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The many faces of Coronavirus | White Paper and FAQs

Insights and analysis shared in our Question Time webinar have been collated in this white paper which we hope you will find informative and…

The Coronavirus pandemic, and the associated enforced business closures and restrictions on the population’s freedom of movement, continue to have a significant impact on those trading and consuming. Many businesses have been devastated by the enforced lockdown and are turning to their Business Insurance (“BI”) policies seeking to recover the losses suffered. This has generated significant media commentary, with financial headlines dominated by widespread insurer rejections of claims and calls, from some quarters, for the government to step in and mandate claim payments. The Financial Conduct Authority (“FCA”) has stated that the majority of policies do not respond but it has also emphasised that insurers still need to treat their customers fairly. This has prompted a range of responses from the policyholder community. Most businesses want, and are entitled, to know why BI cover is not triggered and whether the insurance industry can be trusted.

On 1 May 2020 the FCA announced that it intended to apply for judicial clarification of the scope of BI policies and the meaning of some of the most common conditions. The precise details of the FCA’s case remain unclear but, it is likely to focus on the meaning of “damage” and the effect of common exclusions and extensions to cover. The case will not be determinative or binding on any insurer that is not party to the action but is likely to be highly influential on insurers’ approach to BI claims arising out of the Coronavirus pandemic. 

On 7 May 2020 Weightmans hosted a webinar in which we discussed these issues in detail. We were lucky enough to have the following expert panel of attendees who shared their valuable insights from a legal, governmental, brokering and actuarial perspective:

  • Edward Lewis (moderator) – Partner, Weightmans
  • Sir Bob Neill MP – Chair of Justice Select Committee
  • Graeme Trudgill – Executive Director, BIBA
  • Jerome Kirk – London Markets Lead Partner PWC (and formerly Head of Actuarial Services at Lloyds)
  • James Denison – Partner, Weightmans
  • Amy Nesbitt – Principal Associate, Weightmans
  • Pamela Freeland – Associate, Weightmans

The insights and analysis shared in that webinar have been collated in this white paper which we hope you will find informative and interesting. We have also collated and answered 15 of the most frequently asked questions we received during the webinar which you can find below. 

To download the white paper, please complete the form below.

FAQs 

  • When did the Government impose the restriction on movement?

    The UK Government initially recommended avoidance of non-essential travel and contact with others on 15 March 2020. In England, schools, restaurants, pubs, indoor entertainment venues and leisure centres were ordered to close on 20 March 2020 pursuant to the Health Protection (Coronavirus, Business Closure) (England) Regulations 2020. That was followed on 26 March 2020 by a lockdown of the whole population, including the closure of almost all businesses, pursuant to the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020.

  • What specific types of business have been restricted or closed by the Government?

    The affected businesses are listed in Schedule 2 of the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020.

  • What other legislation deals with the restrictions that have been put in place?

    Please see the Coronavirus Act, which came in to force on 25 March 2020. 

  • Do the Government’s restrictions on movement and the closure of specific businesses represent concurrent causes of loss?

    Arguably some business interruption ("BI") losses arising from the outbreak would have been sustained either because of the restriction of movement on the general population or because of the restriction on trading. This issue brings into conflict the “but for” test of causation (which suggests that losses will not be covered if they would have been sustained in any event) and the principle that cover will be available for losses arising from concurrent causes subject to express exclusion of one of the perils giving rise to the loss

  • What steps has the insurance industry taken to protect customers during the pandemic?

    The ABI has issued three protection pledges to support the NHS, support those making a claim and support vulnerable customers. These pledges apply to customers making claims on life, critical illness or income protection policies.

    Some insurers have also offered measures to support businesses forced to close or change their ways of working as a result of the pandemic. These include extending contents cover to employees working from home, ensuring there are no changes to premium for premises forced to close and introducing automatic extensions to cover to prevent businesses from becoming intentionally uninsured.

  • What is the scope of the FCA’s test case?

    The scope of the test case is currently unclear, but details should emerge shortly following the closure of the FCA’s request for feedback from policyholders and intermediaries by 20 May 2020. We anticipate that the action will focus on issues such as whether Coronavirus contamination constitutes damage to property and how losses arising from the outbreak and lockdown have been caused.

  • Is there any point having insurance if it does not respond in these circumstances?

    Some policyholders have questioned the value of insurance where insurers are perceived to have let them down by declining to indemnify losses arising from the COVID-19 pandemic. However, the policies under which those claims have been made were designed to cover a variety of other perils which could impact on a policyholder’s business, such as fire or an escape of water. It would be a significant overreaction to abandon insurance altogether purely because business interruption cover is generally unavailable for pandemic risks.

  • What is the likely loss to the London Market as a result of COVID-19 related claims?

    Lloyd’s has announced that it expects COVID-19 related claims to cost £2.5 billion to £3.5 billion. The headline figures for the London Market as a whole is estimated to be £5.3 billion. However, if BI losses that were never intended to be paid are factored in the figures would be significantly higher.

  • On what basis could insurers be forced to meet BI claims even where they are not covered under the policies?

    This could only take place by Parliament enacting legislation with retrospective effect. Retrospective legislation is highly unpopular as individuals and businesses arrange their lives and affairs according to the law in force at the time. There is little real political appetite to retrospectively rewrite insurance policies and doing so would have a broader reputational impact on the UK’s standing as an international financial centre.

  • Is it likely that an insurer will become insolvent due to the pandemic?

    Insurers are subject to very strict solvency requirements to ensure they are not over-exposed to a particular type of loss and will have written their BI policies on the basis that they are not triggered by a global pandemic. However, if an insurer has not taken sufficient care in drafting its wordings and there is cover for BI losses, the insurer’s solvency may well be imperilled such is the extent of the pandemic.

  • What arrangements are in place to cover fundamental risks such as flood and terrorism?

    Flood and terrorism risks are covered by Flood Re and Pool Re respectively, both of which are government-backed schemes to re-insure cover provided to customers by the insurance market and thereby provide capacity on a scale which would not be practically possible via insurance solutions based purely on private funding. A similar scheme could be applied to pandemic risk.

  • What new insurance products are we likely to see in the near future?

    The Coronavirus pandemic has shone a light on the protection gap i.e. the gap that exists between insured risks and risks falling outside the scope of insurance cover. We foresee a demand for products to plug those gaps as businesses look more closely at their insurance arrangements.

  • What options are available to policyholders who feel they are not being treated fairly by their insurer?

    The Financial Conduct Authority ("FCA") expects firms to consider very carefully the needs of their customers and show flexibility in their treatment of them, especially where businesses have suffered major disruption as a result of the pandemic. Policyholders who fall within the jurisdiction of the Financial Ombudsman Service ("FOS") will be entitled to raise a complaint if they feel that their insurer has not treated them fairly.

  • How does the FOS determine complaints concerning the availability of cover under an insurance policy?

    The FOS determines complaints with reference to what it considers to be “fair and reasonable in all the circumstances of the case” – see rule DISP 3.6.1R of the FCA Handbook. The FOS is not bound to determine cases in accordance with the law but, where it makes a decision that is incompatible with the law it must explain its reasons for doing so. The FOS may therefore come to different conclusions about insurance coverage disputes than the Courts. However, the FOS can only make enforceable awards up to a limit of £350,000 whereas no such limit applies to the jurisdiction of the Courts.

  • Are there any other classes of insurance, which may see claims relating to COVID-19?

    Yes, the following classes of business will also see Covid-19 related claims: Contingency, (especially film & media cancellation) FinPro Casualty, (especially D&O) Trade Credit & Surety, Property, Aviation & Marine and Accident & Health.

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