Some policies are worded such that they only provide cover by way of an extension for infectious diseases that are listed by name – and COVID-19 will likely not have been a named disease prior to this outbreak. This is the position that appears to have been taken by some of the larger insurers in relation to their typical BI wordings such that their early indications are that they will not expect to cover losses arising from COVID-19. Meanwhile, other insurers have been less definitive and have acknowledged that some of the coverage they provide is likely to respond to the impact of COVID-19 and are taking a claim by claim approach.

2. Policies recently incepted or renewed may contain specific exclusions for losses relating to COVID-19.

3. Some policies may contain exclusions for any mutant variant of, for example, SARS which may be problematic if COVID-19 is proved to be a variant. Or they may contain more general exclusions for losses arising from pandemics or, for example in travel policies, where local government advice recommended against travel at the time of booking. Note that the burden of proof in relation to the application of an exclusion will typically fall on the insurer.

4. Other policies cover by reference to ‘notifiable diseases’. Losses incurred before COVID-19 was declared a “notifiable disease” are therefore unlikely to be covered while losses incurred after may be covered. This is clearly an area that could give rise to debate over coverage and loss calculations.

5. And query whether it may then be argued that certain losses fall for coverage if COVID-19 is a mutant variant of a specifically named (or notifiable) disease that is not excluded.

Looking at the various policies in turn, most immediately:

• Business Interruption – A difficult issue is the trigger for coverage. BI cover was historically contingent on the insured suffering property or physical damage which then impacts upon finances – most commonly following a fire to a production plant. Coverage is then provided for lost profits, fixed costs, increased costs of working etc. Some policies do not require physical damage and will cover financial losses flowing out of enforced (government ordered) closures arising from the discovery of a notifiable disease. It is important to review BI as well as loss of rent extensions to any and all policies. There will almost certainly be some disputes around causation and the measurement of loss. The insurer will need to be satisfied that the risk insured is the dominant or direct cause of the loss. A BI coverage dispute (applying English law) following Hurricane Katrina denied a New Orleans hotel from recovering its lost profits after the hurricane on the basis that the damage to the wider area meant that the hotel would have had no customers even if it had remained open.
• Events cancellation – Cover for contagious disease may be added by way of endorsement. Cover may only be triggered when there is a government ban on an event taking place, for example a declaration of a national health emergency prior to cancellation.
• Trade Credit – These policies provide cover for delayed payments of customers (not insolvency of suppliers). We would expect there to be many payment defaults in the supply chain so these policies should be reviewed.
• Life, Health and Travel – These are certainly policies that need to be reviewed and may provide cover depending on the scenario and the policy wording.

Further down the road:

• We may also see employers’ liability exposures too where the employer has failed to act reasonably in response to the outbreak and exposed employees to risk.
• Similarly claims may potentially be brought against Directors in relation to acts/ omissions in response to COVID-19 which may fall for cover under D&O policies.
• Cyber – Be aware that despite best efforts, cyber security may be less robust in an effort to stay connected and work from home. This may leave organisations more susceptible to a data breach which give rise to claims under cyber policies.
• PI – Similarly, absence and sickness may of course lead to a dip in professional standards giving rise to claim.
• Product Liability – A compromise in standards in terms of the product may also result in claims.

In summary, insurers are encouraging their policyholders to get in touch with them or liaise with their brokers. Organisations need to review their policies to identify the scope of cover provided and limits (note that sub-limits may apply), what is insured and what is excluded, dates of inception/ renewal and geographical scope. Also pay attention to notification conditions to ensure that cover is not jeopardised by failure to comply.

Finally, organisations may encounter some delay in renewing expiring policies so do not delay in contacting brokers if renewal dates are imminent.

If you remain unclear on how your policy may respond to your business’s situation after speaking to your broker, or your insurer has declined cover, our insurance team can assist with policy interpretation and advice on next steps. Please do not hesitate to get in touch if you have any queries.