Coronavirus – insurance issues for UK businesses and insurers
Earlier this week we looked at the effect that Coronavirus may be having on events cancellation, travel and personal accident insurances.
However, businesses should now consult with their professional advisers and insurance managers over the extent of the wider insurance programme that they might have in place to cover other financial losses caused or contributed to by Coronavirus.
In particular, businesses need to look at the nature and extent of the insurance they have in place to cover business interruption (“BI“) related losses.
The insurance market would also do well to check its potential exposure to BI related claims as the Coronavirus crisis deepens and looks set to be with us for some time yet. Anecdotal evidence suggest that insurers are already beginning to receive large BI claims from policyholders.
In the past, BI insurance cover was generally contingent on the business suffering property or other physical damage which could impact upon profitability, for example, a serious fire damaging a production facility and putting it out of action for a period of time. BI might then cover lost profits, fixed costs and increased costs of working (for example temporary relocation costs or additional expenses).
However, some BI policies may provide insurance cover to businesses who suffer financial losses through disruption suffered as result of, for example, closures enforced by government arising from the discovery of a “notifiable disease”. Coronavirus was of course added to the list of notifiable diseases in England and Wales by a statutory instrument, which came into force at 6:15pm on 5 March 2020.
Businesses would therefore be well advised to review their BI policy wordings as a matter of urgency, even if they have not yet suffered any loss. This is simply part and parcel of effective contingency planning so as to get to an early grip on issues such as:
- The financial extent of the insurance cover;
- The insured perils to which the policy might respond (and what might be excluded from cover);
- The geographical reach and extent of the relevant insurance policy;
- Whether the policy cover issues that arise in the wider supply chain which cause the insured to suffer BI related losses;
- In the event of a claim, what has to be notified, when and to whom? Insurers should also be studying the relevant policy wordings in their products before they are inundated with claims.
Whilst BI policies may not provide retrospective insurance cover (i.e. in respect of financial losses that are suffered by an insured before Coronavirus was designated as a notifiable disease), it is likely that we are either in, or about to enter, the maximum period of potentially insured losses being suffered by businesses. So forward planning becomes all the more important now to avoid the risk of disputes further down the track.
This blog has concentrated on business interruption insurance cover. But other insurance policies may be of relevance to insureds and insurers and form part of a wider contingency planning review on both sides, for example:
- D&O: Directors and officer at financial services firms may be at risk of exposure to third party claims, shareholder actions and regulatory interventions following on from the ongoing market volatility caused (at least in part) by Coronavirus.
- Professional Indemnity: Risks may materialise if workers are absent from the office on sick leave for a period of time as a result of Coronavirus which could lead to a slip in professional standards that causes a client to suffer losses.
- Cyber Liability: Businesses and insurers may be exposed to heightened losses where individuals work from home as a result of Coronavirus and may not be protected by the robust cyber security processes that would otherwise be in place were they working in the office leaving them exposed to phishing.
- Trade Credit: This may cover losses suffered by businesses by payment defaults in the supply chain.
- Product Liability: If raw material and component shortages/delays in the supply chain leave businesses having to use materials/components that have not been quality tested, or are even out of spec, so as to satisfy pressing customer orders.