Covid experience shows importance of insurance policy small print
Due to this unpredicted, horrendously impactful pandemic climate, owners of commercial industries of all sizes and shapes may be spending more time scrutinising their business interruption and commercial general liability insurance policies planning for coverage relief.
Such financial recourse depends upon the initial insurance contract’s defined coverage – with of course, the primary concern being whether a disaster (peril) is covered or excluded.
Generally, no matter the type of insurance policy, they all share four basic elements:
1, Who is it for? Identification, location of property or person insured, name of the policyholder.
2, What is it and what does it cover? It is a legal agreement (contract), a promise to pay for losses based upon perils covered, either specifically named, or open where the policy covers any perils except those excluded. Perils under insurance descriptions are considered events (mishaps) and the list is quite long: lightening, hurricanes, theft, fire, water damage, etc.
3, What it not covered? The exclusions – possibly the most important of the four elements as the more definitive the number of exclusions, the clearer understanding of the agreement coverage.
4, What are the conditions of performance? Both the insurer and insured have rights and duties that are contract-defined for performance.
The policy contract between the insurer and insured – must clearly define in unambiguous terms all conditions, protections, exclusions, responsibilities, obligations, and more.
Insurance contract language can be difficult to wade through, although the industry has streamlined verbiage and processes in the digital age as a necessary evolution for happy customers, efficiency and to mitigate litigation.
Words have various meanings and so do legal interpretations
Needless to say, the Covid global business impact has been unprecedented in length and devastating to cash flows, both to family households and commerce. Business owners requesting monetary relief from their insurer may have been denied coverage due to possible coverage gaps where a standard commercial general liability or business interruption policy may contain more restrictions / exclusions than realised - such that the insured may interpret the contract differently from the insurer and other reasons.
In the United States, reports from various sectors, litigators, court proceedings, plaintiffs, insurance companies, etc, indicate coverage issues litigation relative to the Covid pandemic are on the upswing.
According to Kelsey Dilday and James J. Leonard, Barnes & Thornburg LLP, The Pandemic versus the Policyholder: Covid-19 and Business Interruption Coverage Claims as at October 15, 2021, hundreds of lawsuits had been filed by policyholders, seeking breach of contract damages, arguing that their insurance policies provided coverage for business interruption losses and other extra expenses associated with a Covid-19 outbreak on the premises (and related sanitation costs) for which their insurers wrongfully denied coverage.
Approximately 500 of these lawsuits have been decided in nearly every state across the United States. Unfortunately for policyholders, the trend courts have endorsed – and particularly so in federal courts – is that the insurers’ interpretation of their policies are generally correct.
Thus, judgements have been rendered against the plaintiff, thus held for the insurer, or in the words of the Bermudian legal system, the insurer “had no case to answer”.
Some policyholders have prevailed on various policy interpretations too numerous to mention within the scope of Moneywise. The full articles below are worth reviewing, if only for better understanding of how insurance policies perform under adverse circumstances, becoming clearer only as time passes and much reflection is imposed.
Perils, exclusions, conditions
Time to review your business and personal policies – to understand completely (without ambiguity) what these interesting words literally defined mean under unanticipated scenarios and coverage excluded.
There are those reading this now who are thinking, luckily, we do (did) not have that problem. That’s fine, but it is well worth keeping in mind that there is risk in everything in life.
We do have the means to anticipate the probability of aftermath recourse to manage as much of it as we can.
That is what insurance is for.
Disclosure: the author has no direct or indirect association to any insurance company or product, aside from as an ordinary consumer the general household insurance of property, vehicle, health, etc.
Below is an excerpt from Held Captive: A History of International Insurance in Bermuda by Catherine R Duffy, AIG Country Head, Bermuda
1940s – Captive emerge as offshore insurance management vehicles
“Long before the world at large even knew that the word captive had a special meaning in terms of the insurance industry, the oil companies were already using the captive technique to consolidate their global insurance. The structure of these deals would form the basis of a concept that was about to catapult into the worldwide insurance arena, ultimately putting Bermuda firmly once and for all on the map of international insurance. The origins of this concept were developed first by Standard Oil of New Jersey and then by Shell.
“Ancon, Standard Oil’s (SO) first captive – though not originally labelled as such – became a strategy developed to set aside reserves against future losses. The concept of captives offshore was purposed to insure SO’s tanker fleet during WWII – given that commercial insurers at that time had declined to provide coverage.
“Royal Dutch/Shell group followed with captives formed offshore, including Bermuda, to consolidate, enhance management of pension fund investments of a growing global expatriate workforce without the limitations imposed by local country’s regulatory authorities.
“Clear benefits of forming a captive included cash retention within the company group, utilising purchasing power on insurance markets, and controlling risk management to improve safety practices, an issue that was/is critically important in the oil industry. Bermuda was favourable due to working conditions, easy communication, political stability, and the island’s unique location between Europe and North America.”
“The Pandemic vs. the Policyholder: COVID-19 and Business Interruption Coverage Claims”, Policyholder Protection Blog, Barnes & Thornburg LLP, https://tinyurl.com/4w745cnc
“Mind the Gap: Coverage Gaps Created by Commercial General Liability Policies”, Policyholder Protection Blog, Barnes & Thornburg LLP, https://tinyurl.com/b9py23b4
• Martha Harris Myron, a native Bermudian with US connections, is a qualified international cross-border financial planner, the author of The Bermuda Islander Financial Planning Primers, a Google News Contributor since 2016, international financial consultant to the Olderhood Group Bermuda Ltd., and financial columnist to The Royal Gazette. All proceeds from these articles are donated by The Royal Gazette to the Salvation Army, Bermuda. Contact: firstname.lastname@example.org