COVID-19 crisis: Broker professional liability risk management
08 April 2020
21 April 2020
Flaxmans, Insurance Claims Advocates
Policyholders do not read their insurance documents at the best of times.
It is only when a claim arises or in this case something unprecedented and threatening to almost every person and entity on the planet, that every sentence, word and comma is minutely examined in the hope of protection when it is most needed.
Regrettably, early examination of a range of policies reveals that very few commercial Business Interruption (BI) insurance policies do extend to indemnify business policyholders for losses arising from the coronavirus pandemic. Those few that do will typically contain other terms and conditions that restrict or eliminate the cover. It will require expert guidance from insurance practitioners with experience in how insurance works to work out where cover exists and where it does not. The answer may not be in the wording of the policy alone.
This is not because the insurance industry is deliberately avoiding the issue. It is because the circumstances of a relatively unknown virus spreading so rapidly across the world has not until now been recognised as a risk requiring insurance protection. There is no equal precedent.
At the time of writing we have also considered policies concerning travel, medical, and event cancellation and it is evident that there is no pattern or standard by which a definitive opinion can be given to anyone about certainty of coverage for losses arising from the pandemic.
The increased risk
Panic breeds panic. The fear of the unknown will cause some people to fight in flight. Clients may call you to demand an answer as to whether there is cover for their situation. Some may make unreasonable demands upon you to confirm an opinion and possibly even threaten legal action.
Do not overreact. A disaffected policyholder has a long journey before being able to prove any fault by an insurer or broker/intermediary.
What do you do and what do you say?
The facts and the unadorned truth are the best friends of a professional adviser in this situation.
- Insurance specifically intended to cover the peril of Covid-19 pandemic did/does not, to the best of our knowledge, exist.
- Insurance specifically intended to cover losses arising from a disease exists in various forms.
- It is a matter, now, of each insurer’s interpretation of its policy and its commercial ap-petite for offering cover under all the circumstances.
- That is a matter for each insurer to determine, on the facts of each policyholder’s claim.
- As a broker/intermediary you are not in a position to confirm, one way or another, how any insurer will determine a claim under the present circumstances. There is no precedent by which you can reasonably be certain of the outcome.
It is understandable that you may want to offer reassurance to valued customers and clients.
Sadly, you can’t, safely, because hindsight will prove that you have no basis upon which to be certain at this time.
Threats and Liability
If you are threatened with legal action or anything else, you should simply make a careful record of the communication and seek to remove yourself from further communication.
Professional Indemnity – Notification
Any threat or claim by whatever form or means does constitute a notifiable circumstance.
It must be presumed the PI insurers will enforce the ordinary claims terms and conditions of the policy and so a notification should be made, promptly.
Insurers will themselves be well aware of the chance of a policyholder succeeding in proving liability of a broker/ intermediary arising from this extraordinary situation.
Whilst common judgement might encourage your firm to think "this is nonsense and we are not taking it seriously" it is definitely advisable, in an abundance of caution, to tell your insurers because we do not know what extraordinary events may ensue in the months to come. Litigation commences when the dust has settled, and you do not want to be caught out without any representation and PI cover.
Flaxmans are internationally recognised specialists in Claims Mediation and Resolution for Commercial and Business sector clients.
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.