An Insurance Risk perspective
Although the first quarter of 2020 is yet to conclude, already Australia has been beset by historic bushfires and devastating flooding. With the immediate impact of these natural emergencies now subsiding, the planet is now on the cusp of what many consider may be a pandemic, on account of Coronavirus (also known as COVID-19).
With more than 100,000 confirmed cases worldwide as at the date of this publication, and countless more undiagnosed infections, panic has already started to unsettle business confidence and undermine economic stability. While the personal plight of those infected lies in the hands of skilled medical professionals, in many instances, the economic plight of business lies in the hands of skilled risk professionals including insurers, brokers and legal advisors.
There are certainly many steps available to businesses to triage their future risk, with the emergence of new underwriting products and policies. However, for existing or imminent risk, the focus must be on current insurance programs in order to combat the economic effects of Coronavirus. Existing policies which may offer some relief to business include:
- Liquidated Damages Insurance (LDI) – LDI may provide relief to construction businesses, if they are unable to deliver a project on time due to the consequential effects of Coronavirus. Although the relief is limited to liquidated damages under relevant construction contracts, LDI may help if there has been a late delivery of building materials due to manufacturing or shipping delays, or if the workforce is unable access a site. In the Australian insurance market, LDI may be an extension to a wider insurance program;
- Supply Chain Insurance – supply chain insurance may provide cover to businesses who suffer a loss due to disruption or delay in the receipt of products, components, or services from a supplier. In the context of Coronavirus, this may help Australian businesses expecting a disruption to production, or reduction in gross earnings due to delays caused by the recent closure of Chinese factories, or other supply chain problems;
- Business Interruption Insurance – contingent (rather than direct) business interruption cover may offer relief for losses caused by a pandemic, particularly where there has been a very serious (or even catastrophic) impact. For example, tourism and transport operators may see interruption due to government intervention, while even construction, mining and project work may see interruptions to which policies respond; and
- Directors and Officers (D&O) Insurance – Although D&O insurance does not offer immediate relief, if tough or difficult business decisions are required during a pandemic or other disaster, or where decisions are made about market disclosures, it may assist in regulatory investigations, and prosecutions, or complaints by aggrieved shareholders.
As with many physical ailments, early treatment for economic distress (and examination of available insurances) is prudent. Further, it is important to recognise that every policy will adopt a different wording and may or may not provide protection against the effects of a pandemic. To this end, if your business is experiencing economic distress on account of any natural disaster, or Coronavirus, please consult your legal professionals.
This article was written by Andrew Cheetham, Partner and Craig McIver, Special Counsel.