Marsh discussed some exclusions that may arise and legal issues during its briefing on the pandemic last week 

Fresh class action might be on the cards for some businesses in due course when it comes to directors and officers insurance as the coronavirus pandemic continues. 

Clarissa Franks, head of placement, risk management at Marsh warned as she discussed different types of exclusions, clauses and policy wordings that might be of interest to businesses in the broker’s live webinar last Friday, ’coronavirus planning, response and recovery’, presented as a series of presentations on how to navigate the impact on businesses,

She said that this was because of exclusions in directors’ and officers’ policies being so narrowly drafted, that the virus may be covered.

Franks said this would relate to claims based on decisions and actions taken at a senior level – before, during and after the pandemic.

This can include criticism around resilience planning, emergency protocols, disclosure deficiencies and allegations of corporate mismanagement.

Meanwhile for employer’s liability and public liability to be triggered there must be legal liability – and this is crucial.

“The claimant will need to prove that the insured has breached a duty of care owed to the injured party. Disease is generally included within the definition of ‘bodily injury’ and so the contraction of covid-19 will potentially trigger policy cover if the insured is held to be legally liable,” she said. 

There are no specifications as to what disease this is in employer’s liability coverage. But wording is key here as there may be some exclusions within certain coverage.

“There should be an awareness [with] employers of a wider implication if an employee infects family members resulting in a wider general liability claim,” she added. 

Bodily injury 

However in terms of public liability, Franks said she was not aware of any exclusions.

“There has been some debate around where pollution and contamination exclusions could apply but typically this is related to something escaping from the insured premises that causes third party property damage or injury rather than a disease in the wider population,” she said.

She continued: “Disease is generally covered in the definition of bodily injury and insurers generally take the position that public liability extends only to actual bodily injury.

“There may well be a lot of discussion on the exact nature of the injuries alleged by third parties. Whilst bodily injury may trigger the coverage insurers may reject claims due to fear of exposure or exposure without any actual symptoms.”

Meanwhile if coronavirus was contracted inside a property, a policyholder may claim property damage, but insurers could allege that there is no actual damage to the property.

Business interruption

But it is business interruption insurance that is generating the most questions at the moment for Marsh’s clients.

“Although many property damage and business interruption policies do not contain extensions for disease, however on the other side UK policies do not exclude pandemics,” she added.

The key point she said is that in both of these policies physical damage needs to be present for the coverage to be triggered. Therefore, the proximity to the virus, public fear or suspected presence are all unlikely to be classified as property damage and would therefore not be covered.

For the same reason she said, it’s unlikely that reduced demand or disruption of the supply chain would be covered in the absence of physical damage. 

Franks added: ”On the flipside many policies do contain business interruption extensions that provide to business disruption coverage without the need for physical damage and all of these extensions typically have sub limits. They may also have aggregator sub limits.”

This means that there is a cap within any one year where the policyholder claims. 

And they may have maximum indemnity periods that may be lower than that of the overall policy, this is typically around three months. 

With property and business interruption policiesm the following three clauses could respond to covid-19 losses.

Firstly communicable disease or notifiable diseases, the broadest form of this extension means the policy will be triggered if the disease is discovered at the insureds premises or within a pre-agreed radius or vicinity. 

Covid-19 was declared a notifiable disease under English law on the 5 March. 

Secondly for non-damage denial of access, it gives cover for business interruption caused by the police that prevents or hinders the use of the insureds premises. 

Policies don’t necessarily cover for this, and they require that the interruption is due to “some other issue”.

The policy wording that is most relevant for covid-19 is “a danger or a disturbance” or “emergency in the vicinity”.

And lastly communicable disease clean-up. 

Franks said: “This is an incredibly complex area and variation in policies and individual circumstances require some expert advice and consideration.”