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Insurance for Pandemic Losses

The possibilities for loss attributable to the COVID-19 pandemic are almost endless. Most obvious perhaps is loss of income caused by business interruption and one can also imagine claims being made by shareholders against directors and officers, by employees against employers and by patients and their families against healthcare providers.

Commercially bought first party property insurance policies generally include coverage for loss of profits resulting from property damage, whether to the insured’s own property or to various other categories of property such as that of a customer or supplier. There are a very few insurers who have specifically offered coverage for losses due to communicable disease. Where that is not included, property damage is the trigger for coverage under the policy. So, the question arises whether the presence of the virus at a property constitutes property damage and, if so, what is the quantum of loss caused by that damage. There have been past decisions by the Courts, ruling that contamination of a building rendering it unsafe until decontaminated constitutes physical damage even without any structural alteration. It seems inevitable that insurers will be saying one thing and insureds another. Expect much litigation!

In the captive world, members of group captives will most likely find that their coverage is restricted as it would be in the commercial market. For single-parent captive owners, however, the picture may be very different. Many captives specifically cover such risks as loss of key customer, loss of key supplier and loss of key employee and these policies are likely to provide broad coverage without the same exclusions as commercial policies. Others may deliberately provide cover for difference in conditions, plugging gaps in coverage arising from exclusionary language in commercial policies. Many businesses may find their captive to be a real lifeline in times of peril.

As to the future, it is already clear that exclusionary language is being tightened up with specific communicable disease exclusions already being imposed by reinsurers. Insurers will follow suit. Not only are we going to see increased restrictions on coverage but this comes at a time when the cost of insurance is increasing significantly. Businesses will need to pay very close attention at their next policy renewals and give deep consideration to how they intend to manage and finance risk in the future.

Claims Procedures

For those looking to make a business interruption, loss of income or extra expense claim against their commercial insurer or their captive, they should document the claim in rigorous detail. Some actions to take:

• Prepare a timeline documenting changes to business operations;
• Track and document key business metrics;
• Track and document expenses related to the event;
• Track and document specific event related business activity such as cancellations, complaints and returns;
• Compile a three year look back of financial data.

Atlas has more detailed advice available for any reader who asks for it.

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