By: Donald Dinnie, Norton Rose Fulbright
If you haven’t already dusted off the business interruption, liability and event cancellation policies you have underwritten, or placed for an insured, and checked for coronavirus coverage, now is the time to do so.
Exposure and benefits of both business interruption coverage (covering the insureds losses from an abrupt shutdown) and contingent business interruption coverage (for losses resulting from the closure of an insured supplier) usually require some form of physical loss or damage and liability under another section of the policy usually, for example, a fire section, buildings combined or office contents or other material damage insurance.
If the property remains habitable but the business is closed because of the fear of coronavirus, the physical loss requirement is not met. Where a person enters the property and physically contaminates it, then the physical damage requirement may be met. That is a factual enquiry and depends upon the definition and interpretation of what constitutes damage in the policy.
Policy wordings may also exclude damage arising from contamination, or more expressly pathogens, bacteria, viruses or disease-causing agents, or go a step further and exclude cases arising from epidemics or pandemics. These exclusions are commonly found in reinsurance contracts which will increase exposure.
The special and general conditions, exceptions and exclusions to the policy must be considered.
Extensions may have been provided under the business interruption section which do not require physical damage. That wording may provide cover where an outbreak occurs at, for example, hotel premises and employees and guests are then required to be quarantined and where guests having confirmed bookings, then cancel.
There are a variety of permutations in that regard. For instance, a guest or family member may become ill and be unable to travel.
Insurers providing such extensions will need to consider whether they can or should terminate such cover or amend their wordings. That will be dependent, among other things, on the period of insurance and policy terms permitting variation of the cover.
Policies may exclude claims arising from epidemic or pandemics or insurers may wish to add such an exclusion including a perceived threat or fear thereof. An endorsement may be required.
Liability exposure may arise in particular where companies face claims for allegedly failing to protect their staff from the coronavirus. Consideration needs to be given whether such claims would fall within COIDA or under any employers’ liability cover. The enquiry would be whether the exposure to the coronavirus is sufficiently work related. Normally, for example, you cannot claim workers compensation for catching a cold or flu at work. The situation would be different with emergency personnel including healthcare workers and the police services responding to an emergency. The factual difficulty will always be in proving causation and that there was a coronavirus exposure at work rather than elsewhere. If not COIDA claims, employer’s liability cover may be implicated. There is a liability exposure to claims by customers who are affected. Apparently such litigation is pending against a number of cruise lines for negligently failing to take precautions to prevent a coronavirus outbreak on their ships where passengers on a previous sailing disembarked with symptoms.
All insureds should consider and implement protocols to minimise harm. Failure to take reasonable steps in that regard may result in liability. That may include liability exposure for directors and officers and in turn, exposure under their D&O liability insurance.
Consideration needs to be given to whether any existing exclusions provide or limit the coverage including limitations regarding contamination or whether a more specific exclusion is necessary.
Event cancellation claims may be limited to listed risk events. There is unlikely to be a claim where there is cancellation merely because of a fear of the coronavirus in the community (subject to any generous extension). There must usually be a legal or physical impossibility to holding an event. A legal ban on gatherings over 100 persons may trigger coverage.
There would of course be a duty on the insured to mitigate losses by making good faith attempts to reschedule the event to another date before permanently cancelling the event.
And finally, insurers should check their reinsurance contracts in respect of all these risks. There may be an exposure gap which needs to be dealt with urgently.