Insurers add coronavirus exclusions, while additional coverage options also emerge

Insurers are adding coronavirus-related exclusions in a number of areas such as property, environmental, communicable disease coverage and event cancelation, while some carriers and brokers are also seeing opportunities to add new coverages.

In a report released today, wholesale broker CRC noted that carriers are likely to scrutinise new business submissions more closely the more extensive the Covid-19 outbreak becomes.

In an update looking at how the coronavirus has affected insurance markets so far, the wholesale and specialty broker reported that additional coronavirus exclusions are already “beginning to pop up”, similar to the response after past outbreaks.

But some instances of carriers offering additional coverage related to the outbreak have also emerged.

Property issues

Most property policies are not expected to be triggered by Covid-19 because shutdowns as a result of pandemics do not meet the physical damage trigger requirement in standard property policies, and pandemics are also often specifically excluded.

“However, there may be a property coverage extension available from some markets that includes coverage for business income losses resulting from the enforcement of a law or ordinance by an authorised governmental agency intended to mitigate the spread of communicable disease,” the report said.

This coverage adds a communicable disease trigger to the civil authority coverage extension. CRC said it is generally reserved for clients meeting a certain premium threshold on their all-risk policy and is typically provided with a sub-limit not exceeding $250,000.

“Due to increasing concerns around Covid-19, most carriers are performing internal audits to quantify their exposure to the virus whether extended through the interruption by communicable disease extensions or embedded within manuscript forms”

CRC Group

The broker said many large company carriers’ underwriting authority caps out at around $2.5mn to $5mn for larger entities such as hospitals or casinos.

“Due to increasing concerns around Covid-19, most carriers are performing internal audits to quantify their exposure to the virus whether extended through the interruption by communicable disease extensions or embedded within manuscript forms,” the report said. “Not only are carriers re-examining communicable disease coverages, but they are also taking a close look at other property coverage extensions that do not require a physical damage trigger.”

The report added: “It is not unreasonable to expect a reduction in underwriting authority for these coverages, which will lend itself to additional exclusions or nominal sub-limits intended to act as a defensive cover.”

Insurers are reporting seeing thousands of business interruption (BI) claim notices, many of which are related to supply chain problems. CRC anticipates that BI and contingent business interruption will be the most difficult claims area when it comes to supply chain issues.

“CRC has found that some carriers would no longer offer BI coverage related to coronavirus on recent renewals, other carriers offer time element clauses intended to cover losses caused by lack of access to covered premises due to civil order regarding contagious or infectious disease,” said the report.

The broker added it has also become more common for carriers to provide policy extensions to cover denial of access or BI for schools, hotels, or restaurants.

In addition, the Insurance Services Office has recently released two optional commercial property endorsements to provide limited BI coverage for coronavirus-related losses due to civil authority orders.

Environmental carriers diverging

CRC reported that environmental insurers have diverged in their response to the coronavirus so far, with some looking to exclude it in new quotes and others seeing an opportunity to provide affirmation.

The broker commented that some insureds may be looking to environmental insurance policies to address losses related to the coronavirus.

“Over the last 7-14 days, a few carriers have established that all new environmental quotes issued will contain a virus or coronavirus- specific exclusion or some form of communicable disease exclusion,” the report said.

“On the other hand, some of CRC’s environmental carriers have taken the opposite approach and are viewing this outbreak as an opportunity to provide affirmation of varying degrees of coverage for virus/bacteria by including it in the policy’s definition of microbial matter, pollutant, or pollution condition.”

CRC said some policies may cover bodily injury, property damage and clean-up costs while others may only offer coverage on a sub-limited basis for clean-up costs or disinfection expense.

The potential losses to the environmental market from the coronavirus are unclear at this point.

“While it’s too early to tell how many clean-up or disinfection claims will roll in, the environmental insurance market will likely treat Covid-19 in the same manner as previous outbreaks, including SARS and the Zika virus,” the report said. “Those outbreaks also inspired strong initial market reactions, but actual exposures didn’t materialize to the extent expected.”

Other coronavirus exclusions

Exclusions are also being applied in other areas.

“Recent CRC quotes for communicable disease coverage have found that markets willing to entertain the coverage now specifically exclude Covid-19, and could require very large premiums without specifying limits or deductibles. Some carriers are declining to provide communicable disease quotes at all, even without any mention of coronavirus,” the report said.

“Recent CRC quotes for communicable disease coverage have found that markets willing to entertain the coverage now specifically exclude Covid-19, and could require very large premiums without specifying limits or deductibles”

CRC Group

Insurers are also moving to add coronavirus exclusions to event cancellation insurance and discontinuing coverage offerings for future policies, as travel companies brace for an onslaught of claims resulting from cancelled flights and closed borders.

“It’s likely that carriers won’t include coronavirus language until at least 12 months have passed from the last known issue and care, protocol, and vaccines have been introduced,” the broker said.

CRC reported that specific coronavirus exclusions are also being added to some trade name policies meant to cover business interruption and public relations costs from food contamination issues.

The broker said it is likely that carriers will continue introducing exclusionary language and/or sub-limits related to coronaviruses.

Broadened coverage

However, some broadened coverages have emerged relating to coronavirus. CRC noted that the industry in the past several years has developed proprietary coverages as a competitive advantage as terms and conditions were liberalised.

Some carriers are offering coronavirus expense reimbursement coverage as part of hospital professional liability policies. This includes Liberty Mutual subsidiary Ironshore, which has added expense reimbursement coverage to its suite of event-specific, drop-down coverages.

CRC said this a la carte coverage focuses on reimbursing expenses related to disinfection, purchase of specialised equipment and public relations for coronavirus events confirmed by the Centers for Disease Control and Prevention.

Some carriers, including Liberty Mutual Insurance, are also offering healthcare providers infectious disease BI coverage and clean-up expense.

Customisable indemnity coverages are also being made available that are intended to protect global business operations in the hospitality, travel, education, real estate, and retail food and beverage industries.

For example, Marsh has partnered with Munich Re and Metabiota to create PathogenRX, an integrated pandemic risk quantification and insurance solution that provides financial protection to US-based businesses and their global operations. Marsh said the product was launched to “meet the growing concerns and risks surrounding outbreaks, epidemics, and pandemics”.

Using Metabiota’s Pathogen Sentiment Index, a tool that estimates public fear and behavioral change driven by a pandemic or epidemic, businesses can model their potential financial loss from an outbreak and protect against the chance of loss with an insurance policy underwritten by Munich Re.

Management liability issues

The report also discussed management liability. CRC noted that outbreaks have generally not resulted in substantial D&O litigation in the past, but over the past few years event-driven litigation has become a greater focus.

As this publication has reported, D&O specialists anticipate a number of class action lawsuits resulting from the outbreak, with at least two filed already.

CRC noted another exposure is that a D&O claim could emerge if appropriate business interruption coverage is not in place and there is an economic loss that leads to a plummet in stock prices.

The broker also highlighted a potential D&O issue relating to coronavirus arising from the absolute wording around the bodily injury exclusion wording in policies.

“Insureds should attempt to have the language amended to the less strict ‘for’ wording and try to include the security claim carve back,” the report said. “It might also be beneficial to have the security claim carve back wording included in the pollution exclusion as well.” CRC added that insureds should also consider obtaining Side A DIC coverage, which usually does not include pollution or BIPD exclusions and should drop down to primary coverage when the primary will not cover claims.

The report concluded by noting: “The Covid-19 outbreak provides a prime example for how complicated insurance can be.”