COVID-19 and Business Interruption (BI) Insurance Claims

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The COVID-19 pandemic and the various measures to limit the disease’s spread have significantly disrupted economic activity in countries around the world, resulting in significant losses. According t0 OECD, the vast majority of these losses are likely to be absorbed by policyholders (unless governments or courts intervene) as only few companies have BI coverage – exposing the existence of an important protection gap for pandemic-related BI losses.

In the past four months, we have been inundated with client inquiries regarding insurance coverage and how it responds to COVID-19 induced BI losses. As the situation is so much in flux, and clients continue to face new challenges, it is very difficult to give specific advice to our clients.  Furthermore, (re)insurers are also reacting to BI claims differently across countries of the sub-Saharan region.

On June 18th, 2020, the Financial Sector Conduct Authority of South Africa (FSCA) issued Communication (Ins) 34, which, in our view, is equally relevant to the insurance markets of Namibia, Lesotho, Mozambique, Zambia & Malawi, as most insurers in these markets have significant reinsurance placements in South Africa. Also, in other jurisdictions, such as Kenya, Tanzania, and Uganda, it is likely that the insurance industry will follow the same sort of interpretation of the different BI policies. The information in this article is based on the FSCA communication, unless specified otherwise.

 Although there seems to be slight nuances in the BI policy wordings, they can broadly be grouped in six different categories, each with its own burdens of proof placed on policyholders:

 




























In some cases, insurers require policyholders to provide very specific information and/or documents to prove a specific claim. Examples of such requirements are:

  • Proof that a hospital, close to the insured premises, was closed due to COVID-19 or it is known that there were people treated at the hospital that were tested positive

  • Confirmation from the relevant Health Authority of a confirmed COVID-19 case within a certain radius of the insured’s business; and submission of medical records of someone who has been infected with COVID-19 within the radius stipulated in the policy

In this regard, the FSCA provides the following guidance to insurers: 

  1. Carefully consider whether the burden of proof amounts to a barrier for the policyholder to claim;
  2. Consider reasonable and practical alternatives to satisfy the burden of proof; and
  3. Consider obtaining the proof itself (e.g. in respect of confirmation from a Health Authority mentioned above) as opposed to placing that burden on the policyholder, especially where such information is not in the public domain and easily accessible by a policyholder.

While the FSCA acknowledges that BI claims are complex in their nature, insurers that have policy wordings which fall under the (1) Radius and Notification, (2) Radius; and (3) Notifiable Disease  categories must, when they have received all relevant documentation from a policyholder, not delay the payment of any claim provided policyholders are able to prove the requirements highlighted and discussed in paragraphs above.

There is no sound basis for the FSCA to direct insurers that have policy wordings that fall under the “General Exclusion” category to pay any BI claims.

For the categories of “Closure or Restriction” and “Closure by Order”, the trigger for a valid claim is the contagious or infectious disease at the business premises of a policyholder and not the National lockdown. Therefore, unless a policyholder can prove that the insured’s business was interrupted by the presence of COVID-19 at its business premises, the policyholder would have no valid claim.


Conclusion

The devastating human loss and economic impacts of the COVID-19 pandemic is a global catastrophe that is stretching the society and the insurance industry’s capacity and resources to cope. Generally, systemic risks such as pandemics that cause large economic and societal losses are unlikely to be covered in their entirety by the global insurance industry as the total economic loss would exceed its financial resources. The insurance industry can expect to see many claims against insurers as to the meaning of the BI insurance coverage and policy wording extensions. Please contact your account manager or Risk Adviser at Minet.


Robert Kooijman | General Counsel - Legal & Compliance | Minet Group

Disclaimer

This article is not a legal advice. Each case will depend on its specific facts, circumstances, insurance policy wording, terms, and conditions and are governed by and construed in accordance with the laws of the respective countries.


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