Marsh gives a comprehensive analysis of avian flu implications for insurance, risk management and business continuity.

The outbreak of the H5N1 virus in the UK has major insurance implications, according to Marsh.

The broker has indicated that cover may vary across different policies:

• Employers' liability (EL) — £5m EL policies for each occurrence are compulsory for the vast majority of UK businesses. This type of policy would respond to employee claims for avian flu in the same way as any other infectious disease, provided legal liability is established, for bodily injury, death, disease or illness sustained by an employee within the territorial limits of the policy and caused during the period of insurance. No exclusions are permitted by law for the first £5m of each occurrence.

• Public and products liability — These policies provide coverage against liability for injury, material damage or limited financial losses of third parties that result from the acts or neglect of the insured. This type of policy is held by almost all businesses and insurers are not, currently, imposing any specific avian flu exclusions.

• Environmental impairment liability (EIL) — Some insureds may also have separate and distinct coverage, under an EIL policy, for injury or damage arising out of pollution or contamination. These policies may contain restrictive provisions that will be invoked by insurers in response to claims for property damage or injury arising out of contamination by viruses.

• Property insurance — The obvious focus for consideration of any valid cover for business interruption is the general availability in the UK marketplace of an extension of cover for “infectious diseases”. This is an extension wording that grants cover typically for three-month indemnity period and for sub-limits in the range of £0.5m to £5m. But cover under this extension is more likely than not to be compromised by commonly imposed insurer restrictions limiting cover to an incident on the insured's premises only and/or to it being an event that must be notifiable by order to a competent authority. An outbreak of a human strain of avian flu is not currently notifiable.

• Cancellation and abandonment — Policies placed at this time will have a specific avian flu pandemic exclusion. Coverage is not available on a buy back basis. Policies placed before the Avian Flu risk was deemed to be a threat will not have an avian flu exclusion. This means that any claims due to events cancelled as a result of avian flu will be paid, providing that the cancellation of the event is deemed necessary and beyond the control of the insured.

Marsh has also warned that management should review their firm's risk management controls, human resource policies, and communications capabilities, and update them based on the threat of a pandemic, as such an event could mean having fewer people, losing certain critical people, or having staff work from home or other remote locations.

The broker has highlighted absenteeism as central to a business continuity plan. The key points for businesses to consider are:

• Staff care and communication policy
• Travel restriction and quarantine policy
• Decontamination, cleaning and hygiene procedures
• Tamiflu or similar ‘prophylactic' stockpiles
• Work-at-home strategy
• Key business process resilience plans
• Possible moth-balling plans for non-essential processes.

In addition, businesses need to assess how a pandemic might affect services from suppliers and vendors, both domestically and overseas — in particular, in areas where incidence of the disease may be concentrated.