Coronavirus (COVID-19) – Insurance Update
12th March 2020
Understandably many of our clients have been asking whether they are covered, and the purpose of this newsletter is to give you an idea of whether you may have insurance cover in force. Please note that we are using the common name of ‘coronavirus’, but as this term can also be used for a group of related viruses, unless stated, for the purpose of this communication ‘coronavirus’ specifically refers to COVID-19.
The first thing to appreciate is that insurers do not generally provide cover for risks that may have global consequences. The potential exposure of some risks such as war and nuclear are ‘too big’ for insurers and whilst The Association of British Insurers have issued a statement saying that ‘generally, all UK insurers are capitalised under Solvency II to withstand a wide range of severe events, including pandemics’, where cover is provided, it is usually in defined classes of cover or trade sectors where the insurer can quantify their exposure to the risk they are covering and reinsure accordingly. That said, occasionally an insurer unwittingly provides wider cover than intended by poorly drafted policy wordings.
Coronavirus is beginning to have a significant effect on business activity in the UK and has now been declared as a pandemic by the World Health Organisation and a notifiable disease in the UK. This is not only to give the UK Government certain powers in relation to control and quarantine of the virus, but also because they thought it would trigger cover under insurance policies. Unfortunately, it is not that simple.
What follows are the main types of policy where cover will be relevant along with a few scenarios, but first a couple of general points.
- What is covered or excluded is generally within the relevant section of an insurance policy, however you also need to look at the general policy exclusions as these could include ‘pandemic’ risks or ‘communicable disease’. Some insurers applied exclusions following the SARS epidemic in 2004 and specifically exclude the likes of SARS, Avian and Swine flu. These are coronaviruses in the widest form but depending on the exact wording a SARS type exclusion is probably not wide enough to exclude COVID-19 as it is a new virus.
- Some policies provide cover in respect of all notifiable infectious or contagious diseases, hence the Government action mentioned above, however in recent years insurers generally specify the actual diseases they cover and as coronavirus is a new disease it will not be included (we have yet to see a list that includes anything like ‘influenza or any variant’ as the intention of these lists is to exclude the likes of coronavirus). We have come across one insurer who includes cover for any notifiable infectious disease, unless it is declared a pandemic by the World Health Organisation, which has now happened.
Most policies will provide cover for the cancellation or curtailment of any trip where the virus is contracted or the UK Government (The Foreign and Commonwealth Office) have issued instructions not to travel. That is on the proviso that the insurance policy was in force and the trip booked before the outbreak. Unless the Government have advised against travel to a destination, there is no cover if you simply decide not to travel. The other important point to note is that policies will not cover trips if you travel against the advice of the Government, unless cover has been agreed in advance with the insurer.
One scenario that we have come across is where an event (a marathon) has been cancelled in a country to which the UK Government has not advised against travel. In these circumstances the insurer concerned has confirmed that they will not only cover the cost of the event (if this is not refunded by the organisers), but also, other costs such as flights and accommodation if our client decides not to travel. However, the wording of the policy is not totally clear, and the insurer concerned is taking a very sympathetic and reasonable approach. Not all insurers will do likewise.
The Association of British Insurers have issued a pledge on behalf of their members relating to travel cover and claims which can be found at https://www.abi.org.uk/news/news-articles/2020/03/coronavirus–travel-insurance-pledges-by-abi-travel-insurance-members/
Business Interruption (BI)
BI policies traditionally covered interruption to a business following specific ‘perils’ such as fire or flood but in recent years many policies have been extended to cover a variety of other eventualities including some ‘non-damage’ risks. Coronavirus is a ‘non-damage’ risk and some of the terminology you may find in policies is as follows.
Denial of Access Extensions– this cover is generally triggered when access to a premises is prevented as a result of damage in the vicinity i.e. an access road is blocked. Some policies provide ‘non-damage’ extensions, most notably if a premises is closed by the authorities for public health or emergency situations. Insurers generally specify the eventualities causing the closure that are covered and some will include notifiable infectious diseases, although as stated earlier many now specify individual diseases which will not include coronavirus. The main thing to bear in mind here is even if there is cover for all notifiable infectious diseases, access to the premises must be prevented or hindered.
Loss of Attraction – these extensions tend to be for damage in the vicinity that do not prevent access but result in a fall in the number of customers attracted to the premises. A few insurers provide cover for non-damage, so it is possible that all notifiable infectious diseases could be covered but there is likely to be a stipulation that the outbreak is within a certain distance of the premises, rather than just a reluctance of the public to go out. However, if we get to the point of orders restricting public movement, they could trigger ‘vicinity’ cover.
Disease Extensions – many policies provide cover for notifiable infectious diseases although as mentioned earlier it is common for the diseases to be specified and therefore not cover coronavirus. Generally, cover is for an outbreak at the premises rather than in the vicinity.
Key Employee Extensions – a few insurers cover interruption to the business following the death of an employee or their long-term absence resulting from serious injury or sickness. Unless there is a general policy exclusion this would provide cover if the cause was coronavirus, although you would need to be able to substantiate that the employee’s absence has resulted in either an increase in costs or downturn in gross profit to make a claim.
In summary, a downturn in business or increased costs due to the general presence of coronavirus in the UK is extremely unlikely to be covered by Business Interruption insurance. You may have cover if you are unfortunate to experience an outbreak at your premises and possibly if there is an outbreak in your vicinity.
Where coronavirus is covered there may be a shorter indemnity period (the period insurers will pay your losses following the event that gave rise to the claim) than the main policy coverage. Also, if you do have cover for all notifiable infectious diseases, please note that insurers may only pay from 4th March 2020, when the Government declared coronavirus a notifiable infectious disease.
Some policies will cover specific events such as a fire at the venue or non-appearance of a speaker, whereas others will be ‘any unforeseen event’ and then exclude a variety of risks which may or may not include notifiable infectious diseases. Unfortunately, the main insurer we have used over the years does not provide cover for the coronavirus but other insurers may. The only way of telling is to check the policy wording.
Personal Accident and Sickness
Personal Accident insurances only cover injury arising from accidental or violent means but those with a sickness extension should provide cover for the coronavirus.
Most Employers and Public Liability policies will provide cover in the event that you have a liability for an employee or member of the public contracting the disease. However, the afflicted party would have to prove negligence against you for their claim to succeed and your policy would pay the cost of defending a claim against you.
Supply Chain Insurance
Cover is available to protect supply chains and can cover a variety of damage and non-damage risks including physical, political, strikes and disease. It is not cheap and tends to be for larger corporate companies but is a great way to cover many unforeseen events.
Finally, the answer to the next common question
Regretfully there is little chance of insurers providing cover for coronavirus if they do not do so at present. It is possible that cover could emerge in very specific sectors but not for mainstream insurance policies.
You will appreciate that this is generic advice and if you require any more information about your own policies, please speak to your usual Nsure contact.
Also, we have a range of factsheets on our website with useful information about various types of insurance including Business Interruption, Cyber, Directors and Officers, GAP, Intellectual Property, Professional Indemnity and Terrorism. There is also advice on underinsurance and write-offs.