Life, travel and event cancellation insurers closely engage in the rapidly unfolding global development of COVID-19 and prepare for the next few months.
CPB Partner, Helen Tilley, comments on the insurance implications alongside local perspectives from Insuralex network member law firms in Italy, France, Spain and Japan
The 2019 Novel Coronavirus that originated in the Hubei province of China in December 2019, and now named COVID-19 by the World Health Organisation (WHO), presents challenges as well as opportunities to demonstrate the underlying nature, operation and benefits of insurance cover. Currently, policyholders are likely to be showing a greater interest in the terms of their insurance cover, whether this is travel, health, life, business interruption / event-cancellation related or otherwise, in order to establish how their policy could operate in this rapidly evolving context.
The Severe Acute Respiratory Syndrome (SARS) outbreak of 2003 and the Middle East Respiratory Syndrome (MERS) that was first identified in 2012 are recent examples of the Coronavirus family that have provided valuable experience to inform the response to COVID-19 in order to contain the effects on lives, businesses and the global economy.
In response to the unfolding events, some insurers have also devised products and services to seek, in particular, to support key workers such as those delivering essential medical supplies and services.
Protecting against fortuitous events
The underlying principle of insurance is that payment by the insurer shall be in relation to fortuitous events that meet the insurance contract terms. In the unfolding situation this year, there came a point in January 2020 when the circumstances were sufficiently ‘known’ that the unforeseen and fortuitous requirement would no longer be met. For example, in the context of travel insurance the UK insurance industry is tending to treat a date and time during the period 20 January to 25 January 2020 as the point when the then termed “2019 Novel Coronavirus” was a ‘known event’. There would have been some people, with existing travel cover, who arrived in China before then, who may have become ill and whose medical expenses section of their policy could have triggered (subject to pre-existing conditions) as that event would have been unforeseen and unexpected.
The outcome of any claim will depend upon the actual policy wording, and these should always be referred to. Very broadly, where the travel policy cover had already started before the date/time selected by the insurer as the point when there was a ‘known event’ and the ticket/accommodation booking had already been paid then the travel policy is more likely to pay out any loss (after refund or re-schedule requests have been made). Where a package tour holiday comes within the new European Package Travel Directive of 2018, there are obligations on tour operators to offer cancellations or alternative trips for passengers affected.
If the travel insurance cover exists but the travel arrangements were booked after that date/time then losses that may arise subsequently could be foreseeable and therefore outside the ambit of the insurance contract.
Elected decisions to cancel to reduce perceived risk (or to protect business reputation)
Some travel policy customers may wish to cancel a trip due to concerns about perceived greater risk of exposure to the virus if they were to travel. However, if the Foreign and Commonwealth Office (FCO) has not published advice against travel or against ‘all but essential travel’ to that region (which is a common policy contract requirement to trigger cancellation), then the travel policyholder would be likely to be regarded as having chosen not to travel for their own personal reasons. Similarly, a corporate travel policyholder may decide to restrict travel (without there being FCO advice against such travel) with the separate aim to potentially protect business reputation as they may wish to limit the risk of their staff being infected, infecting others or simply becoming stranded in a region.
Therefore, it is sensible for travel policyholders to monitor up-to-date FCO advice on the UK Government website (www.gov.uk/foreign-travel-advice). In late January 2020, the FCO advised against ‘all but essential travel’ to China and this has since been extended so that as of 8 March 2020 the FCO also advised against ‘all but essential travel’ to certain areas of northern Italy and (to varying degrees) parts of South Korea.
Another useful source of information is the European Centre for Disease Prevention and Control (www.ecdc.europa.eu) that publishes a weekly bulletin known as the ECDC Communicable Disease Threats Report (CDTR) for epidemiologists and health professionals on active public health threats (the latest being for the period 1-7 March 2020).
Relevance of the Distinction between Death by Sickness and Accidental Death
Travel policies typically contain a section for Personal Accident insurance cover and these normally include a relatively modest sum assured for ‘accidental death benefit’. However, if the proximate reason for an insured person’s unfortunate death was due to COVID-19 this would likely be regarded as death due to sickness, and therefore not covered under the Personal Accident section, as that situation would not solely be due to accidental death during an insured trip.
The same principle would apply to standalone Personal Accident cover that a person may have taken out for themselves or may have under a Group Scheme arranged by their employer. The general principle is that death by sickness does not have the unforeseen/unexpected element.
A person may have Group Life Assurance as an employee benefit that covers fatalities for a wider range of circumstances, whether this is injury or sickness related, and a person may have taken out their own life assurance policy, for example, to protect their responsibility to pay their mortgage.
In the UK insurance market, death by sickness cover can only be provided by life insurers. Personal Accident insurance (which can provide cover for accidental death) is categorised as general insurance for UK regulatory purposes, whereas life / protection insurance is regulated separately and has a separate tax regime in the UK as long-term insurance business is regarded as needing greater customer protection.
Other regulatory issues can potentially arise as some jurisdictions require that their residents are only insured by local insurers in certain circumstances. However, if issues of regulatory permissions occur a common approach is that insurers should pay if a claim arises during the period of insurance, although it transpires that they were not permitted to provide such cover.
Whereas in the UK a pandemic is not regarded as an ‘accident’ but rather an accumulation of deaths due to sickness, some other jurisdictions regard pandemic as coming within the ambit of their insurance, which can impact upon customer expectations.
Typically, pandemic risks are not within standard insurance cover, but may be available under an extension. Therefore, the terms of the specific policy should be considered. For instance, a ‘communicable disease’ extension to an event cancellation policy could be feasible, but the extension would have needed to have been taken out prior to the outbreak.
The Role of the WHO
On 31 December 2019, the Chinese Government notified the WHO of the outbreak and during January 2020 the developing story appeared increasingly in global news reports. By 30 January 2020, the WHO declared the outbreak of COVID-19 as a public health emergency of international concern.
The WHO’s role is to direct and coordinate international health within the United Nations system. By 12 February 2020, 400 experts and funders had met at the WHO Geneva headquarters. With its focus being on prevention, detection, treatment and mitigation the WHO provides support through technical guidance, materials support and training of health care system personnel. As an example, between its launch on 25 January 2020 and 22 February 2020, about 11,000 African health workers had trained using on-line courses on COVID-19 via the WHO website, as part of the plan to prepare potentially more under-resourced regions.
The WHO has designated pandemic phases numbered 1 to 6, followed by a post peak and post pandemic phase, to enable it to plan and implement appropriate responses where there is an outbreak. As stated above, pandemics are regarded within the insurance industry as an accumulation of deaths by sickness, and the required triggers should be clearly specified in the policy contract.
As of 6 March 2020, the WHO published a situation report on the outbreak, including incidence and an epidemic curve https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200306-sitrep-46-covid-19.pdf?sfvrsn=96b04adf_2
On 2 March 2020, the European Centre for Disease Prevention and Control (ECDC) published its fifth update for its Rapid Risk Assessment. (https://www.ecdc.europa.eu/sites/default/files/documents/RRA-outbreak-novel-coronavirus-disease-2019-increase-transmission-globally-COVID-19.pdf) The ECDC reported at that time that “about 80% of patients have mild to moderate disease (including non-pneumonia and pneumonia cases), 13.8% have severe disease and 6.1%…..respiratory failure, septic shock, and/or multiple organ dysfunction/failure). Individuals at highest risk for severe disease and death are people aged over 60 years of age and those with underlying health conditions such as hypertension, diabetes, cardiovascular disease, chronic respiratory disease and cancer. Disease in children appears to be relatively rare and mild”.
Learning About Transmission and Development Efforts for a Vaccine
Observations are on-going as to how it spreads, whether transmission changes and what protection measures are best, but transmission appears to be mainly via respiratory droplets that people sneeze, cough or exhale. The virus can also survive for several hours on surfaces such as door handles, which has prompted the current hygiene awareness campaign.
By 11 January 2020, whole genome sequences for the virus had been shared by China with the WHO and the research community, so that research on diagnostic kits and a vaccine could be carried out across the globe.
The UK was one of the first countries outside China to have a prototype lab test for the virus. After the SARS outbreak in 2003, Public Health England had developed a series of tests to detect members of the Coronavirus family, and this also enabled the first case of MERS in the UK to be detected in 2012.
However, realistically the development, clinical trials and testing required before the release of a vaccine to the market could take at least a year.
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This information has been prepared by Carter Perry Bailey LLP as a general guide only and does not constitute advice on any s pecific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not as a result of this information, Carter Perry Bailey LLP is a limited liability partnership registered in England and Wales, registered number OC344698 and is authorised and regulated by the Solicitors Regulation Authority. A list of members is available for inspection at the registered office 10 Lloyd’s Avenue, London, EC3N 3AJ.