Ling Ong, Vice President, London FOIL and Partner, with Weightmans LLP has written exclusively for Emerg-in to examine the issues for insurers arising from the pandemic, she cautions while insurers may have a legal right to refute claims arising from COVID-19, it may come with a reputational cost.
There has been much global speculation about the impact of COVID-19 upon the insurance and reinsurance industry, both in the short and longer term.
The immediate focus has been on the cover for business interruption, travel and contingency losses. This has since expanded to concerns as to how financial lines, D&O and cyber policies would react.
However, the reality is that there is limited cover available for certain classes of insurance. As the UK government has recognised, most businesses in this country would not have purchased insurance that covered pandemic and related losses.
At the same time, the government has also pointedly referred to the Financial Conduct Authority rules which require insurers to handle claims fairly and promptly, provide reasonable guidance to help a policyholder make a claim, and appropriate information on its progress; not reject a claim unreasonably; and settle claims promptly once settlement terms are agreed.
It is also a feature of English law that under section 13A of the Insurance Act 2015, there is an implied term in every contract of insurance that if an insured makes a claim under the contract, the insurer must pay any sums due within a reasonable time (where a reasonable time includes a reasonable time to investigate and assess the claim). A failure to do so renders the insurer exposed to a claim for damages by the insured.
However, even if insurers are justified as a matter of strict policy interpretation to refuse indemnity and do so in a timely manner, this does not prevent reputational damage to the insurers concerned and to the wider industry.
We have all seen the recent media reports of the threat of legal action in the UK against Hiscox by the Hiscox Action Group challenging Hiscox’s decision that their policies do not cover BI losses from COVID-19. London Market carriers with US exposures are also aware of ongoing litigation in various States testing BI coverages, and the increasing trend of US authorities seeking to introduce various legislation to override policy exclusions.
At the same time, there is a limit to what the insurance industry can do which is economically viable in the face of unprecedented circumstances with destructive consequences. There is therefore an increasing debate as to whether a government supported scheme similar to Pool Re may be the appropriate way forward. This will not prevent the risk of litigation and reputational damage to insurers in the short term but may offer a medium / longer term solution to the uncertainties that the industry faces.