Covid-19 insurance claims uncertain as insurers turn to policy language and exclusions, warns Marsh

Insurers have learnt from previous virus outbreaks and in many cases policy language and exclusions could be used to deny cover for coronavirus (Covid-19), making insurance recoveries complex and uncertain, according to experts from various business lines on a Marsh webinar. Liability and business interruption losses from Covid-19 could potentially be covered by traditional property and casualty insurance coverages, such as general liability, workers compensation and property. However, the recovery process will be far from straightforward, the experts said. Coronavirus is likely to result in liability losses for corporates, with claims potentially arising from employees, customers, business partners and investors. Litigation is “inevitable” in the US, according to Stephen Fraser, managing director and US claims leader at Marsh. Coronavirus-related claims under general liability policies will need to meet certain conditions, depending on the individual policy wording, he explained. “This is a very complex subject,” Mr Fraser warned. Exclusions in liability policies will be key, he continued. General liability policies typically include broad pollution and contamination exclusions, and insurers are likely to argue that coronavirus falls under that wording, he said. Policyholders would also need to prove causation, which may not be possible to establish for cases of coronavirus. General liability policies also cover bodily injury, which is unlikely to extend to emotional injury, added Mr Fraser. Following the SARS and avian flu outbreaks, many insurers added exclusions for communicable diseases, so policyholders could see a “hard denial” from liability insurers that extends to defence costs, he warned. Where companies have purchased specific pollution cover they may find it excludes viruses and communicable diseases, or where cover does exist it may be sub-limited, he added. Companies will also be able to file business interruption (BI) claims for coronavirus losses, but collectability will depend on the loss scenario, according to Paul McVey, managing director and chief property claims officer at Marsh. BI policies may exclude certain perils, such as communicable diseases, while cover may require physical damage to trigger the policy, explained Mr McVey. Marsh is advising clients to gather the facts, present them to insurers and see how they interpret them. “It will be an interesting conversation,” said Mr McVey. Pandemic cover for coronavirus is no longer available but companies should consider purchasing such protection for the next outbreak, said Marsh. Pathogen and non-damage BI insurance is very bespoke and takes time to underwrite, according to Chad Wright, US and Canada risk analytics leader at Marsh. “There are covers available that can be explored in the future as we get further away from this outbreak,” he said. Successful Covid-19 claims under workers compensation insurance will depend on the facts of the case and local laws, according to Dennis Tierney, claims director at Marsh’s workers compensation centre of excellence. Workers compensation claims generally require an occupational illness with a proven link to workplace exposure, he said. Mr McVey and Mr Tierney also said the categorisation of Covid-19 as a pandemic by the World Health Organization will have little or no effect on insurance. Employers practices liability and directors and officers (D&O) insurance could also see claims from coronavirus, according to Marsh. For example, coronavirus is likely to spark securities class actions if directors fail to disclose Covid-19 exposures or fail in their fiduciary duty, according to Sarah Downey, US D&O product leader at Marsh. Companies will need to seek legal advice around human resource policies and measures taken to control the virus, advised Kelly Thoerig, managing director and employment practices liability coverage leader at Marsh. “When there is uncertainty around an employer’s duty, there is heightened risk of claims,” she said. Credit insurance should pay claims for insolvency and non-payment related to coronavirus but cover is now getting harder to come by, according to Tim Smith, global practice leader at Marsh trade credit. All major credit insurers expect losses to increase from coronavirus, are reviewing their limits and taking steps to reduce exposure, he said. Disruption to supply chains and the movement of people, as well as financial market volatility, have been the main impacts of the outbreak during the past few weeks. However, governments are beginning to take more comprehensive measures as they move from containment to mitigation, said Marsh. Moving forward, companies should expect to see more social distancing, with bans on public gatherings, school closures and a move towards home or shift working, explained Dr Lorna Friedman, global health leader within Mercer's multinational client group. Companies need a shift in mindset and must flip into response mode, according to James Crask, senior vice-president, head of resilience advisory at Marsh. Mr Crask urged organisations to consider the worst-case scenario. For example, they should work out how to cope if 30% of the workforce is absent due to sickness, quarantine measures or school closures. Organisations should also ensure business continuity workarounds are viable and stress tested, added Mr Crask. An example of this is whether IT infrastructure and network bandwidth are adequate to cope with increased remote working. Some banks and manufacturers have begun to split their sites or introduced shift working for critical teams, added Mr Crask. But the longer staff are asked to work in an unusual situation, the harder it will be to maintain morale, he added.

Covid-19 insurance claims uncertain as insurers turn to policy language and exclusions, warns Marsh

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