COVID-19 and beyond: Considerations for claims handlers

Claims handlers are on the front line, fielding the fallout from the crisis from an insurance perspective. As businesses move to reopen and recover, insurers and insureds alike are still closely considering policy wordings and the scope of relevant cover, and claims handlers are no doubt feeling under pressure. With all lines of insurance business affected by COVID-19 (see our earlier article on the insurance implications) the volume of claims is only likely to increase.

Below we set out some key considerations for claims handlers as they continue to navigate some tricky issues.

Handling coverage issues

Debates about the scope of cover and policy wordings have been raging across all lines and jurisdictions. Claims handlers will be acutely aware of this, and also mindful of the continuing commercial difficulties faced by many policyholders, when assessing cover for potential claims.

Whilst, obviously, the policy wording determines the scope of cover in each case, it is worth highlighting some general points for claims handlers:

• When assessing cover for any BI claim, claims handlers will be aware that this has become a particularly contentious issue and that additional care needs to be taken to understand the implications of the wording in the current environment. Our COVID-19 webinar considered the issues surrounding business interruption (BI) claims triggered by the coronavirus pandemic. Awareness of disputed wordings is important; several group actions have been intimated or begun by disgruntled insureds whose claims have been declined, and the FCA is bringing a test case which seeks to clarify some common wording issues via urgent court action. If claims handlers are dealing with a policy which contains wording similar to one of those being put before the court by others, it would be sensible to discuss the implications with in-house or external counsel.

• In the context of claims arising from the pandemic, the following coverage considerations are worth remembering:

  • Definition of notifiable disease and the wording of exclusion clauses - this may be stating the obvious, but claims handlers need to check the scope of cover and/or any exclusions which are triggered by reference to notifiable diseases, in particular any catch-all provision covering strains or mutant variant of a disease, for example SARS, of which COVID-19 is a strain, or more general exclusions for losses arising from pandemics.
  • Geographical limits to policies - there may be geographical limits to consider, as some policies limit cover to losses caused by an outbreak on the insured premises or within a specified radius or geographical area from the premises.
  • Physical damage - many types of insurance cover are triggered by damage, or physical damage to property. Physical damage is rarely defined in policies, but in general terms damage means an inherent change in physical condition. The presence of COVID-19 at an insured’s premises is unlikely to be considered to be physical damage for the purposes of an insurance policy, but claims handlers should be cautious in coming to any decision.
  • Contamination – whether contamination constitutes damage will be a matter of degree as to whether the physical condition of the property in question has been affected. With limited case law on the matter, care needs to be taken in assessing claims and all decisions recorded, with legal advice sort where it is unclear.

Claim handling and fairness

While claims handlers are of course always mindful of their obligations, the current crisis has placed a spotlight on the insurance industry. Regulators, policyholders and the press are watching closely, and the claims-handling and decision-making process will be subject to even greater scrutiny. When assessing claims, claims handlers should:

• be mindful of an insurer’s duty to pay due regard to the interests of its customers and treat them fairly (Principle 6 (PRIN 2.1.1 R)), and to act honestly, fairly and professionally in accordance with the best interests of their customer (ICOBS 2.5.-1R);
• consider the FCA's expectations that insurers assess cover and settle claims quickly where the insurer has an obligation to pay out, and make appropriate interim payments where there are reasonable grounds to pay part of a claim. Also, the expectations of firms to show flexibility in their treatment of customers;
• not act irrationally, arbitrarily, capriciously, perversely or for an improper purpose when exercising any contractual discretion (known as a Braganza duty). This means ensuring that a proper procedure is followed to reach decisions, taking all relevant factors into account and not acting on the basis of irrelevant factors or ulterior motives;
• always be prepared to justify any decisions made; ensure careful records of decisions in relation to policy cover and the claim itself, and the reasons for those decisions, are kept; and
• be aware of an insurer’s obligation to pay claims within a reasonable period of time, or risk insureds claiming damages for late payment. For a more detailed analysis of this duty, see our recent article.

Privilege

As those on the front line, claims handlers will be aware that their documents or communications may end up before a court if a dispute later arises. Disclosure may include not just the specific underwriting and claims files, but in the current circumstances may include broader discussions about coverage issues within an insurer.

Aside from the more general rule of thumb not to write anything which you would be embarrassed to hear read out in open court, claims handlers may wish to refresh themselves on the rules of privilege. Privilege can protect documents from disclosure down the line, but only in limited circumstances. For a recap, see our webinar, COVID-19: Privilege - practical tips for insurers; this explains the types of privilege and explores how insurers can maintain privilege in the context of policy responses during the COVID-19 crisis and beyond. Some key points to remember:

• Maintain confidentiality and exercise caution on who should be copied into communications and why. Don’t discuss legal advice with anyone not involved in the matter or external third parties.
• Label documents clearly, and remember, just because a document is labelled ‘privileged’, that does not make the communication privileged.
• External advice – Ensure you route everything through your legal team, if you have one. If you receive legal advice do not add your own commentary/notes or forward it unless necessary. Be very careful in preparing documents for the purpose of seeking legal advice where litigation is not reasonably contemplated - just because COVID-19 is likely to result in claims, this is not sufficient. Stick to facts only and do not express an opinion.
• Internal advice - Be aware of communications with in-house lawyers and carefully consider whether it is a commercial or legal issue, and separate communications accordingly. Limit the number of people that receive the advice to those that need to know.

Other issues

Finally, claims handlers will be acutely aware that economic consequences of the pandemic and the resulting shutdown may also change the dynamics of a claim in other ways. For example:

• Claimants or insureds in difficult economic situations may be more open to accepting settlements that might otherwise have been deemed unacceptable. Claims handlers should be alive to such opportunities, whilst keeping in mind their regulatory obligations, as discussed above.
• If insureds find themselves in difficulty, they may become more likely to inflate the value of claims or worse. Insurance fraud might come in many forms, from exaggerated claims through to intentional first party physical damage, or through the fabrication of, or collusion in, a third party claim. Claims handlers will need to be alert to the increased risk.

These are all tricky issues; if in doubt claims handlers should ask in-house legal advisors (if available) or external counsel for advice.

See our coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.