Coronavirus and Travel Insurance Exclusions: Discussing a Pandemic Claims Response Strategy

Authorities are taking no chances with the coronavirus outbreak. In fact, it seems that only thing spreading faster than coronavirus is the anxiety associated with it.

Airlines are suspending flights and routes, EmTech Asia 2020 has been postponed, Fashion Week Milan has gone online, the Louvre and Tokyo Disneyland have closed their doors and even the Cherry Blossom Festival in Japan has been cancelled. It is inevitable that claims for travel plans disrupted by the outbreak will soar but how will the current policies and insurers cope with the influx? Legal Insight spoke with Jessica Tat, author of Motor Vehicle Law NSW and Elizabeth Esber, who are both Barristers prastising in commercial and insurance litigation, about travel insurance, exclusions and coronavirus (COVID-19).

Challenges posed by the current terminology of exclusion clauses

Exclusions are a standard and necessary part of any insurance policy, defining the limits of coverage for risks an insurer is unwilling to insure. However, exclusions are often phrased in vague terms with few warnings as to when or how the exclusion may be affected. As Jessica and Elizbeth note, these clauses “can be interpreted widely and in varying ways depending on the factual matrix of each claim”. With the status of COVID-19 in almost constant flux, “we are seeing not only new circumstances arising each day but an increase in the number of people affected; and different circumstances in which people might seek to rely on their travel insurance”. As a result, insurers will face significant challenges as:

“[c]laims processes and procedures that may have been appropriate for responding to foreseeable circumstances/claim events may now be under stress because there is a large number of claims and, the facts of each may give rise to unanticipated circumstances such as mass cancellation of events in cities where there are no reported local outbreaks. Stretched resources may result in inconsistent assessment and decision making between claims.”

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The application of pandemic exclusion clauses post-Hayne

The World Health Organisation (WHO) has declared COVID-19 to be a public health emergency of international concern and in the wake of the Hayne Royal Commission, “the application of exclusion clauses [needs to be] informed by a broader claims philosophy and procedure which facilitates efficient, honest and fair determination and claim outcomes” said Jessica and Elizabeth.

“While the WHO declaration may form part of the context in which an insurer assesses a claim, the actual impact will depend on the wording of each policy and how that WHO declaration features in that particular policy, if at all. In addition to interpreting any exclusion terms specific to a pandemic/epidemic event, insurers should also consider whether their policy(ies) contain other general or specific exclusion terms that may impact or inform the construction of the pandemic/epidemic exclusion term that the insurer seeks to rely on”.

Jessica and Elizabeth also point out that it is the consistency in how claims are determined that would “assist insurers with maintaining its level of service to policyholders, as well as in achieving efficiency, honesty and fairness”.

Immediate solutions for determining claims for travel disrupted by COVID-19

Jessica and Elizabeth argue that priority should be given to the establishment of a Pandemic Claims Response Strategy (PCRS) to address:

  • “how undefined terms in the policy are to be defined, including when and how the pandemic exclusion is triggered, ie by travel warnings, an outbreak in the country, a combination of both or some other event;
  • how the policy will apply to those travelling in countries where travel warnings have been issued;
  • how the policy should apply to those travelling in countries that are not the subject of any travel warnings, and
  • how the policy should respond to those that have not yet departed but had taken out the policy before any travel warnings had been issued.”

They suggest that policy terminology and claims handling procedures must be considered in light of the Hayne Royal Commission to prevent travel insurance products being characterised as ‘junk’ insurance.

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Redefining exclusions for future global crises

There is a distinct possibility that virus events such as COVID-19 and SARS could become more common as international travel proliferates and globalisation intensifies. Jessica and Elizabeth contend that insurers must implement “long-term strategies including, the thorough consideration of travel insurance policies as a whole and the re-drafting of relevant terms to reflect the status quo in global travel and the complexity of global events such as COVID-19”. They also stress that the policies “should aim to be transparent on how the exclusions would apply”.

They also advocate for technology to have “a part to play in improving communication between insurers and policyholders … with updates of any travel warnings or WHO declarations that may affect a policyholder’s cover and/or cause any claims to be excluded” to be sent prior to departure.

Ultimately though, Jessica and Elizabeth agree that the decision regarding how exclusions ought to be re-evaluated to prepare for global crises:

“…[Exclusions] should be based on advice from a range of experts, including actuary, legal, risk and compliance, re-insurance managers, claims, and marketing. A multidisciplinary discussion(s) chaired by either the CEO or CFO is necessary to ensure that commercial decisions are as commercially and legally sound as they can be at the time the decision is made given the emerging risks that [outbreaks such as COVID-19 present], to minimise the probability of ramifications later on.”

Both Barristers have published joint papers on the Edmund Barton Chambers website. They include: COVID-19 & Travel Insurance and This event has been cancelled – COVID-19 is in town.

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