Analysis of LMA5395

About LMA5395

Drafted by the Lloyd’s Market Association (LMA) and released in April 2020, LMA5395 is a coronavirus exclusion for use on marine and energy liability policies.

The LMA5395 exclusion: clause 1

Broadly, clause 1 of LMA5395 excludes loss, damage and liability arising from the transmission (actual or alleged) of:

a) COVID-19;

b) SARS-CoV-2; or

c) any mutation of variation of SARS-CoV-2; or

d) any fear or threat of a), b) or c).

By excluding loss, damage and liability arising from the transmission of COVID-19, the drafters of LMA5395 appear to have misunderstood that it is a pathogen which is transmitted, not a disease. Technically, a ‘disease’ is a condition that negatively affects an organism and the condition will only develop after the pathogen has been transmitted. Given that the virus which causes COVID-19, SARS-CoV-2, has been excluded, this misunderstanding may not be material to the exclusion’s operation. But it is preferable that exclusions are consistent with science and, for disease exclusions, epidemiology.

COVID-19, SARS-CoV-2 and ‘variations’?

While many of the LMA clauses released at this time were ‘Communicable Disease’ exclusions, LMA5395 is limited to COVID-19 (i.e. the disease), SARS-CoV-2 (i.e. the virus which causes COVID-19) and ‘any mutation or variation of SARS-CoV-2’. While a mutation can be understood as having derived from SARS-CoV-2, the use of the term ‘variation’ is ambiguous since the term could be applied to other coronaviruses – this may not have been intended by the drafters of LMA5395, but the words are open to interpretation and this construction would not have been possible if the word ‘variation’ had been omitted.

The reason that the word ‘variation’ is significant is that some human coronaviruses continually circulate in the human population, such as human coronavirus OC43 (HCoV-OC43), human coronavirus HKU1 (HCoV-HKU1), human coronavirus 229E (HCoV-229E) and human coronavirus NL63 (HCoV-NL63). The symptoms of these human coronaviruses are generally mild, though others are more lethal –

• Middle East respiratory syndrome-related coronavirus (MERS-CoV) has been identified as causing 858 deaths from outbreaks in 2012, 2015 and 2018; and
• severe acute respiratory syndrome coronavirus (SARS-CoV) has been identified as causing 774 deaths between 2002 and 2004.

Regardless of its intention, LMA5395 should be explicit about whether other coronaviruses are within the scope of its exclusion.

The LMA5395 exclusion: clause 2

Clause 2 of LMA5395 states that the exclusion extends to liability and costs to ‘identify, clean up, detoxify, remove, monitor or test for a), b) or c) above’. While this may seem straightforward, there is a distinction between:

• a pathogen which causes a disease; and,
• a disease, which is a condition that affects an organism.

Strictly speaking, it would not be possible to ‘clean-up’ or ‘detoxify’ a disease. Furthermore, to ‘remove’ a disease would require the organism to be physically removed from a location. However, ‘monitoring’ or ‘testing’ for a disease is feasible, since this would simply require testing persons (or other organisms) to determine if they have the disease.

Since clause 2 is likely intended to be a clarification of clause 1, the omission of ‘fear or threat’ of a), b) or c) does not appear material. Nonetheless, its omission may create some ambiguity.

The LMA5395 exclusion: clause 3

Clause 3 of LMA5395 excludes liability, loss and costs that arise out of forms of financial loss as a result of ‘any of a), b) or c) above or the fear or the threat thereof’. Clause 3 is therefore best understood as a ‘consequential loss’ exclusion.

Clause paramount

Some LMA clauses contain a ‘primacy clause’ which states that the endorsement shall apply to all extensions, additional coverages, exceptions and other coverage grants. LMA5395 does not, but the opening statement of the endorsements states that ‘this clause shall be paramount and shall override anything contained in this insurance inconsistent therewith’. This statement has an equivalent effect to the primacy clauses of other LMA disease exclusions.