With the coronavirus, COVID-19, already taking its toll on the economy, are there any existing sources of insurance coverage to help cover the inevitable financial loss? With major sporting events, conferences, cruises and other excursions being cancelled as a result of the outbreak, including the potential cancellation of the 2020 Olympics in Tokyo, can a company look to its existing insurance portfolio and find any insurance coverage to help minimize the financial impact?
Traditionally, the most direct way to get insurance coverage for a disease outbreak is to obtain event cancellation coverage for events cancelled or adversely impacted as a result of a disease or quarantine. To the extent a company purchases event cancellation insurance, events cancelled due to disease or quarantine may be expressly covered (or, in the case of very broad “all risk” event cancellation coverage, not excluded).
However, without event cancellation coverage, most companies will need to hunt around for other possible sources of insurance. Political risk insurance, which many companies may already have due to international investments or overseas operations, may cover losses as a result of a government shutdown or curfews. Unfortunately, with many political risk policies, this form of indemnity often necessitates a waiting period of 90 days or more prior to coverage activation. By the time the political risk policy takes force, there may be no need for it anymore.
Similarly, civil authority clauses in first-party policies can afford coverage for business income losses that arise when a civil authority prevents the policyholder from accessing their premises, which may happen when a civil authority blocks access to a property facing an outbreak. These coverages also typically have waiting periods (e.g., 72 hours) before coverage can be triggered. Notably, such coverages will often depend on whether there is a requirement of physical loss, which may not be present in the case of an outbreak.
Directors and officers insurance coverage may apply if investors or customers eventually sue a company and its directors and officers as a result of losses incurred from breaching a quarantine or failing to take timely or appropriate action to mitigate the impact of a disease, resulting in additional sickness, a company shutdown and, eventually, lost revenues as a result. However, one important thing to note is that many D&O policies have a broad bodily injury exclusion. As a result, coverage under a D&O policy depends on the precise policy wording and underlying facts.
Finally, another potential source of insurance might be under a company’s employment practice liability insurance, otherwise known as EPLI. EPLI can sometimes assist companies involved in actions by employees because of layoff or furlough claims due to government or company shutdowns.
To the extent that existing policies currently provide coverage, either directly or indirectly, we can expect that the insurance market will react quickly and add additional exclusions for disease or quarantines to many existing insurance policies, at least until the current outbreak subsides.