A New London Market Insurance Endorsement on Communicable Diseases
Spurred by COVID-19, the Lloyd’s Market Association developed a new insurance endorsement linking communicable disease exclusion to World Health Organization declaration of public health emergency. The endorsement is for use only for marine and energy liability, though it could provide a model for other sectors.
The Joint Liability Committee (JLC) of the Lloyd’s Market Association has heard criticisms and concerns regarding many previously published communicable disease exclusion (CDE) clauses, including what some see as potentially excessive exclusionary language. In response, the committee has published a new endorsement, JL2021-014: “Endorsement excluding a communicable disease following a public health emergency of international concern (PHEIC).”
This new endorsement is designed for use only for marine liability and energy liability insurance contracts. It appears to strike a more balanced approach than many other clauses that insurers are using.
New exclusion based on WHO declaration
The new endorsement limits the application of any communicable disease exclusion to an outbreak of a disease that the World Health Organization (WHO) declares to be a PHEIC. That would include a pandemic, when so declared. This standard should reduce the scope of many of the wide-ranging endorsements that the insurance market has produced, which had seemed to exclude cover for many infectious-disease-related losses.
The new endorsement would apply to losses directly resulting from the COVID-19 pandemic, which WHO declared a PHEIC on March 11, 2020. At the same time, it should limit the application of any exclusion to those diseases of a similar nature and virulence as COVID-19 that the WHO declares to be a PHEIC.
The definition of “communicable disease” in the new endorsement doesn’t limit the scope to named viruses; however, it still includes the terms “bacterium” and “parasites” that had been seen in earlier exclusion endorsements produced by the market. But as medical professionals can typically combat outbreaks of bacteriological or parasitic diseases with drugs, such as antibiotics, it is therefore less likely that bacteriological or parasitically carried diseases would warrant the WHO declaring a PHEIC.
Endorsement language aims to provide clarity
The scope of the exclusion only extends as far as “loss, damage, liability, cost or expense directly arising from any transmission or alleged transmission of such a disease that the WHO declares to be a PHEIC.”
Many previously published market clauses extended the exclusionary language to encompass less legally certain terms such as “contributed to by,” and “concurrently with.” The level of contribution or concurrence that would be required to trigger such wide exclusionary language has not been adequately defined, so the restriction of the exclusion to only those losses directly arising from such an outbreak will help to provide clarity.
There is a business reason for insurers to restrict cover for global pandemics, such as COVID-19, that hold the possibility of extreme, aggregated losses that are not easy to quantify and difficult to charge commensurate premiums for. The new endorsement, JL2021-014, shows the insurance market adopting a measured and understandable position that limits the scope of such exclusions.
When any market committee produces new clauses and/or endorsements, there is no market-wide mandate to use them. Some insurers may decline to adopt JL2021-014 and instead require the wider scope of previously published clauses and endorsements. As of this writing, the new endorsement has been issued for marine liability and energy liability business. As with other standard wordings, however, insurers in other sectors may follow the lead of the JLC and adopt this or similar language.
If you have questions regarding JL2021-014 or related matters, please reach out to your Marsh advisor.