Coronavirus: The Interaction Between a Pandemic and Insurance Coverage, Part Iv

Like almost every other economic sector, the insurance market’s response to the Wuhan Covid-19 virus has had to evolve rapidly to maintain pace with global developments. On Good Friday President Trump weighed into the debate, creating what one financial journalist described as the insurance sector’s ‘uh-oh moment ’; Trump said he “would like to see the insurance companies pay if they need to pay”, also saying that there’s an exclusion for pandemics “in some cases” but “in a lot of cases, I don’t see it.”

Coverage for business interruption (BI) has become the focus of criticism for insurers in the past few weeks, with several interesting legal cases looming already. Yet only a few weeks ago the UK’s insurance trade body(the ABI) stated in guidance that “On valid claims, only a very small number of businesses choose to buy any form of cover that includes business interruption due to a notifiable or infectious disease”. This was reinforced last week by the UK insurance regulatory body, the FCA, in a ‘dear CEO’ letter which stated: “our estimate is that most policies have basic cover, do not cover pandemics and therefore would have no obligation to pay out in relation to the Covid-19 pandemic.”

However, public opinion (perhaps encouraged by sentiment like that expressed so forcefully by President Trump) has hardened against the insurers, as we predicted in our second article on this topic. With the economy in meltdown it is easy to see why; moreover, the insurance market has been here before. Following Hurricane Katrina in 2005, much of New Orleans was flooded; many of the insurance policies in force that covered hurricanes specifically excluded damage caused by flood, leading to widespread cover rejection.

The US Government backed National Flood Insurance Programme (NFIP)instead was designed to cover the flood aspect of any weather loss; however, many policyholders were unaware or had not bought flood cover. Simply because the amounts at stake were so high, many policyholders resorted to litigation and high-profile attacks on insurers to get them to pay. Ultimately the insurance market paid out over $40 billion in claims, with the NFIP paying an additional $16 billion, making Katrina the most expensive insured loss ever. We are beginning to see a similar pattern play out with this pandemic – as the economic impact grows, the search gathers pace for any deep pocket to help pay for the loss.

In our previous blogs, we have explained the reasons why BI cover generally will not respond – this rationale is what is behind the statements above from the FCA and ABI. However, as economic losses mount, many businesses and lawyers are looking much closer at insurance policy wordings to see whether a claim can be made; these investigations are currently focused on three aspects of a typical policy:

What is certain is that losses will be paid to a greater extent than insurers first thought; some welcome recent clarification of UK BI coverage from some firms illustrates possible routes to claim, although no doubt the debate on BI coverage will continue in and out of the courts. Ultimately insurance policy wordings are already adapting and will tighten further to ensure the insurance sector isn’t again caught out by a global pandemic that could cause a systemic solvency-threatening event.

Previous articles in this Series:

Previous Articles in this series can be seen here: Part 1Part 2Part 3.

Prospect Group Webinar on InsuranceCoverage in the Face of Covid-19 Related Claims

Prospect Law is organizing a webinar to cover the business interruption and insurance related issues which have been raised by Mark Tetley in his recent series of articles.

Please let Adam Mikula know at whether you would like to be invited to this.

About the Author

Mark Tetley has wide experience gained from senior positions across the London insurance market as both an underwriter and a broker, in a variety of sectors. He provides advice and assistance on a wide range of insurance and risk issues, including comprehensive nuclear liability and property insurance assistance, complex infrastructure project programme design and review, claims and policy reviews, assistance with project insurance design and implementation in developing countries, and many other aspects of risk mitigation.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on

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