At the time of writing, the number of known cases of COVID-19 exceeds 160,000. There are, very likely, a huge number of cases which have not yet been identified. Thousands have died. And by the time this piece is published the number of cases will have risen sharply. So will the number of deaths. On top of that, the cost to the global economy of the COVID-19 pandemic is estimated in the trillions.
Against that background, “what does this mean for insurers and insureds?” and “what are the implications of this for insurance law?” may not – at least for many – be the first questions which spring to mind.
But they are important ones: many businesses will be pinning their hopes for survival on their insurance; insurers will be faced with a growing mountain of claims and losses. In this piece, we highlight some of the key issues which are likely to arise as a result of the pandemic, addressing business interruption cover, event cancellation cover, and late payment, before briefly touching on other issues which are likely to arise, and the future.
The insured must show that the trigger for cover has been engaged. If the cover was obtained with property insurance, and is triggered by physical damage to insured property, a debate is likely to ensue over whether temporary COVID-19 contamination counts. Much will turn on the policy wording, along with factual, medical and scientific evidence.
But even if the insured has obtained more extensive cover, dealing specifically with disease, difficult issues may still arise. The form and wording of the cover will be critical. The cover may (for example) be for losses arising from an outbreak of specific diseases at the insured’s premises or within a certain distance of them. Then, the recency of the pandemic means that COVID-19 is unlikely to be one of the specified diseases. The insured will have to hope that there is some wording catching variants of specified diseases, and that they can obtain good medical or scientific evidence to suggest that COVID-19 is such a variant. Alternatively, the cover may be broad, capturing (for instance) “notifiable diseases”. And in many countries COVID-19 has been designated as a notifiable disease: e.g. in England it was made notifiable on 5 March 2020. But even then, matters are not straightforward. Previous experience regarding SARS in the Hong Kong courts suggests that insurers may well argue (with success) that there is only cover from the date when COVID-19 became notifiable (in the sense of there being a legal obligation to notify it to someone). Or that when it comes to the extent of the loss the appropriate comparison is between profits after the date when COVID-19 became notifiable and immediately before that (when the disease may have been suppressing profits, despite not having become notifiable).
Other triggers may also be relevant, and raise their own difficult questions. For example, cover for losses arising from a denial of access to the insured’s premises as a result of the action of an authority may raise issues as to whether guidance to close is enough, or whether travel restrictions have hindered access in the relevant sense. Equally, extended cover capturing losses arising from damage to, or the closure of (for instance) a supplier’s premises will not just raise the kind of issues outlined above – whether contamination is property damage, whether guidance to close is enough, and so on – but also factual issues. Why for example, did a given factory in China close? Did it have to close, and, if so, when?
Of course all these issues are only relevant if there is no applicable exclusion, and the applicability of exclusions can also raise difficult debates. For instance, an insurer armed with an exclusion capturing certain forms of SARS or unusual or atypical pneumonias, plus variants, might try to characterise COVID-19 as a variant of an excluded disease.
Causation may well also give rise to difficult questions. Suppose that an insured chose to close their business or operate certain measures to try and protect staff and clients, or out of a fear of contamination and greater losses. Is the proximate cause of any loss that choice, rather than the insured peril? Presumably, the insured will try and say ‘no’; their insurer may take the opposite tack. Equally, deciding whether lost profits were caused by the insured peril or the wider effects of the pandemic falling outside of the insured peril, or would have been suffered even without the insured peril, is likely to cause difficulty. For instance, if there was cover for losses arising from an outbreak of a notifiable disease on the insured’s premises, or within a certain radius, the insurer may argue the business would have no customers even without that particular outbreak, as people stayed at home to try and avoid the pandemic generally or outbreaks elsewhere, or to comply with government guidance. The same kind of argument may assist insurers who are able to rely on appropriately-worded trends clauses.
Ultimately, the wording of the policy is – as always – key. But that wording is unlikely to be directly on point or easy to apply on the facts because of how recently COVID-19 crossed the species barrier, and the extensive measures being taken to combat it. That leaves room for both insureds and insurers to try and interpret and apply the wording in their favour.
Many sporting and other events have been cancelled or postponed to try and inhibit the spread of the virus. This looks set to continue and the market can expect a rise in claims under event cancellation cover. These claims will raise similar issues to the business interruption claims considered above. For instance, does the cover only extend to cancellation due to outbreaks of certain listed diseases and if so is COVID-19 one? Or can it be brought within wording capturing variants of listed diseases? And why, precisely, was the event cancelled?
But this type of insurance also raises tough questions of its own. For example, if the event is cancelled based on guidance, or due to a concern about the spread of COVID-19, rather than at the direction of the authorities, is causation made out? Does that engage any exclusions? Equally, it may be that a dispute arises regarding the line between postponement and cancellation, for example at what point, if at all, does a postponement until further notice become in reality a cancellation? If there is no clear wording drawing a line between postponement and cancellation then the arguments, and the answer, may be less than straightforward. And insofar as the insured is under an obligation to mitigate their loss, the presence of contractual relationships with broadcasters, players or performers, and advertisers, as well as attendees, combined with the possibility of relying on force majeure provisions under those contracts, will generate issues as to whether the insured must rely on those provisions. Again, the policy wording is crucial but it may well not provide as clear an answer as it would under normal circumstances. The wording and its application will require careful thought.
If insurers are faced with a huge volume of claims, plus any difficulties they themselves are facing as a result of the pandemic (e.g. personnel suffering from COVID-19, general disruption) then it may be that it takes a long time for them to pay properly made claims. That may cause real hardship to an insured, particularly given the general economic impact of the pandemic. Can an insured do anything about this? The classic answer was essentially ‘no’: their only remedy lay in claiming interest. Now s.13A of the Insurance Act 2015 implies a term requiring payment of sums in reasonable time into all contracts of insurance after 4 May 2017. That term cannot be watered down in consumer contracts, but, outside of deliberate or reckless breaches, can be derogated from in non-consumer contracts. Insureds and indeed insurers would be well advised to check whether there is any derogation in any relevant policy.
Other issues and the future
This is just a sample of some of the key issues arising from the COVID-19 pandemic. Others which may merit further consideration arise in the context of:
- Travel insurance. For example, what if there is no FCO directive advising against travel to an area, but a COVID-19 outbreak has made it inadvisable?
- Employers liability and public liability insurance. Claims may arise from alleged failures to protect staff and customers from COVID-19.
- Trade credit insurance. As the wider economic impact of the pandemic puts firms under, the market should expect to see a rise in claims.
- D&O insurance and professional liability insurance. COVID-19 appears likely to bring about a downturn: precisely the sort of circumstances where frauds come to light, with claims against those involved and those who it is said should have noticed arising. They may well then look to their insurers.
Here in the UK, the government has predicted that cases of COVID-19 will peak within 10-14 weeks. It will take rather longer than that to resolve the insurance issues.
 New World Harbourview Hotel Co. Ltd & Ors v ACE Insurance Ltd & Ors  HKCFA 21,  1 Lloyd’s IR 537.
 For a successful example of this argument in the context of damage to a hotel arising from Hurricane Katrina, see Orient-Express Hotels Ltd v Assicurazioni General SpA (UK) (t/a Generali Global Risk)  EWHC 1186 (Comm).