COVID 19 has wreaked havoc across the globe, affecting majority of the countries and inflicting fatal sickness among hundreds and thousands. The impact of the virus has left many policyholders as well as the ones who do not have policies scouting for either the optimal cover or seeking clarifications on their existing policies. The subsequent paragraphs are an attempt to take a deep dive into the possible new exposures which COVID19 has created and whether the existing policies are providing any protection to the policy holders.
COVID 19 and its impact on MARINE INSURANCE
A second’s thought may tell us that how can marine insurance or the exposures of goods in transit be affected by the virus. But the truth is that there have been exposures which have cropped up leaving the insured and insurer bewildered. The marine insurance policies across the globe are guided by the International Cargo Clauses (ICC), which have been amended in 2009. The domestic transits are covered through the Inland transit clauses (ITC).
An attempt has been made to link the clauses with the new exposures, primarily keeping in view the “lockdown” situation imposed by Indian Government to counter the threat emanating from outbreak of COVID 19. Let us look into few scenarios and the relevant clauses of the ICC/ ITC that might have an impact:
|View Points / Possible solutions
|The road vehicles are struck on the way due to lockdown (may be at border, may be any place midway)…… Is the
insurance cover available in case of an insured peril, operating? ….
|Yes, since the vehicles are in transit, such a situation will be treated as ordinary course of transit and held cover as per the Duration clause 6.1. under the ITC – A
|The road vehicles or rail have reached the destination town, but are unable to reach the final destination…. Is the insurance cover available in case of an insured peril, operating?
|The cover under Duration clause is available for only 7 days from the time it has reached the destination town. Within this period the goods have to reach final destination and get unloaded …else the policy terminates.
|The road vehicles or rail have reached the destination town, in fact the final destination, but unable to unload due to lack of manpower / premises being closed
|Though the delay is beyond control of assured and the cover should continue as per clause 6.2 of the Duration clause , they are still subject to the timelines mention under clause 6.1 ( i.e. 7 days from the time it enters the destination town). So , if the unloading does not happen , again the policy will terminate on expiry of the 7 days In fact the Duration clause 6.1.3 also states that …..Policy will terminate “When the Assured or their employees elect to use any carrying vehicle or other conveyance or any container for storage other than in the ordinary course of transit”
|Goods have been discharged from vessels, but are lying in port due to non clearance from customs / lockdown in cities
|The insurance cover is valid for 60 days from the time the goods are discharged from the vessels( 30 days for aircraft ) as per ICC – A , within which the same should reach final destination and goods should be unloaded .
|There will be accumulations at various places ….port, borders, eateries on highways, outside the final destination. ..Any concerns?
|It is time to review the “ per location limit “ …if the same is breached , loss will be paid till PLL only ( in fact as per Marine Insurance act 1906 , underinsurance can also apply , depending on how the insurers view the same )
|It is possible that a vessel (air or sea) carrying cargo from or to countries affected by the virus and going to another destination, may not be allowed to enter the port of destination. The vessel may be redirected to a new destination OR may be quarantined. The consequence of this can be, either of the following:
a. Non delivery of the consignment to the concerned person
b. Damage to the cargo (perishable cargo) till the time the vessel is allowed to return to the original destination.
|a. Can the cargo owner recover the damages from the carrier? …..Carriage contracts are normally governed by the Hague- Visby rules and the Article IV of these rules mentioned that the carrier cannot be held responsible , if there is a quarantine
b. Goods getting damaged during the quarantine period proximately caused due to the delay in reaching the final destination …can they be covered under the cargo owners (buyer or seller depending on the terms of trade) marine insurance policy? …….. Exclusion 4.5 of the ICC clause mentions: “loss damage or expense caused by delay, even though the delay be caused by a risk insured against”. Thus this clause would result in such losses getting rejected. Even Section 55(2) (b) of MARINE Insurance act, 1906 speaks about this exclusion.
|If the cargo cannot be delivered at the original port of destination due to the threat of the virus, and is discharge at some other port, does the insurance policy continue to cover?
|Termination of Contract of Carriage…clause 9 of ICC –A, clearly mentions that even if the circumstances are beyond the control of the assured, and either the contract of carriage is terminated at a port or place other than the destination named therein or the transit is otherwise terminated before unloading of the subject-matter insured as provided for in Duration clause, then this insurance shall also terminate.
- Considering the current unprecedented event triggering the above situations is advisable to approach the insurers requesting for the extension of the covert till normalcy prevails. Extension of the period mentioned under duration clause, if agreed to by insurers can help in the continuity of cover under situations 2, 3 and 4.
- All the views expressed above are based and assumed on the coverage, condition and exclusions of ICC-A and ITC – A clauses, version 2009 and 2010 respectively.
- Quick review of the per location limit, based on the transits which are en route to final destination, will help the corporate analyse if the per location limit under the policies are adequate. A referral to the insurers always helps. It is also possible that in certain cases the insurers might have to take the concurrence of the reinsurers.
- In situation number 7, the assured should immediately bring it to the notice of the insurer, and subject to the discretion of the underwriter, the continuation of the coverage may be agreed as per clause 9.1 and 9.2 , on payment of additional premium till:
- subject-matter insured is sold and delivered at such port or place,
Or, unless otherwise specially agreed, until the expiry of 60 days after arrival
Of the subject-matter insured at such port or place, whichever shall first?
- If the subject-matter insured is forwarded within the staid period of 60 Days (or any agreed extension thereof) to the destination named in the Contract of insurance or to any other destination, until terminated in Accordance with the provisions of Duration clause.
COVID 19 and its impact on LIABILITY INSURANCE:
Corporate are currently worried about the liability suits being filed against the directors and officers for situations driven by the outbreak of the COVID19, globally. Though it may sound strange, yet there could be situations which can result in such cases being files and in some cases it could also lead to class action suites. The following paragraphs would analyse the situations that can give rise to legal suits being filed against the directors and officers:
Director’s and Officers Liability policy (Management liability)
- Non-disclosure of material facts : Non-disclosure of the possible impact of the COVID 19 on the business of the corporate , to the shareholders can spell troubles for the Directors and officers responsible for the same g. if the corporate fails to disclose the adverse impact of the COVID 19 on the business performance and there is a significant fall in the share prices , the shareholders can file security class action suits against the erring Directors .
- False and misleading statements: In order to boost the share prices, if any company issues false and misleading statements, this can lead to subsequent suits being filed against the Directors taking such decisions. Two such cases have been filed in US and similar cases are expected from Europe, UK, Canada and Australia. In one case a pharmaceutical company claimed falsely of developing a vaccine for COVID 19, leading to a shareholder filing a suit.
- Non- adherence to instructions of authorities: In situations like the enforced lockdown, non adherence to the instructions, affecting the employees, can result into class action suits against the company as well as the Directors. This can also attract civil fines and penalties from the authorities.
- Lack of contingency planning: Robustness of the contingency planning of a company, in the wake of COVID 19 outbreak, will be put to test. Inadequate decisions , lack of preparedness in case of lockdowns , inadequate technology to continue “ business as usual “ can all lead to potential questioning from the employees, investors, clients, following drop in business results .
- Employment practices liability claims: Inability of corporate to take adequate actions for the safety at workplace can result in class action or even individual suits from employees. Even discrimination at work place (e.g. a group of people be asked to report for duties in case of lockdown, if proved to be a case of discrimination without any logic) can lead to employee suits.
Trigger for a claim for security class action under a D&O policy will be an accompanying fall in the share price related to the COVID 19 outbreak, arising out of the negligence specified point 1 & 2 above. However it is yet to be tested how the policies will respond.
In case of unsatisfactory decision making showing the “wrongful acts: as mentioned under point no 4 as above, will certainly trigger claims under D&O policy.
Bodily injuries arising out of COVID 19 outbreak cannot be a part of the D&O policy but the defence costs can be looked at ( depending on policy wording ), if the failure to supervise is proved . Further mental anguish and emotional distress can still lead to claims under a D&O policy.
Claims under EPLI extension of the D&O policy can be triggered (both on directors as well as entities in case of the following: a. mental distress following lack of pro active management of the crisis b. Discrimination if the crisis is managed differently at different places / with different groups. c financial loss
Commercial General liability policy:
Many clients might be wondering whether a claim can be triggered under a “Commercial General liability policy “, following the outbreak of COVID 19. It is pertinent to mention here that Commercial General Liability (or a Public liability policy); being a legal liability policy, the negligence needs to be proved in the court of law. Even if there is a negligence , we need to understand that a CGL policy covers liability arising out of “ bodily injury or property damage “ of third party caused by an “ occurrence “ which has happened in the insured territory and arising of business activity of the insured .
Two aspects which needs to be proved here are
- Is contacting the virus an “occurrence “and has the virus been contacted within the premises or arising out of insured’s business operation?
- Is contacting the virus a “bodily injury “?
Only when the above two aspects can be proved in the court of law and if the policy does not carry a “ communicable disease “ exclusion ( some policies do carry an exclusion for loss caused by action of pathogenic organisms ), the loss under a CGL policy will be tenable .
COVID 19 and its impact on PROPERTY INSURANCE:
World over there have been innumerable debates on whether the property damage policies ( Material damage ) and in particular Business Interruption policies , can come to the rescue of the policy holder and pay for the business losses during the period of shutdown / lockdown . The debates and discussions have finally culminated in the London market issuing an exclusion for loss or damage arising directly or indirectly out of “ Communicable Diseases” with the definition of such disease been mentioned . Indian market has followed suit with all policies now been endorsed with the “Communicable disease exclusion “.
But even if the exclusion did not exist a look at various wording of property policies in India as well as overseas would throw the following interpretations:
- The operative clauses of the Property damage policies (Material damage section) would invariably mention the words “loss or damage arising out of accidental and physical means “. There is no doubt that even if we consider the outbreak of COVID 19 as “ accidental “ , certainly it will NOT cause any physical damage to the assets of the client .
- The above is a pointer to the fact that there would be no admissible loss or damage under the Material damage section, due to outbreak of COVID 19.
- Since there will not be any admissible damages under the material damage section/ policy , there will certainly be no TRIGGERS for a claim under BUSINESS INTERRUPTION POLICIES
It is not that non-damage BI covers are not available. Denial of access to premises following outbreak of infectious diseases within specified radius, is available in various markets. But this is not a cover which is extremely popular and this time all insurers have refused granting this extension. Even this extension will be subject to its own conditions and exclusions.
There are certain important steps required during this stage of lockdown following outbreak of COVID 19, which has a direct impact on the risks insured under property policies:
- Condition 3 b of the SFSP / IAR policies as well as Mega policies( condition number could differ ) , better known as “ Non occupancy condition “ states : Policy will cease to operate if the building insured or containing the insured property becomes unoccupied and so remains for a of more than 30 days.
Since the current lockdown situation might last for more than 30 days, it is very important for every concerned to request insurers for the continuity of cover during this period of non- occupancy.
- Similarly the project insurance policies (CAR and EAR) will carry the following: General Exclusion (d), i.e. “Cessation of work whether total or partial”. Keeping in view the current scenario, steps to be taken immediately to ensure continuity of cover during this period of cessation. In our erstwhile tariff as well in International market ( Refer to Zurich clause ), there are endorsements for “ Work stoppage extension “ , mainly worded to provide a solution to the above exclusion . The present condition will certainly need a relook by the underwriters and provide a solution through this extension.
Major impact of COVID19 will be felt under the Health insurance policies, irrespective of whether it is taken as an individual or group. The regulator has instructed that the hospitalisation benefits under health insurance will cover the expenses incurred towards treatment of COVID19.
Yet another policy which might have an impact would be the “Employee compensation policy “. It is possible that an employee who contacted the disease at workplace might like to lodge a claim with the WC commissioner. The onus of proof that the disease was contacted “within the working premises” and “during the course of business” certainly will be on the employee, but the likelihood of the Commissioner taking a lenient view of the same is high. The policy coverage needs a thorough scrutiny as “ Occupational diseases “ listed out under the WC ACT( Now Employee compensation act ) , Schedule 3 , are often excluded from the EC act policy . It is debatable whether COVID 19 will be treated as an occupational disease and whether the claims will stand the court of the Commissioner, will certainly be a test of time.
Hoping that the situations will ease out soon and all the exposures mentioned above with the possible solutions, remain on paper. But till that time it is relevant that insured, intermediary or insurer, we all need to take the right foot forward, in real earnest
Stay safe, stay indoor, stay healthy