The insurance industry is facing a number of challenges arising from COVID-19, including the increased likelihood of claims and litigation arising from government enforced closures of businesses and risks related to the phased return to work. The Health (Preservation and Protection and other Emergency Measures in the Public Interest) Act 2020 permitted the closure of non-essential businesses. We examine the risks, the relevant directions from the regulator and options available to insurers that are exposed to these risks.
Business Interruption Cover
Insurers understand some businesses are seeking to rely on business interruption cover for losses arising from the government enforced closure of businesses. While the scope of business interruption cover will vary from policy to policy, it typically covers losses arising due to the temporary closure or interruption of the business caused by damage to the property of the business. The Central Bank of Ireland (CBI) has confirmed most Irish insurers would not have an obligation to pay out under those policies for losses arising due to the COVID-19.
A number of pubs, including the companies controlling well known pubs Sinnotts and Lemon & Duke in Dublin, have initiated Commercial Court proceedings against FBD Insurance plc (FBD) asserting that losses arising from government enforced closure of pubs were covered by their business interruption policies. The calculation of consequential loss was also raised as an issue to be considered by the Court. Media reports suggest that the pubs in question had cover for business interruption resulting from an infectious disease within 25 miles of the property.
In the UK, the Financial Conduct Authority (FCA) announced on 1 May that it is pursuing a court declaration to resolve the legal uncertainty surrounding business interruption insurance policies and their application during COVID-19. The FCA has asked the English High Court to consider a selection of business interruption policies that could potentially be deemed to cover COVID-19 losses. While the judgment of the English High Court will be legally binding in England, it may also provide persuasive guidance to the Irish Courts and the Financial Services and Pensions Ombudsman (FSPO) in assessing Irish proceedings and claims respectively.
In France, the Paris Commercial Court has ruled that AXA France IARD must pay a restaurant owner the equivalent of two months’ worth of COVID-19 related revenue losses. The claim was based on the inclusion of an administrative closure clause in the business interruption policy of the restaurant owner, with the French Court finding that the administrative decision to close the restaurant satisfied the insurance cover as a business interruption loss. It has been estimated that French insurers would be liable for up to €20bn per month if all COVID-19 related losses were deemed to be covered.
If an Irish Court accepted that business interruption insurance provided cover for losses arising from the enforced closure of businesses due to COVID-19, insurers would then face the difficult task of calculating the losses.
In Sugar Hut Group v A J Insurance  EWHC 3352 (Comm), the English High Court calculated the losses of a nightclub, which was forced to close due to a fire, by reference to its turnover at various periods before the fire rather than the turnover following the fire, which was significantly lower. This approach would be resisted by insurers, who may argue that calculating consequential loss by reference to the pub's turnover before the COVID-19 outbreak would not accurately reflect the likely drop in turnover in the coming months due to government social distancing and decreased capacity.
Several methods of calculation could be used. One possible method is to estimate the financial performance of the business had the COVID-19 outbreak not occurred by reference to the historical performance of the business. Another is to calculate losses by reference to the business and financial plans prepared before the outbreak. This issue will be contentious, and it is inevitable that expert evidence will be required where a dispute is raised before the courts.
Central Bank of Ireland Expectations
Many business interruption policies require that there must be a government direction for a business closure due to a contagious or infectious disease. The CBI expressed the view that government COVID-19 advice to close should be treated as a specific direction to close. The CBI has also advised insurers that if there is doubt about the meaning of a term in an insurance policy the insurer should interpret the term in favour of the consumer.
The CBI does not have a mandate to investigate individual policy complaints or to determine the interpretation of policy wording. While sole traders or companies with a turnover of less than €3m can make a complaint about an insurer to the FSPO, disputes between larger businesses and insurers will be determined by the courts unless alternative dispute resolution mechanisms are provided for in the relevant policies. An appeal to an FSPO decision may also be brought to the High Court. Insurers will still be cognisant of the CBI's enforcement powers, such as those under the Administrative Sanctions Procedure, which may be exercised if an insurer has breached financial services legislation in its governance of COVID-19 claims handling.
Employers' Liability Insurance
Employers have a duty to ensure employees' safety, health and welfare at work, as far as reasonably practicable pursuant to the Safety, Health and Welfare at Work Act 2005. Employers' liability insurance typically protects businesses against liability arising from injury, illness, disease or death suffered by an employee while working in the business.
As employees are phased back to the workplace, employers are faced with the challenge of identifying and implementing suitable control measures to mitigate the risk of COVID-19 infection in the workplace, while following the latest public health advice. There is an immediate risk that inadequate control measures could result in an employee contracting COVID-19 in the workplace and bringing personal injury proceedings against the employer. An increase in work related stress is another area of concern for employers, who should ensure that they provide additional supports to employees and that employees' systems of work are adapted where necessary. Insurers should be on notice that claims and litigation under employers' liability insurance may rise accordingly.
The National Return to Work Safely Protocol (Protocol) sets out guidance for employers to ensure the safety, health and welfare of employees in the workplace. The Protocol is mandatory and requires employers to introduce certain safety measures, including a COVID-19 response plan. The Protocol also requires employers to take steps to minimise the risk of exposure in the workplace, including:
- installing physical barriers, e.g. clear plastic sneeze guards between workers;
- maintaining at least a distance of 1 metre or as much distance as is reasonably practicable;
- minimising any direct worker contact and provide hand washing facilities, and other hand hygiene aids, such as hand sanitisers, wipes etc. that are readily accessible so workers can perform hand hygiene as soon as the work task is complete; and
- making face masks available to the worker in line with Public Health advice.
We recently considered here in detail the key health and safety, employment and data protection law issues that arise as employers prepare for the return to the workplace.
Company directors must have regard to the interests of employees pursuant to Section 224 of the Companies Act 2014, providing employees with a potential claim against directors and other officers. It would be prudent for directors and officers to ensure that directors and officers' insurance policies are up to date and provide suitable cover for these risks.
While compliance with the Protocol will be a significant cost for employers and may appear quite onerous, introducing certain safety measures may serve to minimise the volume and value of claims brought against an employer, and by extension minimise risk for insurers. Employers would be advised that early engagement with their insurer may be beneficial should any employee claims arise in the future.
Key Issues for 2020
The increased likelihood of claims and litigation to recover losses already incurred by businesses and the additional risk relating to the phased return to work will be key issues for the insurance industry to deal with in the coming months.