The Minister for Finance requested Insurers to pay out to businesses, where they were advised to close to limit the spread of Covid-19, and not to decline cover on technicalities.
Insurance Ireland warns that the solvency of Insurers could be affected if they were to pay out on claims that are not covered by policies. This means they would not be able to recover from reinsurance companies. We expect that there will be considerable debate between government and insurance companies (and their representatives) in the coming months.
A key consideration is whether a business interruption policy responds with respect to the situation presented by Covid-19. There is no simple answer to this question. It will require Insurers and their Insureds to carefully consider the wording of their particular policy. We set out some of the main considerations from a policy response perspective with respect to these policies.
Many policies deal with business interruption to varying degrees. It may be a stand alone policy or it may be an extension to another policy. For example, it is a common inclusion in many cyber policies and in property and casualty policies. It is very important to note that although there is overlap and similarity between the wording of different policies, there is no standard wording so minute difference could have serious implications.
As with any assessment of policy response, the policy of insurance is the contract that governs the relationship between Insurer and Insured and thus is the primary consideration.
Each policy is different and the specific wording of the policy has to be closely assessed but there may be many reasons why a policy may or may not respond.
For example, in cyber policies it usually specifies that the business interruption is linked to a security breach or network interruption.
In property policies, it may be a requirement that the disease occurred / is present at the premises. Alternatively, it may be that the policy covers loss resulting from an interruption to business as a result of physical damage to insured property and physical damage is a requirement for cover.
A policy could include an extension relating to the closure of the Insured due to the action of a local authority. If this is the case, the Insured may be able to make a claim under this extension. Again it is common for such extensions to require there to be an outbreak at the business premises or within the proximity of the business premises for the policy to respond. The counter argument would be that a nationwide event or global pandemic does not trigger this requirement.
Another reason may be that there has not been an order for closure but rather advice has been provided that businesses should consider closure. It may also be that the business is not closed but a potential claim arises from customers being advised to stay away.
Notifiable or infectious diseases
Another reason that the policy may not respond is that the policy or policy extension covers notifiable or infectious diseases or some variation of that term.
The policy may then include a list of specific diseases that are covered. This is normal since the SARS outbreak in 2003. The policy would likely not list Covid-19 given it is a new disease.
A policy or extension could define notifiable or infectious diseases with reference to public health legislation or the announcement of public bodies and so Covid-19 could potentially fall within that definition with effect from the date that it was declared a notifiable disease.
A policy may provide cover for notifiable or infectious diseases without reference to a specified list but may then provide specific exclusions for certain diseases. Common exclusions include SARS, swine flu or avian flu. Again, Covid-19 is unlikely to be specified in such exclusions. However, this wording could cause other issues. Covid-19 is the name of the disease caused by the virus SARS-CoV-2. If the exclusion was drafted in a way to encompass mutations or variants of SARS, it could be argued that the reference to SARS includes Covid-19 although we expect the legitimacy of such an argument would be severely tested.
Some exclusions may go further to exclude a disease classified as a pandemic by the WHO.
The above represents a snapshot of some of the issues with respect to business interruption policies and extensions we have seen. As you can see, there are considerable factors that could be determinative. We expect that there will be an increase in coverage disputes arising out of these policies and extensions.
It is important to not lose sight of the other provisions of the policy, especially with respect to notification and loss mitigation.
Insureds should carefully review their policy, consider it in detail, take advice where necessary and comply with the terms of the policy. It is also important for Insurers to clearly document and record the reasons for declinature if the policy does not respond.
The Insurance team at Leman are experienced in policy response and coverage disputes. If you have any queries, please contact Stephen O'Connor at firstname.lastname@example.org or at 01 6393000.
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