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Corona Virus & Insurance – Frequently Asked Questions

March 28, 2020
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Corona Virus & Insurance – Frequently Asked Questions

Dear customers and friends,
We are in the midst of unconventional times and naturally experience feelings of uncertainty and concerns. We have compiled answers to some commonly asked questions that arise regarding the interface between Insurance and the Corona Virus (Covid-19).
Is there any cover for damage that my business will suffer as a result of the Corona Virus?
In property/”extended fire” insurance which are accepted business insurance policies in the business sector, the operating clause is physical damage to tangible property covered by the policy. The Corona Virus has many and broad implications, but it does not cause or entangle physical damage to tangible property. The Corona Virus and/or any other virus is not included in the risks insured under the “extended fire” policy. Also, under “all risks” insurance, physical damage is required to activate the policy, so the virus and its consequences are not covered in this policy either. In light of the above, unfortunately, the property insurance system does not cover such damage.
Will the business closing due to the Corona Virus be covered by a loss of profits insurance?
Loss of profits insurance provides a response to reduction in the insured’s turnover as a result of physical damage covered by an “extended fire” policy. Because the virus and its consequences are not covered by an “extended fire” policy, the loss-of-profit policy would not be triggered either.
What about the damage to my supply chain as a result of the Corona damage?
In the context of property/”extended fire” policies and policies based on all risks, loss-of-profit coverage may indeed cover damage to material suppliers (or significant customers). The problem is that even for this coverage, there is a need for physical damage, so in the absence of such damage, these extensions will not be triggered or cover damage to the supply chain.
What about liability insurance?
Under liability insurance policies (liability to third parties and employers’ liability) damage is defined as physical injury, death, illness, injury or mental impairment (third party and employers) damage and/or loss to a third party (third party only). The good news is that usually there are no epidemics carve-out under these policies. However, under these policies, the insured’s negligence must be demonstrated to trigger the policy. A possible scenario is that a third party or an employee will become infected and contend that the policy holder or the employer that the employee was infected with the virus because the policy holder/employer did not follow the requirements of government/state ministries and did not take all precautions and other measures necessary to prevent infection and/or spread of the virus. Note that in such a case, the plaintiff will not have an easy burden of proof and will have to show that the insured was negligent in preventing the infection, violated a duty of care and that there is a causal link between the breach and the damage. In any case, if such a claim is filed, it may be possible to review coverage under the insurance policies.
Is there coverage for personal claims against officers in connection with the Corona Virus?
Depending on the argument – directors and officers liability policies cover financial damage. The policy has an exception for bodily injury/property damage. One need to check how the exception is worded, whether it is absolute or wide (Arising out of bodily Injury/For Bodily Injury). If this is an absolute exception, there will be no coverage for a lawsuit against directors and officers associated with a person’s infection. However, if the exception is not absolute – the direct damage from infection by the disease will be excepted but indirect damage can and will be covered. For example, a third party who comes to visit the offices of a company is infected with the disease because the officer was negligent in applying a Corona Virus risk management policy in the company. The direct claim for the infection will be excepted (and, as mentioned above, may be covered under the third party policy) but if we assume that the third party missed a big transaction because of the desease – the claim may indeed be covered. In other contexts where there is no allegation of human contagion, the directors and officers liability policy may cover a variety of claims, for example: shareholders’ claims for improper management of the Corona Virus risk that caused bankruptcy, securities law related claims for breach of disclosure obligations, breach of duty or claims for breach of trust (provided that was done in good faith) that resulted in financial damage. There is also a high exposure these days to various cyber threats (mainly due to the relocation of employees to remote work sites and the risks involved) and thus if a cyber event becomes a claim against directors or officers (from clients or shareholders) the policy may cover these claims.
Will cancellation of travel abroad as a result of the Corona Virus be covered by travel insurance?
The policy covers if it is an official epidemic at the destination, including cancellation of regular flights. One should first contact the airline/travel agent in order to cancel the trip and receive a refund.
If one is infected abroad, how will the travel insurance policy react?
Travel insurance covers medical expenses, including hospitalization, tests and medications also in the case of Corona Virus. The issue of medicinal flight, this will be examined on the merits under the limitations and different provisions of each jurisdiction.
Will a delay in a contractors’ project due to the absence of foreign workers as a result of the closure of the skies in the State of Israel be covered by the contractor policy?
Unfortunately the answer is negative. The contractor policy also requires a “trigger” of physical damage to the body and/or property in order to apply the cover.
So?
Naturally, the outbreak of the Corona Virus entails huge economic risks to the business sector. It should be noted that the credit risk insurance that companies purchase should certainly cover the risk of collapsing vendors and the resulting loss of payments.
In addition, there is currently a wide and active discussion in the insurance world regarding whether the Corona infection is covered under the third-party insurance policy. For example, insofar as a Court determines that the apartment owner is liable to its guest (and the likelihood is not high), in the event that this guest is unfortunately infected with Corona Virus and as this guest did not know that the host being ill, then the third party coverage of the apartment policy may be able to be activated. Because this is a topic in its infancy and has not yet been discussed in practice, it is difficult to assess how the insurance companies will actually respond to this claim.

We are here for you, always, including during these challenging days.
Wish us all good health.
Regards,
Howden Israel

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