The COVID-19 pandemic presented many challenges to the global insurance industry, most notably with regards to coverage under business interruption (BI) policies, which saw a substantial upsurge in claims. In contrast, liability lines of insurance were often not affected as severely as anticipated.
The articles in the July 2023 special issue of The Geneva Papers on Risk and Insurance, edited by Ina Ebert, Michael Faure and Ernst Karner, analyse the scale and outcomes of BI and personal injury lawsuits related to COVID-19 and explore how future pandemics, and particularly BI risk, can be re/insured.
Disputes over pandemic-related business interruption
In Distant relations: business interruption insurance and business closure insurance, Ulrich Stahl compares BI insurance in the U.K. and business closure (BC) insurance in Germany as well as the outcome of court battles between policyholders and insurers in the two countries during the COVID-19 pandemic. Though these types of insurance may seem similar and are aimed at largely identical risk scenarios, the article highlights some fundamental differences – while traditional BI cover is essentially based on property risk, the BC insurance offered on the German market is based on contingency risk. The judicial response in the two countries was also markedly different, with policyholders winning the legal battle in the U.K. and losing it in Germany, primarily due to interpretations of the concept of causation.
The article by Piotr Tereszkiewicz, Business interruption insurance as a means of spreading pandemic-related losses, examines the ways in which BI disputes were handled in various jurisdictions. In the U.K., disputes proceeded fairly quickly and solutions proved to be relatively uniform. In the U.S., hundreds of lawsuits and class actions have been brought against insurers with very little success. The differences in insurance law between the two countries – national in the U.K. vs decentralised in the U.S. – mean that the legal systems have handled pandemic-related disputes in different ways, with policyholders in the U.K. seemingly at an advantage with regards to clarity as to the legal situation of their claims and the availability of compensation.
COVID-19 and personal injury litigation
David Howarth explores the reasons behind the lack of cases of tort liability for causing COVID-19 in England in English tort law and the pandemic: the dog that has not barked. The article concludes that the absence of personal injury cases involving COVID-19 transmission is most likely due to the difficulties claimants would face in showing factual causation. The virus is easily transmissible and could be passed on by people with no symptoms. Several people could also contribute to a concentration of the virus in a particular location. All of this makes it hard to prove in which exact setting, and by which particular person, transmission took place.
COVID-19 off-label uses of medicines: the role of civil liability and regulation, by Andrea Parziale, assesses the extent to which the off-label use of medicines – the prescription of authorised medicines for indications for which they have not been tested or regulated – for COVID-19 has resulted in personal injury litigation. Despite issues being reported in the literature, the article finds that these have not resulted in any substantial litigation to date. In the U.S., this is attributed to wide liability immunities. In the EU, it may be due to the limited role played by civil liability in relation to off-label uses, which the article explains only generally applies in the most blatant cases, for example when prescription was not necessary or lacked scientific rationale or when treatment was continued despite the occurrence of a suspected adverse reaction.
In What is the potential of compensation funds for addressing COVID-related personal injury?, Jonas Knetsch and Kim Watts analyse ways to compensate injury such as long-term illness, disability and death due to COVID-19. They assess the potential of compensation funds and compare their benefits against those offered by tort law, private insurance and social security. Major advantages of the former are their flexibility and adaptability, which allow the state to control the scope, funding, operation and subrogation policy of the fund. This ‘tailor-made’ nature is in contrast to that of more traditional loss-shifting systems such as insurance and tort law.
Re/insuring future pandemics
In Reinsuring pandemics: the role of government and public–private partnerships between reinsurers and governments, Senara Eggleton and Özlem Gürses investigate the important question of how pandemic losses can be made insurable, focusing on reinsurance and government support. They propose a public-private partnership that would both increase policyholders’ faith in the insurance industry’s ability to underwrite pandemic-related BI claims and reduce reliance on ex post government aid.
The possibilities and limits of insurance as governance in insuring pandemics by Qihao He, Michael Faure and Chengwei Liu examines the role of private insurance in insuring and governing pandemic risks. ‘Insurance as governance’ refers to efforts on the part of insurers to influence the behaviour of insureds to mitigate risks and reduce losses. The article argues that, in the case of pandemics, insurers have limited possibilities to do so, and that traditional tools such as risk-based pricing are also difficult to apply. Given that the losses caused by pandemics outweigh the capacities of insurers, the paper proposes a multi-layered approach in which, in addition to re/insurance, governments take on the role as reinsurer of last resort.
André Schmitt and Sandrine Spaeter explore how the financial capacities of re/insurers can be increased for pandemic-induced BI via public–private cooperation in Providing pandemic business interruption coverage with double trigger cat bonds. They propose double-triggered cat bonds, which would come into effect following the declaration of a Public Health Emergency of National Concern by the World Health Organization. The payout of the bond would then be based on the estimated BI losses of a particular industry in a given country. Such bonds would therefore need to be both country and sector specific.
Access the issue at SpringerLink (subscription required): https://link.springer.com/journal/41288/volumes-and-issues/48-3