Insurance - updated on Mar 18 at 12:54 pm
CORONAVIRUS AND INSURANCE
Insurance policies must be carefully analyzed. D&O insurance (directors and officers liability), insurance for events, professional liability insurance, credit insurance, travel insurance and cyber insurance can be an important instrument of protection in the current scenario involving the consequences of COVID-19, depending on the terms and conditions of the policy.
In general, business interruption coverage (loss of profits) and guarantee insurance (performance) do not apply to pandemic situations. The same may happen with life insurance in case of death coverage. In any situation, depending on the lack of clarity in the wording of the policies, discussions may arise within the scope of the policies.
Regardless of the discussions, the adoption of (i) measures of contractual management by the insured is fundamental, so that insurers are promptly and properly informed about facts that may cause a covered claim; and (ii) measures that mitigate the risk, considering that the aggravation of the risk may be result in the loss of the right to receive the insurance amount.
In addition, it is necessary to pay attention in the purchasing of new policies because there is a tendency of the market to insert clauses containing exclusion for COVID-19, both in insurance policies and in reinsurance contracts.
Please see below the main lines of insurance policies with the greatest impact related to COVID-19.
D&O (Directors and Officers Liability Insurance)
The main coverage is to guarantee the civil liability of the directors and officers for damages caused to third parties as a result of negligent acts performed in the exercise of their functions.
The performance of the directors and officers in relation to preventive actions or compliance with regulations in the context of COVID-19, certainly, may give rise to an increase in demands involving their civil liability and, consequently, the claims will increase in the D&O context.
In addition, D&O policies usually have coverage for crisis management and advertising expenses.
Insurance policies for events usually have the nature of civil liability insurance, with coverage for damages caused by who promotes the event. There are other types of coverage related to several risks such as cancellations to guarantee advertising expenses, space rental, contracting of providers, which may be triggered, depending on the terms and conditions of the policy.
Professional Liability Insurance
Professional liability insurance guarantees professional liability for damages caused to third parties as a result of negligent acts performed in the exercise of their professional functions.
Telecommunications, media, education and health professionals are more exposed to questioning, given the speed with which the information from COVID-19 arrives and the extension to which behaviors towards society and customers must be adopted.
Coverage for business interruption guarantees the payment of loss of profits. However, the majority of the policies only covers business interruption related to an event that causes material damage to the insured establishment/property.
Therefore, business interruption related to COVID-19 will probably be considered an excluded risk, although there may be different interpretation depending on the terms and conditions of each policy.
Credit insurance guarantees the company's cash flow against default by its clients. Policies usually establish a definition of default and insolvency.
The economic crisis arising from COVID-19 and the risk of default and insolvency could impact on the credit insurance claims and raise discussions regarding coverage.
Guarantee Insurance (Performance)
Many companies are already facing difficulties in fulfilling their obligations and contracts. The guarantee insurance (performance), as a rule, covers the fulfillment of obligations assumed by the debtor (policyholder) under a guaranteed contract signed with the creditor (insured).
Because of the regulatory rules dealing with the matter, policies contain exclusion for acts of God and force majeure. However, considering that the doctrine and the jurisprudence vary on the subject, we understand that discussions will also arise in this line of insurance.
Most companies are adopting remote work measures in face of COVID-19, increasing exposure to cyber risks, which promotes the cyber risk insurance industry. It is an opportunity to the sector to sell cyber insurance policies.
Travel cancellations and health problems are usually covered by travel insurance.
Regarding cancellation coverage, policies usually cover the insured person's impediment to start the trip due to illness, accident or death, of the insured himself or a member of his family. Once the trip has started, the insured's first visit to a hospital is usually covered, with specific exclusions for pandemics.
Life policies usually cover events related to the death of the insured regardless of the cause, but many of them contain express exclusion for pandemics declared by competent bodies, as is the case with COVID-19.