Thu | Oct 21, 2021

Clarifications on Cedric Stephens article

Published:Tuesday | April 6, 2021 | 12:05 AM


I was gratified to learn of The Gleaner columnist Cedric Stephens high regard for my qualifications and experience. Stephens accuses me of ‘not having done my homework’ in his article published in The Gleaner of March 26 on business interruption (BI) losses arising from the COVID-19 pandemic. He correctly supposes I was misquoted by the reporter, but I would like to focus on the substantive issues he raises.

Stephens refers to a test case brought in the United Kingdom (UK) by the Financial Conduct Authority (FCA) to determine whether 21 sample wordings taken from BI policies issued by eight insurers covered pandemic losses.

The case went initially to the High Court of England and Wales and thereafter to the Supreme Court, where the final decision was handed down in favour of the FCA. Stephens also referred to two American cases; the first, where the court ruled in favour of an individual policyholder with a specific insurance contract, and the second which found that a virus exclusion does not preclude a policyholder from seeking business interruption insurance arising from an infectious disease.

Your columnist, however, did not explain that much depends on the actual policy wordings of the insurance contracts in question, as well as the details of various extensions granted. Although standard BI policies cover losses arising from physical damage caused by named perils, such as fire and windstorm, they can, and have, been extended to cover non-damage causes in other jurisdictions.

The FCA case considered three types of wordings: Disease wordings (losses caused by an identifiable disease); prevention of access and public authority wordings (losses caused by denial of access to the business due to government requirements because of a disease); and hybrid clauses (relating to restrictions imposed on a particular premises with regard to an identifiable disease). The court decision, therefore, was specific to these wordings only.

Although I am not privy to all BI policy wordings in use here in Jamaica, the practice has been for our policies to cover losses arising from physical damage to buildings or stock caused by named perils as explained above, and do not extend to losses arising from non-damage events, such as the pandemic. Local BI policies also contain specific infectious disease exclusions.

It may well be that the insurance market, both regionally and internationally, will have to consider risk transfer solutions for BI losses arising from an infectious disease going forward. One of the major hurdles is how to price such risks. This, however, is a question for the future and cannot be applied to insurance contracts already in force and constrained by existing policy wordings.

I trust this clarifies the situation.


Managing Director

General Accident Insurance (Jamaica) Limited