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Published 4 May 2020
Insurance against Damages and Loss of Profit
One of the risks for the Damages and Loss of Profit insurance policies would be if the contamination caused by coronavirus is considered as Material Damage. In the same way, it should be studied if the exclusion of contamination typically included in these policies – especially Property ones – could be applied. The other exclusion often found in the Property policies is the one regarding non-coverage of damages caused by any kind of “…bacteria or virus”. In our opinion, this exclusion would generally be easier to apply.
Also, it would be necessary to have in mind the cases of the insured that, without actually having contaminated employees, decided to paralyse their activities as a preventive measure. Can the prevention of damages be extended to these decisions as well? What happens if certain economic activity is paralysed even though nobody is infected?
Civil Liability Insurance
Please note that the Declaration of State of Alarm or of Constitutional State of Exception lead to a series of unprecedented measures in the region, among which we emphasize those adopted in some countries such as: (i) limitation of free movement of people, with certain exceptions; (ii) possibility of temporary seizing of all kinds of property, as well as intervention and occupation of industries, factories, workshops, farms or shops of any kind; (iii) suspension of opening to public of retail shops and premises and of any public event, sport and leisure facilities; or (iv) suspension of opening to public of all hotels and similar accommodation facilities.
The impact of these measures will certainly affect the commercial relations and there will be many situations where one of the parties will not be able to meet its contractual obligations timely and properly. The Force Majeure and Act of Government clauses become especially relevant in this situation.
The question is what is the scope of coverage of the contractual civil liability – that does not surpass the laws - as many wordings sustain? Should there be a difference between the coverage of cases of force majeure, specific exclusions, consequences of acts of government.
Employer’s Civil Liability Insurance
It is a reality that more and more people become infected every day and some of them die due to the fact that they have to work in this crisis: doctors and other health workers, police officers, judges and prosecutors, judicial administration personnel, journalists, employees of penitentiary institutions and many others that provide essential services or travel to their workplaces as they cannot telework.
In these cases, becoming infected could also be a consequence of their journey to work or of not being provided with proper means of protection. In most of our legal systems, the employer is bound to adopt all necessary and efficient measures to protect the worker’s safety.
On the other hand, there is a significant number of employees that telework from their homes under conditions that greatly differ from the ones they have in their offices, bureaus or work centres. This can imply their exposure to other unforeseen risks, such as workplace, posture during work, resources and means they have in their homes, etc.
Certainly, these risks will have impact upon the employer’s civil liability, so the insured should be advised to undertake measures necessary for better protection of their employees’ health in order to mitigate the risks.
Pure Property Damages
The voluntary or government decisions of paralyzing certain activities, applying mandatory quarantines, suspending massive events and meetings and so on may have a potential economic impact on the insured that is not due to material damage, but to lack of commercial activity.
In this type of cases it is particularly important to verify whether the policies include coverage of Pure Property Damages or Pure Economic Loss, and in case they do, to be beware of possible exclusions of contractual civil liability usually included on our markets.
As in all the cases we are reviewing, if the decision is made by an act of government, we should check if there is an exclusion related to such circumstance that would exempt the insurer from his liability.
As for the civil liability of directors and officers, the first claim related to COVID-19 already became a reality. It is a class action lodged before the Pennsylvania Court against a CEO of a pharmaceutical company who declared to the public media that his company has developed a vaccine against coronavirus and that they are expecting to start clinical trials this summer. The lawsuit sets out that the value of company’s shares grew exponentially after the CEO’s TV appearance. However, shortly afterwards an independent report confirmed that the reality was far different from his statements, which caused the fall of company’s shares of more than 70% and the corresponding lawsuit.
This example could be replicated in other areas of business and the company managements could be object of claims for malpractice, damages, and/or causal relation between the two, such as in hospitals and clinics, tourist cruisers, airlines, etc.
One of the risks inherent to the generalised telework is the cybernetic risk, as the police authorities in many LatAm countries have already warned.
The cybernetic incidents include two relevant risks: the breach of systems’ security and therefore possible loss of personal data, and the risk of business interruption. Both risks are well worthy of companies’ attention, but a possible business interruption caused by a cyberattack is especially important as right now it could lead to a deterioration of companies’ economic situations.
In this case, the most relevant coverage of cyber risks in the policies would be the First Response and Business Interruption.
Insurance in Health Area
The actual COVID-19 pandemic situation could lead to an impossibility or delay in the patient attention and the suspension of previously established treatments, both concerning people infected by the virus and other medical or surgery patients, such as a possible increase of interventions, lack of additional tests, errors in diagnostics, premature discharges, lack of coordination between different assistance levels, etc.
In short, we believe that any new reclamation due to current situation in health assistance, apart from the one concerning other areas of attention (social-health assistance), is a likely scenario for damages claims during this crisis. However, we insist, the very nature of this exceptional situation limits the responsibility of the insured, and the policies (in general) expressly exclude the responsibility that can be derived from extraordinary events such as a pandemic.
Finally, there are attempts of certain governments to retroactively alter the conditions of health insurance policies to the benefit of the insured, something that should be closely monitored.
Life and Accident Insurance
In general, the life insurance policies exclude the epidemic diseases, so a death due to COVID-19 would not be covered. However, the accident policies do not have exclusions regarding epidemic diseases.
The absence of such exclusion could lead the accident insurance beneficiaries to claim damages in case of insured person’s death due to coronavirus, qualifying it as accident.
In view of that, we recommend you to analyse the applicable regulations and determine whether such situation could be considered a work accident for the purposes of collecting the insurance. Nevertheless, if an employee proves that he/she was infected during work, as for example, a health worker that attends to corona virus positive patients, this will be regarded as an occupational disease for all purposes.
Beyond any doubt, tourism has been severely affected by the COVID-19 crisis: cancellation of flights and trips, repatriations, quarantines, confinements in hotels and cruisers.
The coverage and the exclusions should be carefully analysed, with especial attention to the measures adopted by the insured in order to mitigate the damages or prevent them, and the rationality and proportionality of such measures.
One of the major risks mentioned in the public media from the beginning of this health crisis is the cancellation of all kinds of events. The cancellation insurance is normally formulated as “all risk”, covering certain economic losses (such as sold tickets, travel reservations, publicity, costs of assembling and disassembling, etc.) for the insured (normally the event organiser) caused by risks that not expressly included, provided that it is beyond the control of the insured (and sometimes also of certain participants in the event), and that, in case it takes place in the covered period, it inevitably leads to cancellation, abandonment, postponing or relocating of such event.
Although each individual policy should be analysed, the most relevant issues we should review in order to verify the coverage are generally the following: (i) cancellation, abandoning, postponement, interruption, etc. of the event must be “necessary”, and therefore, beyond control of the insured; (ii) the event must be unrealisable on the planned date or location, or during the planned period, due to causes that cannot be attributed to the insured and that are beyond his control; (iii) the mere decision of an organiser to cancel an event, as cautious as it may be, will always be a potential reason to consider the non-covering of the claim, as long as the decision is made by the insured and not due to a circumstance beyond its control – such as an event of force majeure; (iv) any cancellation, abandonment, postponing, interruption and similar of an event must be due only to a cause that is not excluded from the coverage.
Please contact us if you are interested in any of the issues analysed in this document and you wish to receive a more detailed information on specific aspects within jurisdictions covered by DACB (Mexico, Brazil, Colombia, Peru, Argentina, Chile).
Santiago de Chile
+56 2 2207 4455
+1 (305) 341 2266
Juan Diego Arango
Martín Argañaraz Luque
Sascha Stullenberg, Andrés Amunátegui Echeverría