Coronavirus and insurance coverage
February 27, 2020
Dear Sir or Madam,
Many companies are asking themselves whether they are insured against the coronavirus and its consequences or how they can insure themselves against it. In the following, we have attempted to provide generally applicable answers to these questions and have classified them according to the various insurance sectors.
First of all, all employees in Germany are insured through statutory or private health insurance in the event of an infection or after the outbreak of the virus. International travel health insurance provides separate protection for all employees posted abroad by the company, which may be supplemented by additional assistance services, such as organized return transport to the home country – provided that official travel restrictions do not prevent this.
Coverage of business interruptions due to infectious diseases is generally excluded. Preceding material damage due to a contractually insured risk is a prerequisite for the payment of compensation from business interruption insurance. For interruption damage that arises, for example, from the failure of deliveries or supply services, the supplier or supply company must also have property damage that is insured through the policyholder's own property policy.
Exhibition insurance, which protects, for example, a trade fair stand, also only pays for material damage to the insured object.
Event cancellation insurance
Should an event, such as a trade fair, be cancelled, interrupted, aborted, postponed or relocated for reasons beyond the control and influence of the event promoter, the organizers and/or the participants, the insurer would bear the resulting financial damage. This damage could also include additional costs arising due to the fact that the event takes place but had to be postponed or relocated. From what we currently know, all event cancellation insurance now offered should exclude
Business closure insurance
Business closure insurance covers damage incurred by a company as a result of measures or-dered by authorities based on the Infection Protection Act (Infektionsschutzgesetz), such as the closure or disinfection of the business. Compensation for a business closure is calculated on the basis of profit and costs, similar to business interruption insurance. Companies in the food indus-try, restaurants and hospitals often have this type of insurance cover. Currently, no coverage for the coronavirus is most probably offered in this sector either.
Liability insurance presupposes personal injury or property damage or a named financial loss. Cover would be conceivable here, for example, if people become infected with the virus at work because the company had neglected to take precautionary measures. In all other regards, there are hardly any cases in which liability insurance could be used.
D&O insurance would provide cover if management errors in connection with the virus result in financial damage to the company. There are many conceivable constellations in this regard, such as the inadequate structuring of supply contracts with Chinese companies.
In isolated cases, reinsurers and the London insurance market also offered cover for sales and profit slumps due to pandemics. The premiums for this, however, were extremely high and insu-rance coverage was severely limited since damage that could result from a pandemic would be too large to be borne by individual insurers. For example, WHO level-5 and level-6 pandemics were excluded. At this point in time, insurance can no longer be taken out in connection with the corona-virus.
Emergency planning and legal contract reviews
Ultimately, it is recommended that all companies develop an emergency plan for the possible out-break of a pandemic. This emergency plan should include measures to minimize employees' risk of infection and to maintain production or other operational activities in the event of loss of parts of the workforce.
Furthermore, the customer and supplier contracts should be checked for clauses on "force majeure": Such clauses may include the temporary exemption from delivery, service or payment deadlines. In addition, switching to other suppliers should be considered, especially if the existing suppliers are based in China.
We hope that we have been able to provide you with a general overview of the above-mentioned subject, which, however, does not claim to be complete due to the abundance of different insur-ance products and market information.
Should you have further questions, your in-house and sales contacts will be happy to help.
LEUE & NILL
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