COVID-19 and insurance cover

Introduction

Many organisations are facing significant losses as a result of the COVID-19 (coronavirus) pandemic.¹  They will carefully consider their suite of insurance policies to determine which of them may respond and help to recover loss sustained. This might include the cost of cancelled travel or corporate events or any extra costs of working where staff have been told not to come into the workplace for prolonged periods. Perhaps more critically, where customers or supply chains have been disrupted due to the spread of the virus, many businesses will need to consider whether any resultant loss may be recovered.

Whether or not any type of insurance policy will cover COVID-19-related losses will obviously depend on what the policy includes or excludes. Wordings and coverage differ depending on the type of policy, the risk appetite of the insurance company issuing it and the risk management decisions made when purchasing it. The SARS outbreak in 2003 resulted in changes to policy wordings both in terms of exclusions and, in certain instances, extensions available at additional cost. 

Naturally, risk management extends to mitigation of loss and it is worth bearing in mind that all coronavirus-related claims will involve an assessment of what steps have been taken to mitigate loss.  Looking forward, organisations might wish to consider purchasing extensions to cover, if available, to assist in dealing with the significant financial losses that communicable diseases such as COVID-19 can cause.  

Event cancellation

Event cancellation insurance typically responds to events beyond the control of the policyholder. Policies are often taken out by sports promotors, performing artists, multi-national corporations and conference organisers. As ever, the terms of the policy, specifically the trigger of cover will be key. Coverage may be triggered by death, accident or illness of a key performer or close family member, extreme weather, damage to the venue and travel disruption outside the control of the organisers. What will not be covered is the need to cancel an event because of fears about a contagion as this is not beyond the control of the policyholder. 

Many event cancellation policies exclude communicable disease/pandemics as a trigger of coverage.  Recently, one leading Lloyd’s market insurer commented that less than 10 per cent of their event cancellation policy buyers had elected to purchase disease/pandemic extensions to cover. 

Even where a policy could potentially respond on its wording, questions could arise where an event not initially postponed or cancelled after a ”Notifiable disease” or pandemic was declared was subsequently cancelled or postponed.  

Policyholders should consider whether it might be sensible to postpone events with notice to their customers rather than cancelling events outright. The policy may respond where an official body (such as a government or local authority) has determined that the event should not go ahead. 

Business interruption

The aim of business interruption (BI) cover is to restore the policyholder to the position they were in before the event occurred in terms of lost profits or additional expenditure. Thus, there may be cover for loss of profits/extra expense in circumstances where there has been disruption to supply chains or denial of access to business premises by government order and, depending on the extensions to cover available, even a loss of use of premises due to virus contamination. Certain courts in the US have found that contamination that causes property to be unfit for its intended purpose will qualify as physical loss. This might cover decontamination costs, for example,

The specific wording of the relevant BI policy will need to be considered for certainty of coverage, but it is common for a BI policy to generally include a requirement that insured “property” has sustained damage. The damage must occur during the currency of the policy, giving rise to loss of profits or additional expense during the period after the occurrence of the peril insured against. Typically, such damage arises from events such as fire, storm or flood. 

However, some policies may afford extra expenses cover where a “Notifiable” or communicable disease  extension is obtained. Some policies offer “denial of access” cover which normally requires a mandatory closure of premises by legislation or government order as a result of defined disease. 

Contingent Business Interruption (CBI) policies may afford cover where a key customer or supplier is forced to close. In some instances, non-physical damage-based CBI policies may be available to respond to a reduction in supply that leads to a loss of output.  Although not common in the market, one can readily imagine the value of such cover in current circumstances.

Trade credit insurance

Companies that have purchased trade credit insurance (sometimes referred to as debtor insurance) may be able to recover revenue lost where customers have not paid their invoices because of cash flow problems or insolvency. Trade credit coverage can be bought to cover single customers or the entire customer base. Frequently, trade credit policies cover risks in circumstances where the supply chain has been disrupted beyond the policyholders’ control. Policies may respond in circumstances where there have been physical disasters that may impact customers but frequently with exclusions for such things as nuclear disasters or terrorism. Importantly, however, trade credit policies typically do not depend upon physical loss or damage for recovery.

Travel

Whether or not you are able to reclaim the cost of flights, hotels or other travel tickets will depend on a number of factors, including whether you have booked your trip before official advice against travel to a region or country has been issued. In many instances, policies will cover the costs of cancellation in the event that a government authority has advised against travel after the trip was purchased. Although many policies include cancellation cover, policies are highly unlikely to cover cancellation of travel booked after you are aware of official advice not to travel. In the UK, the evolving situation and the WHO declaration of a pandemic has led to a number of insurers withdrawing optional cover for travel disruption or airspace closure options that could otherwise be purchased.

Policies will not respond where the policyholder cancels due to a disinclination to travel rather than responding to official advice. In the UK, advice about countries and regions affected by coronavirus is published by the Foreign and Commonwealth Office. In the United States, this advice is provided by the Department of State.  

As always, all policies should be checked to see exactly what is, or is not, covered. Policy extensions may be available for an additional premium, such as the “notifiable” diseases or “denial of access” extensions discussed above.

Professional liability

Policies may respond to claims against professionals for negligence where disruption caused by COVID-19 results in errors or omissions. There may also be liability where professionals fail to take adequate steps to prevent the spread of the virus to their clients or colleagues. 

Directors and officers liability

Directors and officers may need to consider their obligations in respect of reporting and disclosure obligations in fast changing and often confusing circumstances. Boards should be vigilant about the impact of supply chain disruption on their solvency and mindful of their obligations under health and safety and employment laws. Business continuity plans will need to be applied and reviewed on a regular basis as the situation changes.

Cyber liability

As more employees are required to rely on home working, vulnerabilities may open up in corporate IT systems. An increase in phishing emails purporting to convey public health advice on COVID-19 and opportunistic attacks will test how robust companies’ data security systems are. Policies will differ in terms of the scope of coverage and supporting assistance in the event of an attack. 

Norton Rose Fulbright is available to assist with any enquiries.