On 3 April 2020 SCGM Inc., an American cinema chain, filed a claim in Texas against certain underwriters at Lloyd's in response to the underwriters' refusal to provide coverage for COVID-19 losses. The complaint relates to a "Pandemic Event Endorsement" which the Plaintiff alleges was marketed specifically to insure against "pathogen-related business interruption events". The Plaintiff asserts that Lloyd's sought to capitalise on the exclusions insurers added in to their wordings following the outbreak of Ebola and other diseases by selling the Pandemic Event Endorsement to plug gaps in cover created by those exclusions.
The Plaintiff purchased the Pandemic Event Endorsement with a limit of $1 million. The relevant parts of the Endorsement say that cover is provided:
- If there is an announcement by a Public Health Authority that a specific Covered Location is being closed as a result of an Epidemic declared by the CDC or WHO.
- For an "epidemic" to occur there must have been an occurrence of a "covered disease".
- A "covered disease" is defined by reference to a specific list of "pathogens, their mutations, or variations", one of which is "Severe Acute Respiratory Syndrome-associated Coronavirus (SARS-CoV) disease".
The Plaintiff notified insurers of losses arising out of COVID-19 following the declaration by the WHO on 11 March 2020 that the current outbreak was a pandemic. In addition there were a variety of measures imposed by various authorities seeking to limit and respond to the spread of the disease culminating in the prohibition of gatherings of groups of 10 or more people.
The Lloyd's agent responded to the notification saying that there is no cover because COVID-19 is not a named disease on the Endorsement.
Lloyd's have not formally declined the claim. However, the Plaintiff alleges that the statement from the Lloyd's agent clearly shows insurers have no intention of covering the claim and issued the complaint in response. The Plaintiff is asking the Court to confirm that the cover under the Endorsement responds to the claim. In order to do so the Court must find that the SARS-CoV-2 pathogen is a "Covered Disease" in circumstances where COVID-19 is not listed, but SARS (or its mutations or variations) is.
The complaint sets out the origins of "the first identified strain of the SARS coronavirus (“SARS-CoV” a/k/a “SARS-CoV-1”)" before turning to the current "variation (and/or mutation) of the coronavirus strain". The Plaintiffs explain that the body responsible for officially classifying viruses has formally recognised COVID-19 as a variation of SARS and has classified it as "severe acute respiratory syndrome coronavirus 2 (SARS CoV-2)."
This case is of interest to all policyholders who have business interruption cover for infectious diseases defined by reference to SARS. We recommend that all policyholders review their wordings to check: (i) whether they have insurance for losses arising from infectious and/or notifiable diseases; and (ii) how diseases are defined within the insurance policy.
We are assisting a number of businesses across a wide range of industries by reviewing their policies to see whether cover is available for business interruption losses arising out of COVID-19. The above argument is one of a number that we are advising on. Please contact us if you would like assistance in understanding whether the insurance you have purchased may respond to the losses being incurred by your business as a result of COVID-19 and the Government ordered shutdown.
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