Canadian Underwriter

What could happen when carriers disagree over commercial property pandemic exclusions

August 31, 2020   by Greg Meckbach

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With commercial insurers adding pandemic exclusions to property and business interruption, it can be difficult to place a risk with multiple insurers unless they agree on what that exclusion should look like, a Quebec broker suggests.

Some clients, especially during hard market conditions, need multiple carriers to insure their property on a quota share or subscription basis, because no insurer wants to take on the entire risk.

At the same time, commercial insurers started adding pandemic exclusions to property and business interruption coverage after the World Health Organization declared COVID-19 a pandemic this past March, reported Alexis Tertulliani, vice president of commercial insurance and risk management at Sorel-Tracy-based Lussier Dale Parizeau, in an interview Monday.

Within weeks of that declaration, pretty much every new commercial property and BI policy had a pandemic exclusion, while exclusions were added to existing policies on renewal, Tertulliani observed.

But in a quota share or subscription placement, if one of the insurers does not like the wording of the lead carrier’s pandemic exclusion – and is therefore unable to participate – then the brokerage faces a capacity shortage for its clients, said Tertulliani.

“There is still some controversy going on [regarding pandemic exclusion wording],” he said. “That is leading to complications when we have to make quota share placements, whereby some insurers will not be able to participate because they are not satisfied with the exclusion or with the wording related to the pandemic that the lead [insurer] has put on. I think that is early days. I think there are some clear and concise exclusions that are going to be adopted in the market to allow multiple insurers to participate on one risk, but there some growing pains going on there.”

Tertulliani was asked by Canadian Underwriter whether he is noticing any major changes in terms and conditions in commercial lines when insurers are renewing commercial policies.

Many business interruption policies that were placed or renewed before COVID-19 started to spread did not have pandemic exclusions, nor did they specifically stipulate that coverage includes pandemic, said Tertulliani. “The consensus among insurers is that the policy as it was, was never written to, intended to, or provide coverage for business interruption [during a pandemic].”

Several class-action lawsuits have been filed against insurers in Canada on behalf of businesses that had to shut down or severely curtail their operations as a result of the pandemic.

Different BI policies have different wordings.

Generally, business interruption coverage disputes arising from the pandemic can be grouped into two types of policy wording, said Eric Charleston, a Toronto-based associate with Miller Thomson LLP, in an earlier interview. One type requires there to be damage to property, while the other type relates to coverage grants that are tied to decisions by civil or government or public authority related to business closure.

Feature image via Khuankaew


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