Devonshires advises businesses and individual clients on a variety of insurance issues. Here is a short note on some potentially relevant insurance issues that arise out of Covid-19 issues. All policies have different wordings, and scope of cover will invariably differ from policy to policy. The following are general common principles that normally apply, but in any given situation specific advice must be taken on the relevant policy or other contract wording and the factual situation in potential issue.
- Travel insurance is not normally designed to cover an unwillingness to travel where no Foreign Commonwealth Office (FCO) advice has been issued to advise against all but essential travel to a country (FCO Directive).
- Travellers are unlikely to have contractual rights to cancel or rebook travel or holidays, even when travelling to countries infected by Covid-19, unless there is an FCO Directive in respect of that country. Normal cancellation charges will therefore otherwise apply.
- Travel insurance should normally cover cancellation costs where a country becomes subject to an FCO Directive provided the insurance was purchased before that relevant FCO Directive was made. However, depending on wording and the views taken by individual insurers, it is possible that force majeure provisions may become considered for applicability.
- An exception to the general position may arise if a Doctor has given clinical advice to a traveller not to travel because of the virus and risk to health through transmission and that health issue was not a known pre-existing condition when the travel insurance was bought or issued.
- Cancellation expenses where an area is/becomes designated a pandemic by the WHO may become recoverable if such abandonment coverage is included. But all travel policies are different, and some policies may actually exclude cover for pandemic situations if officially declared.
- For those engaged in the travel industry, if a package holiday has been booked then:
- The traveller can cancel without penalty where unavoidable and extraordinary circumstances at the place of destination or its immediate vicinity significantly affect performance of the package. Such circumstances trigger a refund entitlement within 14 days. Outbreaks at specific hotels booked for example will likely engage that trigger.
- If a significant proportion of services in a package cannot be provided e.g. a specific hotel or cruise then the organiser must offer at no extra cost suitable alternative arrangements of an equivalent or higher quality where available. If lower quality alternative arrangements only can be provided then a price reduction must be given. Travellers can only reject alternative arrangements if not comparable or if the price reduction is inadequate.
- Anyone travelling to a country or region against government advice risks invalidating their travel insurance.
- If airlines begin cancelling flights, ticket costs can expect to be refunded as a matter of course, but issues may arise about associated holiday or other booked costs. Subject to wording, “travel disruption” cover if provided may pick up those costs.
Business Interruption Insurance
- The conventional trigger for business interruption claims is the suffering of “physical damage”. If that trigger is engaged, losses arising from the disruption of supply or distribution chains are often covered also as part of standalone policies or as an extension.
- Most policies will not consider Covid-19 “physical damage” or to provide such coverage provision: exclusions may apply to losses arising out of loss of use of premises due to virus contamination to the premises.
- If no such exclusions are included, it may be possible to show coverage exists for losses by reason of a loss of use of insured premises due to virus contamination, on the basis that this amounts to insured physical loss/damage. Staff becoming sick may not be sufficient, without contamination of insured premises. Closing down a restaurant because of an outbreak in that restaurant may well trigger some cover but cover will not extend to loss of trade simply because people do not travel or wish to trade/visit as they usually do.
- There may also be coverage provided if “communicable diseases” cover extension is obtained as this coverage does not usually require a “physical damage” trigger. However if coverage is for notifiable diseases then insurers often specify what those diseases are in the policy and if so, self-evidently Covid-19 will not have been specified.
- Policies may well provide cover for losses caused by “actions of competent authorities”. If public body directions are given to close down areas or premises then that may engage a cover for losses suffered by businesses who cannot access their premises.
- If cover is engaged there are often limits on cover and deductibles, time periods whereby coverage may be engaged including exclusions for certain time losses.
Force Majeure (FM) contractual provisions
- To rely on such provisions, must show usually that an event has prevented or hindered a party’s contractual performance. If clause requires performance to have been rendered impossible, it will become necessary to examine if performance could have been sourced / staffed from elsewhere. Simply because performance becomes more expensive is usually not a sufficient trigger for FM clauses.
- FM events may be defined and it will be necessary to review whether epidemics or Government directions preventing performance are addressed as FM events.
- Mitigation duties and notice obligations and compliance still apply.
- Extended periods of FM may lead to a right to terminate contract.
For more information on this topic and any insurance related queries, please contact Stephen Netherway