Novel Coronavirus ("Covid-19") and its potential implications for Business Interruption Insurers
In the context of the novel coronavirus dominating international news headlines, RPC Partners Antony Sassi and Mark Errington, consider some key insurance issues with respect to the potential application of notifiable disease and supply chain extensions to standard business interruption insurance policies.
Antony Sassi represented the successful respondent insurers in the leading insurance case that arose in Hong Kong in connection with SARS; New World Harbourview Hotel Co. Ltd & Ors v ACE Insurance Ltd & Ors (2012) 15 HKCFAR 120, a landmark judgment of the Hong Kong Court of Final Appeal. New World is the leading common law authority on the trigger for infectious disease extensions in business interruption policies.
In the New World case, several key points were confirmed by the five judges of the Hong Kong Court of Final Appeal in their unanimous judgment in favour of insurers. In particular:
- business interruption insurance provides an indemnity for losses arising from specific insured perils, with cover triggered according to the wording of the insuring clause and extensions in the policy.
- common law courts (for example, in Hong Kong and Singapore) interpret insurance contracts in the same manner that they interpret commercial contracts – giving effect to a contractual provision according to the words used in the context of the policy as a whole, so as to make sense of a particular provision.
- “Notifiable human contagious or infectious disease” meant an infectious or contagious disease which was required by law to be notified to the relevant authorities.
- SARS became a “notifiable disease” within the terms of the relevant policies when it was gazetted as such under the Prevention and Control of Disease Ordinance (Cap 599) (the “Ordinance”), even though the first incidence of the disease occurred some six weeks before that date. It was only after SARS was added to the 1st Schedule of the Ordinance that there was a mandatory requirement to notify.
- the position would have been different for diseases which were already statutorily notifiable under the Ordinance, where cover would have been triggered as soon as there was an incident.
- as cover was not retrospective, losses arising from SARS were only covered once it officially became a notifiable disease in Hong Kong, at which point it became an insured peril and triggered the policy.
- the calculation of standard revenue under the policies should include the (downward) effect that a notifiable disease (in that case SARS) had upon the revenue of a business prior to the date upon which it became a notifiable disease.
- business interruption cover is not “profit guarantee” insurance.