Coronavirus: insurance liability as UK returns to work

Depending on the nature of the business, companies will have a range of insurance products including employer's liability insurance, property and business interruption insurance, directors' and officers' (D&O) cover and cancellation insurance. Wider third party liability covers may also be applicable.

Businesses must ensure that they are still complying with existing policy terms and conditions, and that insurers are notified of changes in risks or significant changes to working practices where necessary. Brokers can help businesses navigate communications with insurers.

There have been discussions in the insurance market about government-backed pandemic insurance, and a group of insurers have proposed a task force to consider the issues involved. While this will be of limited assistance to businesses returning to work in the short term, it will be worth keeping an eye on how this develops and on how relevant guidance from the UK Financial Conduct Authority (FCA) could be used by businesses to maximise value from their insurance assets.

Employer's liability insurance

The 1969 Employer's Liability (Compulsory) Insurance Act and associated regulations require every employer carrying on business in Great Britain to insure against liability for "bodily injury or disease" sustained by its employees where that arises in the course of that individual's employment. Disease is not defined in the Act, but is likely to include the risk of an employee contracting Covid-19.

An employer which fails to insure in accordance with the Act is guilty of a criminal offence. Although it is unlikely that insurers will look to exclude Covid-19 from this compulsory form of insurance, employers should check the terms of their employer's liability (EL) policies carefully as failure to insure in accordance with the Act is a criminal offence.

Businesses requiring their employees to return to work will need to ensure that they have conducted appropriate risk assessments to identify and manage risks appropriately: see our Out-Law guide to operational UK health and safety. Failure to do so could mean that employers are at risk of a recovery claim from their insurers, as the regulations allow for rights of recourse by EL insurers where the employer has breached its duties to its employees or failed to comply with its statutory duties, including its duties to protect against the risk of contracting Covid-19.

For risks arising from decisions taken around workforce planning and return to work policies, employers will also want to check that those making those decisions are covered by D&O insurance. See our Out-Law analysis: directors' liability and insurance claims.

Property and business interruption insurance

Business interruption (BI) insurance covers loss of revenue in circumstances where the business is forced to close. The majority of these policies only cover losses arising from property damage, such as from a fire or flood, but there are some which offer limited cover for notifiable diseases or forced government closure.

It has been reported that most of these policies do not appear to respond to losses connected with Covid-19. However, businesses should keep a close eye on developments in this area, as the FCA plans to issue court proceedings seeking clarification on whether certain types of policy do in fact respond to these losses. Several policyholders have also said publicly that they are seeking collective redress.

Where a business has or intends to repurpose or change the nature of its operations, it should check its property or BI insurance to see whether it needs to notify insurers of a change in risk. Failure to do so could lead to restrictions on cover, or limit the amounts that can be recovered under the policy.

Where access to business premises is required as part of the terms of a policy, the FCA expects insurers to take account of a customer's temporary change in how they access those premises and to treat their customers fairly. The FCA has made it clear that it does not expect insurers to void policies or reduce potential claims as a result. The policyholder should still ensure that it makes all relevant notifications to its insurers of changes in the use of its business premises, but this should not affect the scope and validity of the cover.

Notifications and other ongoing duties to insurers

Insurance is a contract of good faith, and businesses have an ongoing duty to notify insurers of any changes to their risk profile. This could include changes to workforce practices and plans for social distancing. When in doubt, businesses should check with their brokers what changes should be notified to their insurers. Insurers may be entitled to impose new policy terms or charge a higher premium, depending on the terms of the contract.

If a business has suffered loss and wishes to make a claim, collating the necessary evidence to support that claim early on will be a good idea. A formal claim under the policy will require formal engagement with, and consideration of that claim by, the insurer.

Mid-term policy adjustments

Insurers may seek to make mid-term adjustments to policies to reflect the changing risks associated with both lockdown and the return to work.

The FCA has made it clear that any insurer making mid-term adjustments should consider:

• whether there is a written term in the contract that states the insurer is able to make the change that it wants to make;
• whether the term that the insurer intends to rely on to enable it to make mid-term adjustments is fair and transparent under the 2015 Consumer Rights Act (or, where relevant, the 1999 Unfair Terms in Consumer Contracts Regulations);
• whether the insurer is applying the term properly in accordance with the contract, including compliance with any notice period set out in the contract;
• whether due regard has been given to the interests of the policyholder and the FCA requirement to treat customers fairly (FCA Principle 6), as well as the information needs of the policyholder and the requirement on the insurer to communicate information in a way that is clear, fair and not misleading (FCA Principle 7).

Policy renewals

Businesses will want to assess the adequacy and relevance of their insurance portfolio when it comes to renewal. Many policies, such as cancellation insurance, are likely to include Covid-19 exclusions on renewal.

Larger businesses with brokers may also want to review their suite of policies to identify whether all are still needed. For example, corporate travel insurance might be procured on a more limited basis while 'key man' insurance, which insurers against the risk of absence of a key revenue-generating employee, may come to the fore, if such a policy can be procured in the market without a Covid-19 exclusion.