What does the UK COVID-19 Inquiry mean for insurance companies and policyholders?

The insurance industry typically has a significant role to play in public inquiries, and in this article we consider this from the perspective of insurance companies and policyholders.

The Rt Hon Baroness Heather Hallett DBE has been appointed Chair of the upcoming UK COVID-19 Inquiry (“the Inquiry”) and we currently await publication of the Terms of Reference, which will determine the scope of the investigation. Insurance companies have already seen the impact of the pandemic and will likely want to have their voices heard at the Inquiry. Likewise, policyholders considering participation, and especially those who are compelled, will no doubt be wondering about coverage of 'regulatory investigation costs' or similar.

Insurance companies

The insurance sector has been involved in varying capacities over the course of the pandemic, including life insurance, critical illness, and travel, to name a few. However the highest value pay-outs were for business interruptions (BI) claims. UK businesses suffered significant losses due to the pandemic, resulting in a wave of claims under BI policies. In January 2021, the Supreme Court substantially allowed the FCA’s appeal on behalf of policyholders for many different policy types. As a result, insurers paid out millions to companies hit hardest by the pandemic. It is clear that insurers have been at the centre of the pandemic response and will, in all probability wish to engage with the Inquiry.

For example, the Inquiry may address the following:

• Was there enough guidance and support offered to insurers?
• What long term impact, following the FCA test case and other pay-outs, will that have on the insurance market?
• Was there an over-reliance on insurance companies to shield the economy?
• Did the reinsurance industry pay their fair share?
• What is the knock-on effect of any Inquiry findings in terms of future claims/losses?

Whilst we await the official Terms of Reference, we can only make an educated assessment as to how the Inquiry will be structured¹. However, due to the sheer number of potential Core Participants in the insurance sector alone, it is likely that the Inquiry will seek a representative body or association to represent the sector. For example, the Association for British Insurers and the British Insurance Brokers’ Association would be well placed to represent their respective corners of the UK insurance market.

Policyholders

Policyholders often look to insurers to fund costs associated with participating in a public inquiry. This is more likely where the inquiry’s findings may lead to regulatory enforcement, civil litigation or criminal proceedings. Cover is much more likely to be provided where a business has been required to give evidence or is invited to apply for Core Participant status. Policyholders who are interested in participating in the Inquiry should be reviewing their current coverage for any indication that funding could be provided in some capacity by their insurer, or indeed where there might be a gap.

Participating in the Inquiry is not risk-free for businesses. Many companies who played a role in the UK Government’s response to the pandemic may be asked to account for certain alleged failings which may have resulted in harm. For example, businesses that supplied goods such as personal protective equipment (PPE) could be called to give evidence, with potentially serious implications for the companies themselves and their directors and officers. We may yet see a flurry of civil claims or inquest proceedings. The Inquiry will undoubtedly be high-profile in nature and reported on extensively by the media. As a result, the potential financial and reputational consequences of giving evidence should not be overlooked.

Policyholders should also consider whether they might benefit from participating in the Inquiry, regardless of policy coverage. The Inquiry will be an opportunity for businesses to:

• access Inquiry documents and evidence;
• respond to evidence presented by the Inquiry;
• influence lessons to be learned and other procedural aspects of the Inquiry;
• advocate for themselves and their interests; and
• access an advance copy of the Inquiry findings.

Lifting restrictions

On 24 February 2022 COVID-19 restrictions were lifted in England, about one month earlier than those in Scotland which will remain until 21 March. We would highlight the tensions between managing economic needs and wider public health considerations with the current scientific advice the Government has – this is not an easy balancing act. At this time, policyholders should still be considering their exposure to COVID-19 related risks, especially relating to vulnerable employees and the public. It is worth remembering that health and safety legislation still requires employers/business owners to do everything reasonably practicable to provide a safe workplace or public place of business. Lifting of restrictions does not remove or change these duties. We are still operating in the context of a transition period, where COVID-19 infections resulting in serious illness or death remain a risk. We may eventually come to a position where serious risk to health is not so much of a threat.

Although there is no longer a legal requirement to self-isolate in England, Government guidance continues to advise that anyone who tests positive should stay at home for five days or until they receive two negative test results on consecutive days. This guidance will remain in place until 1 April 2022. Employers who do not follow this guidance will likely increase their liability for negligence claims. This means that existing workplace policies, such as working from home, sanitising workstations, ensuring adequate ventilation and even face coverings in some environments should be carefully considered. To be safe, employers and businesses providing services to the public should consider maintaining or adapting their policies/procedures with regards to health risks.

Next steps

Although crucial details about the Inquiry have yet to be published, insurance companies can anticipate involvement one way or another, whether it be as a Core Participant or covering inquiry costs under a policy. For policyholders, now is the time to decide whether to get involved in the Inquiry as a Core Participant and to check current policy coverage as part of general preparations. Businesses should continue to be vigilant with their internal COVID-19 policies in the coming months. Although COVID-19 transmissions can be difficult to prove definitively, exposing employees/the public to unnecessary risk could open businesses and their insurers up to liability. Employers and business owners should not lose sight of their obligations in an attempt to ‘get back to normal’. What we do know is that any failures – past, present and future – are likely to be examined by the Inquiry.

¹How will the UK COVID-19 Inquiry be structured? (shoosmiths.co.uk)