The impact of Covid-19 on Italy’s insurance sector: business interruption and personal accident covers

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Anthony Perotto
NCTM, Milan
anthony.perotto@nctm.it

Valentina Barba 
NCTM, Milan
v.barba@nctm.it

Davide Totaro
NCTM, Milan
d.totaro@nctm.it

Italy was one of the very first countries to experience the full extent of the economic and social impact of Covid-19 pandemic. The Italian insurance market has not been left unaffected.

In order to respond to the crisis, the Italian government adopted several provisions which affected the insurance sector – directly or indirectly. Other provisions were issued by the Italian Insurance Authority (IVASS) with regard to insurance undertakings and intermediaries, including recommendations to make efforts to ensure that insurance business continues to run smoothly and in the interests of insureds.

The main issues at the centre of insurance market’s focus are business interruption (BI) cover, and the nature of the Covid-19 infection for the purposes of life and personal accident insurance.

Business interruption coverage

Among the most significant impacts of the pandemic and of the resulting governmental quarantine measures, the interruption of business stands out as one of the most threatening for Italian enterprises. This was mainly due to the enforcement of lockdown measures in March 2020, which either introduced restrictions or forced business activity to shut down. Enterprises have, obviously, suffered a significant loss in profits.

However, despite a first attempt by some insurance companies to assist their insureds by granting a special extension of coverage or offering ad hoc products, no specific measures appear to have been undertaken to tackle the issue. As in most of the rest of the world, the key issue has been whether such losses could be indemnified on the basis of the existing business interruption policies (or business interruption extensions) already offered in the Italian insurance market.

In this regard, it must be noted that, despite the fact that the business interruption is considered by Italian enterprises the most feared risk in 2020,^[1] this feeling does not translate in practice. Indeed, according to a search by the Association of Italian Brokers (AIBA), only three per cent of Italian small and medium-sized enterprises (SMEs) appear to have purchased some form of business interruption coverage.^[2]

Furthermore, BI coverage is usually not offered as a standalone product, but it sold as an ancillary part of property and casualty or alternatively all-risks policies.

As a result, in the vast majority of cases, coverage is only triggered only if the interruption of business is the result of a ‘direct physical loss or damage’ to the insured property, that is physical damage businesses interruption.

While it is not impossible to have a business interruption policy independent from any physical damage (ie, non-damage business interruption), this type of coverage is all but common in the Italian market, and especially among SMEs.

Due to the limited economic relevance of the distribution of BI coverage, the debate in Italy on whether the loss of profits caused by Covid-19 pandemic is covered under this policy was relatively limited overall and has not been entirely tested at this stage.

On general terms, it appears that Italian BI coverage does not usually include any specific exclusions for losses caused by pandemic events. In light of this, the general position is that ascertaining whether a loss of profit relating to the Covid-19 outbreak is covered under a BI coverage depends (like in many other countries) on the wording of the specific policy in question and on its actual interpretation.

As seen above, Italian BI policies only tend to provide coverage when the business interruption losses are caused by a physical damage/loss to the insured property.

In practice, this means that Covid-19 pandemic, as it will not often cause physical damage to the insured property, will not be considered as an insured event and, therefore, will not trigger coverage. This also means that, under the majority of Italian BI policies, insurers are likely to be entitled to decline coverage for the business interruption losses caused by the Covid-19 pandemic.

This same conclusion must be reached, even in case of presence of the so-called ‘Civil Authority Order clause’. This clause, which is specifically meant to cover the circumstance of interruption of business caused by factum principis, usually does not deviate from the aforementioned requirement of physical damage. In fact, even if the insured event is indeed the interruption of business caused by a Civil Authority Order, in most policies’ wording the adoption of such provisions will be required, in order to trigger the coverage, to be motivated by the occurrence of an event of physical damage to the insured premises or to adjoining properties or areas.

Coverage should frequently not be available, especially where no outbreaks occurred at the insured property affected by the lockdown measures, which is generally the case.

Having said that, it remains to be seen whether court decisions over coverage disputes may somehow change the picture, also considering the contra proferentem principle embodied in Italian Insurance Law, which may help insured-oriented interpretations of policy clauses.

Are death or injury due to Covid-19 infection covered under a personal accident policy (polizza infortunio)?

The spread of the Covid-19 pandemic has also presented some unique issues for Italian personal accident policies (polizza infortunio).

One of the main points of debate in the Italian insurance sector is in particular, whether the Covid-19 infection constitutes an accident (infortunio) rather than a disease. The answer has a significant impact on personal accident policies, which do not normally provide coverage for death or personal injury due to sickness or disease.

The debate within the insurance market was sparked by Article 42 of Law Decree no 18 of 17 March2020 (the so-called Decreto Cura Italia),one of the several pieces of emergency legislation in the wake of the initial outbreak. This law was, in essence, concerned with certain employment-related aspects of the pandemic and, in particular, with compulsory insurance coverage for employee accidents provided by the National Institute for Insurance against Accidents at Work (INAIL). In practice, for the purposes of such employee’s protection, the above emergency legislation qualified Covid-19 infection of an employee as an ‘accident’, or infortunio, in the Italian.

Such qualification by Article 42, therefore, sparked discussions as to whether – for the purposes of standard private personal accident policies (polizza infortunio) – Covid-19 infection is to be considered an ‘accident’ rather than a ‘disease’, so that death or injuries caused by Covid-19 infection would be covered under such policies. The debate comprised two opposing positions:

• according to a first approach, the reference to an ‘accident’ (infortunio) on a polizza infortunio must be interpreted in accordance with Article 42 and, therefore, including Covid-19 infections. Under this interpretation, any policy covering death or injury due to an ‘accident’ would automatically include cover for death or injury due to Covid-19 infection, subject to exclusion or other clear/explicit policy wording to the contrary; or
• according to a second approach, Article 42 cannot and should not be applied beyond the system of INAIL employee’s cover (and its indirect impact on employer’s liability), so that Covid-19 infection would not be an ‘accident’ but rather a ‘disease’ for the purposes of a ‘private’ polizza infortunio, considering also that usually the definition of ‘accident’ (infortunio) in those policies is at odd with infections.

Under the first approach, any ‘private’ polizza infortunio would normally cover death or injury due Covid-19 infection, whereas under the second, it would not.

As of today, none of the above indicated position has been upheld, either in court or by the Italian Insurance Authority (IVASS).  Nevertheless, this debate has crossed the boundaries of the Italian insurance sector and it has acquired quite a national echo, as many medical professionals that have contracted Covid-19 infection while working within hospitals, but that are not covered by INAIL, have been denied coverage by the insurers of their own polizze infortunio precisely on the basis that Covid-19 is not an accident/infortunio. Due to this situation, many medical associations have publicly and strongly supported the position that Covid-19 is, or should be treated as, an infortunio for policy purposes. On the other hand, reputed insurance law experts and scholars have taken the opposite stance.

To date, no public position has been taken either by the Italian government, the Italian Regulator (IVASS), or the Italian association of Insurers (ANIA).

The debate remains open and, due to the relevance of interests at stake, it may become more intense in the months to come, as disputes make it to court.

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