As is to be expected I have received a large number of calls from my contacts with genuine concerns over what their insurers will do in response to virus-linked losses. Potential areas of policy response include:
• Travel insurance for journeys affected by the outbreak.
• Liability for employees and third parties who are exposed to the virus at work, on your premises, or from coming into contact with your employees.
• Business interruption losses, such as those arising from the closure of your premises. Importantly, many of the indirect scenarios affecting organisations, such as global supply chain disruption, or pre-emptive actions to self-isolate, are unlikely to trigger insurance policy coverage.
• The possibility of cyber network disruption claims associated with failures caused by the increased strain put upon information technology (IT) infrastructure as employees work remotely from home.
• Cyber-crime has already seen an increase in activity, as opportunistic criminals distribute phishing attacks or malware within fake news alerts or product offerings related to COVID-19.
• Management liability, for example, in how the senior management team prepares for and responds to, an outbreak.
Experience from epidemics such as the SARS outbreak in 2002-2003 suggests that most insurance claims will be directed towards travel and business interruption insurance policies.
Business Interruption Insurance
Many organisations are warning of significant impacts from COVID-19, including manufacturing delays resulting from global supply chain disruptions, disruptions caused by pre-emptive office closures or employees choosing to self-isolate, and reduced footfall in the travel, leisure, and retail sectors as consumer behaviours change.
The reality is that many of these costs will be uninsured. Business interruption policies traditionally focus on physical events such as a fire at a premise. Although contingent business interruption (CBI) extensions for a range of non-damage scenarios are available, such covers typically have much lower limits, shorter indemnity periods, and are not guaranteed to respond to novel causes of loss such as COVID-19.
Addressing first the trigger of damage
The main insuring clause under a business interruption policy requires physical damage to covered property at an insured location. If an employee or visitor to your site contracts COVID-19, this does not, of itself, amount to “damage”. Nonetheless, there may be “grey” areas such as premises that are required to undergo a deep clean following exposure, products/stock that might need to be disposed of if they are deemed contaminated, or organisations that might have unusual susceptibility, such as medical laboratories or clean rooms. Each case will need evaluating on its own merits, according to the policy wording, but based on historic experience, we consider it unlikely that a significant number of insured losses will arise under the guise of “damage”.
Of more relevance are the contingent business interruption extensions for “infectious diseases” and “closure by a competent authority”. Where policies have these extensions, the first is designed to respond to the discovery of an infectious disease on (or near to) a premises that results in its closure, while the second responds to the inability to access premises because its closure has been ordered by a competent authority, such as the government or police.
Unfortunately, because there is so much variation between different insurers and policy wordings, it is difficult to be definitive about how such extensions will respond to COVID-19. Key considerations include:
• Is COVID-19 present on or near the insured premises? (If not, the policy is unlikely to respond).
• Has the organisation been formally instructed to close the premises by a competent official body?
• How does the policy define infectious diseases? Some policies list diseases by name, in which case COVID-19 is unlikely to be included as a novel disease. Often insurers refer to notifiable diseases, and this will require careful analysis to identify which regulatory body/country the policy refers to, as well as the date the disease became notifiable. Scotland made COVID-19 a notifiable disease as of 22nd February 2020, Northern Ireland on 29th February 2020, England on 5th March 2020, and Wales on 6th March 2020.
As ever, our best advice to clients is to act as a prudent uninsured – taking the steps necessary to protect your organisation and its people – then engaging with your insurance adviser and insurers to review areas of recoverability under the policy.