As a result of the continued global rise in confirmed cases of Covid-19 (Coronavirus) and consequent travel and quarantine restrictions, understandably concerned individuals and businesses are assessing their risk of injury and loss arising from the outbreak, including the recoverability of losses under available insurance cover. For the insurance sector it is highly likely that increases in claims will be seen across multiple business lines and, as with the SARS epidemic of 2002/2003, it is probable that life, health and travel insurance will see the highest losses.
Claims will undoubtedly be seen more widely, however, and areas where they are likely to be triggered include sporting event, concert and festival cancellations, employers’ and public liability exposures and business and supply chain interruption.
In all cases it will be important to check policy wordings carefully as cover for particular losses will depend on the precise terms of the insurance. Key considerations include:
- Direct trigger of loss? Insurance covers losses ‘proximately caused’ by an insured peril. In general terms this means that a claim will be covered if the risk insured against is the direct or dominant trigger of the loss. Where coronavirus falls within the description of insured perils under a policy and the virus is the dominant cause of loss or injury suffered, it is likely that it will be covered subject to any relevant exclusions or policy conditions. Obvious examples of insurance cover where coronavirus could be the direct cause of loss are life and health policies.
- Exclusions Policies may contain exclusions for epidemics or pandemics which could exclude losses arising from coronavirus. At the time of writing coronavirus has not been officially classed as a pandemic but could amount to an epidemic (defined by the Oxford English Dictionary as a widespread outbreak of an infectious disease). Travel cover (including under key man insurance) may also exclude cancellation claims where an ‘appropriate authority’s’ advice at the time travel was booked was against travel to that particular destination, region or country or where circumstances could reasonably have been foreseen as giving rise to a claim at the time of booking.
For event cancellation cover, it is also common for policies to exclude losses arising from communicable diseases leading to quarantine or restrictions on movement and/or travel advisory or warnings being issued by national bodies. In such cases the fear or threat of such restrictions will usually also be excluded.
The burden of proving that a loss falls within an exclusion will normally fall on the insurer although some policy wordings may seek to reverse the usual burden of proof.
- Property damage Business interruption insurance typically requires physical loss or damage to the insured’s property. Where a business sustains economic losses because a large number of its employees fall ill, claims under BI insurance will not usually be covered. If, however, it can be argued that the outbreak has caused property damage the position may be different. A potential example could be where premises are closed and have to be deep cleaned before they can reopen, raising an argument that this was physical damage to the property. Policy terms should, however, be checked carefully. Disease at the location, contamination and pollution may be covered under property policies but the terms may be restrictive with sub-limits applied.
Where a policy includes a ‘notifiable disease’ extension, there may be cover in the event of the compulsory closure of premises or restriction of access. The extent to which such cover will respond to coronavirus claims will depend (among other factors) on when the virus is deemed a ‘notifiable disease’: coronavirus was declared a notifiable disease in Scotland on 22 February and became a notifiable disease in Northern Ireland on 29 February. On 4 March the Department of Health and Social Care in England indicated that it would also register the virus as a notifiable disease. Other factors to be considered when determining whether there is cover will include whether the policy wording specifies the notifiable diseases that are covered by the insurance (if the policy does specify specific diseases, it is very unlikely that Covid-19 will be included as it would not have been contemplated when policies were drawn up) and whether the insurance requires premises to be closed as a result of the disease.
Loss of attraction insurance, which provides cover for tourist attractions and hospitality venues for loss of income following a defined event, would not normally cover an epidemic or pandemic as physical damage to property is required. In recent years cover has been extended to cover other perils such as terrorism but is in any event geographically specific, usually requiring a defined event to occur within a designated radius of the insured’s premises or a strategic location.
- Legal liability Where individuals’ infection by coronavirus can be traced to a particular place or activity, claims may be brought against businesses or individuals deemed responsible. These could, for example, include claims against employers, hospitals and medical staff, schools and universities, airlines, hotels and retail outlets for unreasonably exposing employees, patients, students or customers to the risk of contamination. Claims by shareholders against directors may also been seen in connection with decisions taken in response to the outbreak.
In such situations the existence of a duty of care will often be clear: employers in the UK, for example, owe duties under the Health & Safety at Work Act 1974 to protect employees’ health, safety and welfare. Employers’ liability insurance will usually indemnify employers for disease related claims where the disease arises out of and is in the course of employment and in the UK an approved policy may not contain terms limiting the insurer’s liability where the insured employer has not exercised reasonable care. Public liability insurance may also respond where it covers accidental death or injury to non-employees. In these cases there will, however, be significant causation issues in establishing that the infection was caused either by a person’s employment or an insured event.
Non-EL liability cover may exclude deliberate or reckless acts by the insured that could reasonably be expected to cause injury or damage. The burden of establishing recklessness will usually be on the insurer and is a higher hurdle than negligence. Whether an insured has acted recklessly may depend on whether it has complied with government guidance or requirements and whether actions taken are in line with similar businesses in its sector.
Businesses will also be looking to the terms of their commercial contracts, including force majeure clauses, to determine whether they can recover uninsured losses or comply with their duty to mitigate losses claimed under available insurance cover.
In the UK force majeure will not be implied and there must be an express force majeure term in the contract. Clauses will typically provide for the suspension of obligations under the contract or its cancellation on the happening of certain events that are outside the parties’ control. The clause may set out events constituting force majeure such as outbreak of disease, epidemic and pandemic.
Where the contract does not contain such wording, a party wishing to rely on a force majeure clause will need to consider the clause carefully to determine whether coronavirus or disruptions resulting from the outbreak could be considered a force majeure event under the contract. Clauses may refer to ‘acts of God’, but it is unlikely that coronavirus is an ‘act of God’. As a matter of English law, where a clause suggests that force majeure must arise from an identifiable ‘event’, there is case law that an ‘event’ means an identifiable happening resulting from a specific cause at a specific time and at a specific location. In contrast, an epidemic or pandemic is a gradually evolving state of affairs and probably not an ‘act’. Nor are epidemics or pandemics commonly referred to as ‘acts of God’. In contrast, and depending on the wording of the clause, it is possible that an act or order for the quarantining of a town or city as a result of coronavirus could constitute a force majeure event.
To rely on force majeure, a party must also demonstrate that the force majeure was the sole cause of the failure to perform obligations, that the circumstances were unforeseeable and beyond its control, and that it has taken steps to mitigate its losses.
Finally, force majeure provisions commonly contain strict notice provisions and, particularly in the light if the continually evolving situation, businesses would be well advised to check these.