Coronavirus and insurance arrangements

Across the UK many clients, insured and insurers, are reviewing their plans to manage the development of a more restrictive regime aimed at implementing and supporting the Government’s four point plan of:

• Containment
• Delay
• Research
• Mitigation 

Scientific and medical information supports advice that we should plan for disruption. We all see the now familiar daily reports of how that disruption presents, both in the UK and overseas. Travel disruption has been widely reported. In the case of Flybe this is identified by some as directly relevant to ongoing economic pressures such as cash flow due to falling demand.

We also see the economic impact on business supply chains, especially in a world of “just in time” supply, and of course the operational issues around workforce availability, the ease or difficulty of remote working, and incentives or costs of self-isolation.

Insurers and their insureds will be expecting to actively review the extent of their exposure (in the case of insurers) or available redress by recourse to their insurance cover (in the case of insureds).

Does insurance respond to the losses caused by coronavirus disruption?

There are many areas where insurance typically will respond. Business interruption, or event cancellation or postponement, travel arrangements, or credit risks from failures or delays in the supply chain, are all risk areas where insurance often responds to disruption and losses arising.

Whether an insurance policy actually responds will depend on the policy wording. So, for example, the scope of an insuring clause and any exclusions (of claims or types of claims) or force majeure clauses in the policy will limit the insurer’s exposure.  Conditions around notification, cooperation and mitigation will require an insured making a claim to comply with the terms of the insurance and present evidence in support of the claims that are made.

Aggregation or batching may be an issue for insurer and insured to address where there are multiple losses which arise from a single underlying cause or event. This analysis will cut both ways against the limit of indemnity in the policy and the applicability of any excess or deductible.

Evidence to prove losses or the costs incurred by an insured, and of steps taken by them to mitigate losses, will need to be gathered and made available.  This includes any evidence about third party failures causing or contributing to losses that might then be recovered by the insurer by way of subrogation.

The Enterprise Act 2016 may be invoked by insured claimants seeking to establish delays beyond a “reasonable time” in the adjusting of their loss and payment of their claims. Insurers will have to be geared up to ask promptly for any additional evidence they require to adjust and resolve the claims, and be able to explain any delays that they envisage causing delay. A reminder that if delays in the payment of claims cause economic loss to an insured, that might trigger a separate claim against the insurer under the Enterprise Act.

Such events as the emergence of COVID-19 are an opportunity to review policy wordings and scope of cover and test the language used in the insuring clause, exclusions and aggregation wordings.