BI coverage biggest concern for Marsh clients as Covid-19 exposures mount

Cover for Covid-19 business interruption (BI) losses is the biggest concern for Marsh clients currently, as many come to realise that standard property damage and BI policies likely lack any trigger. Even losses covered by non-damage BI extensions will be a matter of significant debate, Marsh said. Clarissa Franks, head of placement, risk management at Marsh, speaking at a recent panel debate, said insurers have not yet given an “overarching determination” of Covid-19 claims in any line of business. But companies must start thinking about how corporate insurance policies will respond to BI losses and how other policies – including employers liability, public liability, and directors and officers (D&O) – will react, she added. The panel said property damage and BI are the main area of concern for clients. Most policies do not contain extensions for disease, they explained. While many UK policies do not exclude pandemics, this may differ for multinational and US forms, they added. The problem for insureds regarding Covid-19 is the lack of physical damage to trigger a BI claim. “The presence or suspected presence, or proximity to a virus or public fear, are all unlikely to be deemed property damage and therefore BI will not be covered. For the same reason, it’s unlikely that reduced demand or disruption to the supply chain will be covered in the absence of physical damage,” Ms Franks said. Neil Greaves, sales leader, claims solutions at Marsh, said many clients are notifying insurers of BI claims amid the current Covid-19 crisis, mainly through non-damage BI extensions. Such claims will be a matter of significant debate, he added. “Quantification and measurement of these BI claims is likely to throw up significant issues. If there is a BI coverage trigger and a valid claim, we expect to see quite a lot of discussion about quantification, and in particular around the concept of wider area damage,” Mr Greaves said. In particular, the ‘but for’ test could come into play. This measures how a business would have performed had the policy trigger not occurred. For example, a shop struggling to attract customers and footfall because of the impact of the pandemic may not have felt any additional loss from denial of access to its shop. The experts said extensions will be closely analysed. “Many policies do contain extensions that provide for BI without the need for physical damage but all of these extensions typically have sub-limits; they may also have aggregated sub-limits and may also have maximum indemnity periods, typically about three months,” Ms Franks explained. Some extensions cover BI for communicable disease, but Covid-19 is new and therefore will not be named or notifiable in existing policies, the experts said. Non-damage denial-of-access extensions do cover BI caused by police or another competent authority preventing use of premises in conjunction with restrictions causes by another issue – in this case Covid-19, they added. The situation is also developing as the crisis unfolds. Ms Franks said the whole world will be looking at how the debate and legal action over BI plays out in the US. “The latest from the US is a rapidly gathering clamour for there to be some federal stimulus that uses commercial business interruption policies to pay claims that would be funded by the government, even where that coverage has been excluded from the policies,” she said. Ms Franks explained that the market for non-damage BI pandemic risk has been bespoke and limited. But she said cover for a pandemic on the scale of Covid-19 was available before its outbreak, either via extensions to conventional insurance or more innovative parametric products. However, Marsh’s parametric product Pathogen – developed with Munich Re to provide a cash payout in the event of an outbreak, based on pre-agreed parameters – did not place any policies, Ms Franks explained. The panel also said Covid-19 is likely to trigger D&O claims. Even though these policies often exclude cover for bodily injury and property damage, the wording could still allow for claims arising from Covid-19, Ms Franks explained. “Directors and officers will be facing the possibility of claims and investigations that may arise from decisions and actions taken at a senior level before, during and most likely after a pandemic. There may be a situation where there’s criticism about resilience planning, crisis response measures and emergency protocols, as well as more general allegations of corporate mismanagement and disclosure deficiencies,” she continued. “These claims are likely to be particularly rife where the pandemic has resulted in a significant stock drop for the company or in more extremes cases insolvency,” Ms Franks said, adding that shareholder class actions are likely to emerge from the crisis. With so many uncertainties and unknowns about the impact of the disease on business and insurance coverage, the Marsh panel said, at this stage, buyers must not delay quantifying claims. Businesses should model current or anticipated BI losses to support requests for interim funding, said Mr Greaves, and measure the size of the loss against policy limits.

BI coverage biggest concern for Marsh clients as Covid-19 exposures mount

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