The sting in COVID-19’s liability tail Insurance law experts warn the coronavirus is likely to leave insurers with a nasty ‘tail dependency’ problem By Miranda Maxwell
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OVID-19 has impacted every industry and state in Australia, and as a result many business continuity plans have been activated. There has been unprecedented government intervention – new legislation, emergency orders and directives – and the stock market has fallen sharply. Many industries have been hit hard, including transport, tourism, events, hospitality, sports, real estate, retail and education. This extreme upheaval, resulting in employee redundancy or stand-downs and disruption to the manufacturing supply chain, will create unique developments across different insurance product classes in Australia. The Insurance Council of Australia has published some general guidelines regarding the likelihood of COVID-19 triggering cover for Business Interruption and Travel in particular. Law firms’ insurance specialists have set up teams to help their insurer clients respond to the virus. “The scale of impact, and its consequences on supplementary business, should not be under-estimated,” Wotton + Kearney says. “There may be a ‘tail dependency’ as seen following other catastrophic events, such as the terrorist attacks of 9/11.” The significant falls on the sharemarket and potential declines in residential and commercial property prices may have implications for valuers and stockbrokers, fund managers and financial planners. Wotton + Kearney gives a stark example of unforeseen exposure: the regulator warning all real estate agents across Australia in writing that they were not licensed to advise tenants about options to access superannuation under government relief schemes. That “highlights the likelihood of new risks emerging for all service providers,” it says. The firm says businesses, particularly those that open their doors to the general public, may find themselves targets of claims that their negligence led to the
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exposure and infection of clients. Lawyers say this might include: • Exposure resulting in bodily injury or property damage • Negligence related to visitors to locations such as offices, day care centres, retail shops, hotels and places of worship • Product liability related to air filtration and recirculation (think aeroplanes and hospitals) • Personal injury involving occurrences such as wrongful eviction or imprisonment • Constitutional claims involving the quarantine or restriction of infected or exposed persons • Negligence or other liability suits against a company or organisation that fails to implement a pandemic contingency plan. The target of such claims might not only be the business but also its general liability insurance and its coverage for bodily injury. Policy exclusions may exist in many cases for claims arising from a pandemic, virus (particularly post-SARS) or bacteria. And some claims are likely to see a reduction. Some insurers are providing credits to their motor insurance customers as a result of them not driving during lockdowns, and New Zealand’s Tower Insurance has reported lower motor claims are comfortably offsetting the cost of its car insurance premium refund program. With empty shopping centres and many retail businesses closed and extra precautions taken around workplace health and safety, there is likely to be a reduction in claims involving “slip and trips”. “The evidence will take time to appear given the longtail nature of the claims,” Wotton + Kearney says. Insolvency will result in senior management conduct being heavily scrutinised by their directors, and it is possible there will be claims alleging a failure to adequately prepare a company for a major economic disruption, contingency planning or effective management of supply chain and labour force risks.
