by Diren Fernando, Partner at HWL Ebsworth, Sydney and consultant to the Australian & New Zealand Insurance Reporter.
Originally published by Wolters Kluwer in Australian Law Week, Issue 7, 18 Mar 2020 and amended for New Zealand in light of recent events.
It hardly needs saying that the outbreak and spread of COVID-19 have had a considerable impact on almost all aspects of our daily lives. From avoidance of touching our faces to the stockpiling of toilet paper; from evasion of public gatherings to the rise of surgical mask fashion; from the closure of ofﬁces to travel bans — it seems that all facets of our existence are touched by the novel coronavirus.
It comes as little surprise that, when lives and businesses are disrupted, people quickly look to their insurers, often with an expectation that whatever policy they hold must respond to bring them some solace.
Insurers, however, do not — and cannot — cover all eventualities. Risks must be analysed and priced by each insurer; and, in order for cover to remain affordable, some risks must be excluded.
In this article, we take a brief look at the main types of insurance cover which are likely to receive claims and scrutiny arising from the virus outbreak, and we consider whether those types of cover are likely to respond.
As always, it is crucial to remember that each policy of insurance consists of its own terms and conditions, and determining whether a policy responds to an event requires the particular contract to be considered in its entirety. We do not purport to do so in these few words.
Yet we can look at the typical styling of insurance products, and highlight aspects which are likely to come into play when analysing whether cover extends to the COVID crisis.
Much of the angst felt by the community arises from the impact of the virus with upon travel plans. With most travel destinations in the past week exercising some degree of border closure, and some travellers unable to return home, consumers are focused on the coverage they might receive for overseas medical expenses or cancellation of travel plans.
There is a real possibility that a travel insurance policy will not provide cover for either medical expenses or cancellations arising from the novel coronavirus. There are two main considerations.
Firstly, many policies contain an exclusion for pandemic or epidemic, which may preclude claims arising from COVID-19. Such policies typically contain their own deﬁnitions of those two terms — which may not strictly require a declaration by any organisation like the WHO. Some deﬁnitions, however, expressly refer customers to the website of the WHO — which may imply that the deﬁnition of pandemic or epidemic in those policies will have regard to the position of that organisation. This subtlety exempliﬁes the importance of carefully reviewing policy terms.
Similarly, the need to consider each policy closely is illustrated by the fact that pandemic/epidemic exclusions apply in some policies only to medical expenses cover or cancellation cover, rather than to both. Secondly, those pondering travel should consider whether a policy excludes claims arising from matters of which the insured was aware prior to purchasing the policy.
Some policies exclude claims arising from travel to countries which were the subject of government or media warnings. Some include more general language, excluding claims arising from circumstances which the insured knew (or a reasonable person would know) might disrupt travel, at the time that cover commenced. The wording of such an exclusion would need to be examined, to ascertain whether knowledge of the ongoing spread of the novel coronavirus could be sufﬁcient to preclude cover.
A number of insurers have proactively given indications of when they will presume that the public was aware of the issues arising from the virus. Contrary to some reporting, these are not strict “cut off dates”. Rather, each claim must be assessed on its merits, to ascertain whether the relevant “awareness” existed as the time cover began.
It should also be noted that some insurers have expressly promised to cover insureds for medical costs — but not cancellation costs — in the event of infection with COVID-19. Further, some insurers have offered cover permitting cancellation for any reason — although cover of that type attracts a higher premium, and seems to be decreasingly available.
All of these matters call for careful attention to the terms of any policy, when considering purchase, deciding whether to proceed with travel plans, or pursuing a claim.
As New Zealand enters its second week of lockdown, business owners are troubled about disruption to their operations and their ability to keep afloat. The impact of the virus is evident in the multiple disclosures by large corporations of disturbances to their commercial activities.
While the Government’s announcements on wage subsidies, tax relief, and mortgage holidays have been welcomed by the business community, there remains considerable concern about whether business interruption or contingent business interruption policies will provide protection in the current circumstances.
The difﬁculty in bringing any claim within the terms of the policy lies in the fact that most of these policies require physical damage to property — which may not be present in relation to disruption by COVID-19.
A claim might be arguable where an insured's premises are directly exposed or contaminated; but a precautionary closure in the absence of any clear infection may present challenges. Disruption due to a break in a supply chain may be equally difﬁcult to bring within the terms of cover.
Some products or available extensions, however, do offer speciﬁc cover for interruption or loss of income resulting from outbreaks of infectious disease within a set radius of the insured's premises (although even this cover often comes with some exceptions, including for quarantinable conditions).
A further consideration for businesses might be the impact of the outbreak on the obligations of directors. The need to make market disclosures and to respond appropriately to the changing commercial landscape could create exposure to complaints against directors; and, in the aftermath, it is possible that investors will assert that directors should have done more to safeguard a company's operations against crises of this type. In terms of insurance cover for such claims, some commentators have queried the potential impact of broadly-worded exclusions for claims arising from bodily injury or sickness — and whether such language could exclude claims relating to the novel coronavirus.
Another hallmark of the international response to COVID-19 has been the cancellation of public events, both before and after the Government’s announcement of its alert system for COVID-19.
Whether an events cancellation policy can assist in the COVID-19 environment will depend on the circumstances at hand.
Firstly, it should be noted that many such policies exclude claims arising from outbreaks of disease, pandemics, or communicable diseases leading to quarantine or travel warnings. Those clear exclusions may preclude a claim arising from the novel coronavirus.
Secondly, those policies respond to “necessary” or “unavoidable” cancellations of events. Those words might be tested, in a situation where an event could arguably have proceeded (for example, before the Government alert system was announced), but was cancelled for precautionary reasons.
The day is still young, but it is likely that the coronavirus crisis will generate considerable scrutiny of insurance policies and their application. Generalisations are always dangerous, and attention must be placed on the individual terms of any contract of insurance; yet it can be predicted that a number of common exclusions and policy terms are likely to come into play. As always, it should be recognised that insurance does not — and cannot — cover all ills. Sober minds are needed to discern whether any particular contract was intended to address the events of the COVID crisis.
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