COVID-19 Pandemic: Does Insurance Coverage Hold up?

KG-COVID19-Insurance

COVID-19 Pandemic: Does Insurance Coverage Hold up?

The unprecedented COVID-19 pandemic has already affected the global economy across business industries throughout the world. Greece, of course, is no exception, as the Greek government has imposed right from the beginning strict restrictions on the operation of all businesses which deal with the public and proceeded with further restrictions such as travel bans and lockdowns of public areas. Furthermore, as of 18 March 2020, all retail shops other than the stores necessary for the supply of households and businesses such as supermarkets, pharmacies, greengrocer’s stores, etc. will be closed until further permission, while the operation of hotels will be temporarily suspended. Although the government denies that a complete curfew is imminent, it cannot be excluded that such measures are also taken in the next weeks, depending on how the situation develops.

This severe disruption of the economy due to the restrictions imposed has raised questions on how insurance contracts, particularly policies covering business interruption, may alleviate the financial consequences of the pandemic for the affected businesses. As this is all untested waters, companies and policyholders, in general, should carefully review their insurance policies in order to assess whether their insurance may cover losses due to the restrictions on their business or the health implications of their employees.

Business Interruption

Business interruption coverage is commonly used by commercial companies, often to cover the risk that the owner of the premises where the business is established may ask to obtain back the possession from the lessee – business in order to safeguard payment of the rent. Under these policies, coverage is usually provided if the premises or other property of the business suffer damage which leads to the interruption of the business operations. It is to be considered, in this context, whether damage to the property of a company due to Coronavirus contamination could fall under the scope of this insurance. This would normally not be the case in a typical business interruption policy, where damage due to natural causes such as fire, flood, earthquake, etc. is covered and an extension would normally be required for the inclusion of a pandemic in the covered risks. Employee salaries may also be covered as expenses for the period during which the business was interrupted due to the risk occurred.

The coverage, however, often comes with an extensive list of excluded risks, which in many cases may include contamination or pollution. Companies should, therefore, diligently review the terms of their policies in order to get a clear picture of what is covered. The main points to be reviewed would be:

  1. which risks are covered under the policy;
  2. whether a pandemic falls under any exclusion of cover; and
  3. whether business interruption due to an order from a governmental authority would be covered.

Credit Insurance

Another major risk for businesses is the potential insolvency of their commercial partners. Indeed, companies are already examining whether the COVID-19 pandemic constitutes force majeure, permitting them to avoid contractual obligations which they consider to be very onerous under the current financial situation. Unfortunately, this is specifically relevant to the Greek market, which has not yet fully recovered from the financial crisis of 2008. As the Greek economy is mainly supported by small or medium-sized businesses, the lockdowns currently implemented could be the final stroke for these companies which are likely not to be able to cope. Credit insurance could provide support by covering the part of the losses due to insolvency of counterparties. However, the exclusions from coverage should be carefully examined, as this type of policy normally covers non-payment which is not due to extreme natural phenomena, strikes/riots or governmental restrictions imposed by the authorities where the debtor is established.

Third Party Liability

Businesses should also review their third party liability insurance policies, in order to assess how protected they may be against any claims made from third parties due to potential infection of such third parties during their presence to the company’s premises or due to direct contact with an infected employee of the company. However, companies should be very aware of the terms of their policy, especially in the event that such policy is concluded as “claims made”, limiting the coverage to claims which were raised during the term of coverage or during the extended reporting period thereafter. In addition, liability due to infectious diseases could also be excluded.

Another parameter to be taken into account would be whether a liability insurance policy could also cover claims of employees on the basis that they have been infected during their work at the premises of the company (employer’s liability insurance) and they have, therefore, sustained damage due to this infection. This could be an actual risk in the event that infection from Coronavirus at the working place is characterised as an “accident at work”, in which case such claim could be covered under the employer’s liability.

Event Cancellation Insurance

Event cancellation insurance may cover losses arising from the cancellation of events such as live concerts, conferences, exhibitions and sports events. Such events have been gradually cancelled throughout the globe since the characterisation of COVID-19 is a pandemic. Professional sporting events, festivals, concerts, and conventions may entail significant costs for their organisation and execution. It seems that all such major events will be cancelled at least for the upcoming months and the 2020 Olympics to be held in Tokyo is not be an exception.

Whether cancellation due to the COVID-19 pandemic would be covered is contingent, as always, to the wording of the policy. Specifically, event organisers should examine whether coverage takes into account the cause of cancellation or covers cancellation for any reason which falls out of the sphere of control of the insured. An additional point to consider would be whether there is any exclusion in the policy in relation to cancellations due to an epidemic or pandemic spread.

Conclusion

Although insurance contracts are notoriously standardised, the reality is that each insurance policy has its particularities and should be evaluated separately by insurers and insureds, particularly to the extent that major clients with tailor-made products are concerned. Close co-operation of insurers and clients should be the advisable course of action through this unfamiliar and critical situation of the global economy, which can only be achieved if insureds promptly notify their insurer or their legal counsel about any potential loss or claim and the advisable course of action.

The unprecedented COVID-19 pandemic has already affected the global economy across business industries throughout the world. Greece, of course, is no exception, as the Greek government has imposed right from the beginning strict restrictions on the operation of all businesses which deal with the public and proceeded with further restrictions such as travel bans and lockdowns of public areas. Furthermore, as of 18 March 2020, all retail shops other than the stores necessary for the supply of households and businesses such as supermarkets, pharmacies, greengrocer’s stores, etc. will be closed until further permission, while the operation of hotels will be temporarily suspended. Although the government denies that a complete curfew is imminent, it cannot be excluded that such measures are also taken in the next weeks, depending on how the situation develops.

This severe disruption of the economy due to the restrictions imposed has raised questions on how insurance contracts, particularly policies covering business interruption, may alleviate the financial consequences of the pandemic for the affected businesses. As this is all untested waters, companies and policyholders, in general, should carefully review their insurance policies in order to assess whether their insurance may cover losses due to the restrictions on their business or the health implications of their employees.

Business Interruption

Business interruption coverage is commonly used by commercial companies, often to cover the risk that the owner of the premises where the business is established may ask to obtain back the possession from the lessee – business in order to safeguard payment of the rent. Under these policies, coverage is usually provided if the premises or other property of the business suffer damage which leads to the interruption of the business operations. It is to be considered, in this context, whether damage to the property of a company due to Coronavirus contamination could fall under the scope of this insurance. This would normally not be the case in a typical business interruption policy, where damage due to natural causes such as fire, flood, earthquake, etc. is covered and an extension would normally be required for the inclusion of a pandemic in the covered risks. Employee salaries may also be covered as expenses for the period during which the business was interrupted due to the risk occurred.

The coverage, however, often comes with an extensive list of excluded risks, which in many cases may include contamination or pollution. Companies should, therefore, diligently review the terms of their policies in order to get a clear picture of what is covered. The main points to be reviewed would be:

  1. which risks are covered under the policy;
  2. whether a pandemic falls under any exclusion of cover; and
  3. whether business interruption due to an order from a governmental authority would be covered.

Credit Insurance

Another major risk for businesses is the potential insolvency of their commercial partners. Indeed, companies are already examining whether the COVID-19 pandemic constitutes force majeure, permitting them to avoid contractual obligations which they consider to be very onerous under the current financial situation. Unfortunately, this is specifically relevant to the Greek market, which has not yet fully recovered from the financial crisis of 2008. As the Greek economy is mainly supported by small or medium-sized businesses, the lockdowns currently implemented could be the final stroke for these companies which are likely not to be able to cope. Credit insurance could provide support by covering the part of the losses due to insolvency of counterparties. However, the exclusions from coverage should be carefully examined, as this type of policy normally covers non-payment which is not due to extreme natural phenomena, strikes/riots or governmental restrictions imposed by the authorities where the debtor is established.

Third Party Liability

Businesses should also review their third party liability insurance policies, in order to assess how protected they may be against any claims made from third parties due to potential infection of such third parties during their presence to the company’s premises or due to direct contact with an infected employee of the company. However, companies should be very aware of the terms of their policy, especially in the event that such policy is concluded as “claims made”, limiting the coverage to claims which were raised during the term of coverage or during the extended reporting period thereafter. In addition, liability due to infectious diseases could also be excluded.

Another parameter to be taken into account would be whether a liability insurance policy could also cover claims of employees on the basis that they have been infected during their work at the premises of the company (employer’s liability insurance) and they have, therefore, sustained damage due to this infection. This could be an actual risk in the event that infection from Coronavirus at the working place is characterised as an “accident at work”, in which case such claim could be covered under the employer’s liability.

Event Cancellation Insurance

Event cancellation insurance may cover losses arising from the cancellation of events such as live concerts, conferences, exhibitions and sports events. Such events have been gradually cancelled throughout the globe since the characterisation of COVID-19 is a pandemic. Professional sporting events, festivals, concerts, and conventions may entail significant costs for their organisation and execution. It seems that all such major events will be cancelled at least for the upcoming months and the 2020 Olympics to be held in Tokyo is not be an exception.

Whether cancellation due to the COVID-19 pandemic would be covered is contingent, as always, to the wording of the policy. Specifically, event organisers should examine whether coverage takes into account the cause of cancellation or covers cancellation for any reason which falls out of the sphere of control of the insured. An additional point to consider would be whether there is any exclusion in the policy in relation to cancellations due to an epidemic or pandemic spread.

Conclusion

Although insurance contracts are notoriously standardised, the reality is that each insurance policy has its particularities and should be evaluated separately by insurers and insureds, particularly to the extent that major clients with tailor-made products are concerned. Close co-operation of insurers and clients should be the advisable course of action through this unfamiliar and critical situation of the global economy, which can only be achieved if insureds promptly notify their insurer or their legal counsel about any potential loss or claim and the advisable course of action.