The declaration, by decree approved by the Council of Ministers, of a state of emergency in response to the health crisis caused by the coronavirus, places us in a new situation in which the Government may adopt exceptional measures aimed at curbing the spread of the epidemic and restoring normality, bearing in mind also that Organic Law 4/1981 of 1 June on States of Alarm, Exception and Siege provides for the right of citizens to be compensated for any damage or loss suffered as a result of acts for which they are not responsible (Art. 3).
This scenario, which is the least severe of those provided for in the Act, places the insurance sector in exceptional circumstances with regard to compliance with the terms of the various insurance policies we may have taken out.
Below, we will provide a brief overview of how the current health situation might affect the various insurance policies we have taken out, whether for individuals or businesses.
Undoubtedly, the first category to mention is health insurance, taken out either privately or collectively through companies and associations. Having consulted the main insurers with whom we collaborate in this sector (SANITAS, DKV, ADESLAS, MAPFRE and AXA), we have confirmed that, to date, they are providing healthcare relating to Covid-19 in accordance with the guidelines issued by the public health authorities and the protocols established by the Ministry of Health for such cases. In this regard, they are providing medical care to those exhibiting symptoms of a possible infection and referring those confirmed to have the virus to the public health service, in accordance with the aforementioned protocols.
Generally speaking, declared epidemics are classified as catastrophic risks in insurance contracts and, as such, are usually excluded from cover under the policies. In this regard, we do not believe that the insurance sector should be seen as ‘washing its hands’ of the matter, as it complies with the provisions of our legal system and its activities are regulated by the Directorate-General for Insurance; rather, providing cover for such extraordinary circumstances is practically impossible (or prohibitively expensive) from an actuarial point of view.
At this point, the concept of force majeure is relevant. The Civil Code (Article 1105) provides, in relation to the performance of obligations and contracts, that unless otherwise provided for by law or by the obligation itself, “no one shall be liable for events that could not have been foreseen” (fortuitous event) or, “even if foreseen, were unavoidable” (force majeure). Now that a state of emergency has been declared as a result of the epidemic, we must keep a close eye on how insurers (but also policyholders themselves) interpret this concept of force majeure in practice, in terms of whether they fulfil or fail to fulfil their obligations – whether in full, in part, or temporarily.
Thus, in the case of travel assistance insurance – whether taken out as a standalone policy or as a supplement to other types of insurance (car, boat, home, funeral, health, etc.) – cover is provided for medical assistance in the event of illness, medical repatriation or repatriation following a death, extended stays, early return due to hospitalisation or the death of a family member, cancellation due to extraordinary circumstances, etc. , the provision of which could also be affected by the spread of the virus. As regards healthcare cover, we understand that this will be provided on terms similar to those set out above. As regards the other guarantees, we are not aware of any specific exclusions and, although they will also be affected by the health protocols mentioned, claims will be handled on the grounds of force majeure, given the current circumstances.
In term life insurance policies, among the extraordinary events that are excluded (so that they are covered by the Insurance Compensation Consortium under the special clause on Extraordinary Risks, which we will discuss later), there is no mention of epidemic diseases; therefore, the provision covering death from any cause would not be affected. In this regard, the insurance industry association (UNESPA) stated in its press release of 12 March that health, life and medical insurance services are being provided as normal to date.
En el caso de los seguros de subsidio por Incapacidad Laboral Transitoria y por hospitalización sí se prevé expresamente la exclusión de la cobertura en caso de epidemias oficialmente declaradas.
To conclude this first section, personal insurance policies (including health and travel insurance, life insurance and the aforementioned temporary incapacity insurance, amongst others) include the Compensation Clause for losses arising from extraordinary events covered by the Insurance Compensation Consortium. This clause essentially covers natural phenomena, violent disturbances of public order and actions by the Armed Forces and law enforcement agencies in peacetime, but not epidemics.
Among the risks excluded from cover under that clause are those “losses which, due to their scale and severity, are classified by the national government as a national disaster or calamity”. It should be emphasised that, since the Consortium was established, no such event has yet occurred, despite the fact that there have already been major incidents resulting in extremely high losses. It is therefore necessary to refer to the specific terms of each type of insurance policy regarding epidemic diseases, which, as we have seen, may or may not be covered depending on the policy.
Furthermore, amongst the types of insurance taken out primarily by businesses, we will now look at loss of profits (loss of earnings or consequential loss), contingency cover (event cancellation), civil and professional liability, directors’ and officers’ liability (D&O), and cyber risks.
Cover for loss of profits is normally included in comprehensive insurance policies as a supplementary cover to other forms of damage cover, including comprehensive cover for physical damage; consequently, it does not apply in cases where business operations are suspended due to epidemics or government orders.
Generally speaking, event cancellation policies provide cover in the event of the non-attendance of key personnel (artists, DJs, speakers, etc.) or due to any unforeseen circumstance not expressly excluded in the contract, such as cancellations ordered by the authorities due to epidemics of any kind. However, cancellation cover in the event of health alerts could have been specifically arranged in advance of the risk being identified (as in the case of the Mobile World Congress in Barcelona) with a specialist insurer or through a Lloyd’s underwriting agency.
With regard to policies that, in various contexts, cover the liability of the company and its directors, we find specific exclusions in the operational and professional liability provisions relating to the spread or transmission of infectious diseases, although with some nuances: in certain cases, reference is made exclusively to specific diseases and their variants (Creutzfeldt-Jakob disease, HIV), whilst in others, it refers to any virus or infectious disease. This factor could be relevant in relation to certain decisions taken by the employer concerning customers and, above all, employees. In this regard, D&O policies (directors’ and officers’ liability insurance) provide cover for legal defence and representation costs in relation to proceedings arising from any breach of health and safety regulations, infringement of workers’ fundamental rights or unfair dismissal, amongst other circumstances relating to the workplace, as well as other crisis management and reputational costs that may apply.
Some insurance policies also offer additional cover relating to cyber privacy and data protection, in addition to specific cyber risk insurance policies, which have become increasingly popular recently. A large number of companies have had to adapt their production processes at breakneck speed to introduce remote working or home working arrangements for their staff. It is advisable to check as soon as possible that the procedures adopted comply with the necessary security standards for the implementation of this type of guarantee.
Finally, quite apart from the specific provisions of insurance contracts, and other economic, employment, legal and tax considerations that must be taken into account, I am convinced that the insurance industry will not remain untouched by the great wave of social responsibility and solidarity that drives our society in the most adverse circumstances, as has already been demonstrated on other occasions. The example set by healthcare workers, transport operators, other businesses, the self-employed and members of the public, all working together for the common good, should make us feel a sense of responsibility, but also give us cause for optimism, regarding the ultimate outcome of this massive effort to combat the virus and the shift in thinking that the emergence of this ‘black swan’ (Taleb) will bring about, leading to greater awareness of risk management.
For reliable information on the pandemic, we recommend the following page from the World Health Organisation (WHO): https://www.who.int/es/home
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