LMA5391 Coronavirus Exclusion

August 8, 2020 by Stephen Tomlinson

Analysis of LMA5391

About LMA5391

Drafted by the Lloyd’s Market Association (LMA) and released in March 2020, LMA5391 is a general coronavirus exclusion that was not designed for any particular type of policy.

LMA5391: the exclusion

LMA5391 excludes claims that are caused by or result from:

COVID-19 (i.e. the disease);
the virus (SARS-CoV-2) which causes the COVID-19 disease;
mutation or variation of that virus; and,
the fear or threat of any of the above.

A relatively narrow exclusion…

Compared to other LMA Communicable Disease exclusions, LMA5391 is a relatively narrow exclusion because:

the words ‘caused by or result from’ have the effect that the exclusion only applies where the listed items are the proximate cause of loss; and,
LMA5391 does not exclude all diseases transmissible between organisms, though the exclusion does extend to the underlying virus, mutations or variations thereof, and fear or threat of the preceding elements.

… but what about ‘variations’?

It is logical to exclude loss caused by mutations of SARS-CoV-2 on the basis that the virus was a cause of the loss. However, the word ‘variation’ in LMA5391 creates uncertainty since the exclusion could be applied to other coronaviruses on the basis that they are ‘variations’ of SARS-CoV-2 – this may not have been intended by the drafters of LMA5391, 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, LMA5391 should be explicit about whether other coronaviruses are within the scope of its exclusion.

LMA5393: Communicable Disease Endorsement for Property policies

August 8, 2020 by Stephen Tomlinson

Analysis of LMA5393

About LMA5393

Drafted by the Lloyd’s Market Association (LMA) and released in March 2020, LMA5393 has become a widely applied communicable disease endorsement for Property policies. This is unfortunate because, as demonstrated below, LMA5393 has a drafting deficiency that creates uncertainty for insureds, insurers and reinsurers.

Clause 1: the Communicable Disease Exclusion

A drafting deficiency

Interpreted literally, LMA5393 excludes loss or damage occurring at the same time as (‘concurrently with’):

a ‘Communicable Disease’; or
the fear or threat of a ‘Communicable Disease’.

Since LMA5393 does not literally require any connection or causation between the Communicable Disease, there would be no cover under the policy if, at the time of loss, someone – somewhere – had a Communicable Disease or feared a Communicable Disease. If an insurer applied this literal interpretation, the policy would no longer provide effective cover and, if challenged, a court would be likely to ‘read down’ or re-interpret the exclusion by determining the intention of the parties. A less likely alternative, however, would be for a court to strike out the endorsement in its entirety.

LMA5393 is the only LMA Communicable Disease exclusion to have this drafting deficiency.

What does clause 1 intend?

Determining the intention of the parties – and identifying the appropriate parties – is difficult because:

the clause was drafted by the LMA;
insurers applying LMA5393 may not have understood its drafting deficiency;
insurers may have recognised the drafting deficiency in LMA5393, but were required by reinsurers to apply it;
the insured is unlikely to have had any ability to negotiate the clause; and,
insurance brokers may have served as intermediaries between the insured and its insurers.

‘Read down’ version of LMA5393 clause 1

Prima facie, the simplest solution would be to ‘read down’ LMA5393 by:

removing the offending words, i.e. ‘or occurring concurrently or in any sequence with’; and,
moving them to the end of clause 1 for their intended effect, i.e. adding the words ‘, regardless of any other cause or event contributing concurrently or in any other sequence thereto’ after the words ‘(whether actual or perceived) of a Communicable Disease’.

An example of this ‘read down’ version of LMA5393 clause 1 is as follows:

This policy, subject to all applicable terms, conditions and exclusions, covers losses attributable to direct physical loss or physical damage occurring during the period of insurance. Consequently and notwithstanding any other provision of this policy to the contrary, this policy does not insure any loss, damage, claim, cost, expense or other sum, directly or indirectly arising out of, attributable to a Communicable Disease or the fear or threat (whether actual or perceived) of a Communicable Disease, regardless of any other cause or event contributing concurrently or in any other sequence thereto.

In most scenarios, this ‘read down’ version of LMA5393 clause 1 would be adequate to determine whether the exclusion applied. Nonetheless, this simple solution may not be the correct one if it does not give effect to the intention of the parties.

Re-drafting LMA5393 clause 1

Putting aside the drafting deficiency of ‘concurrently with’, LMA5393 is unusual in that its attribution language is limited to ‘arising out of’ and ‘attributable to’. LMA5394, for example, uses the words ’caused by’, ‘contributed to by’, ‘resulting from’, ‘arising out of’ and ‘in connection with’. LMA5394 therefore offers a guide to remedying LMA5393 and an amended clause 1:

This policy, subject to all applicable terms, conditions and exclusions, covers losses attributable to direct physical loss or physical damage occurring during the period of insurance. Consequently and notwithstanding any other provision of this policy to the contrary, this policy does not insure any loss, damage, claim, cost, expense or other sum, directly or indirectly caused by, contributed to by, resulting from, arising out of, or in connection with a Communicable Disease or the fear or threat (whether actual or perceived) of a Communicable Disease regardless of any other cause or event contributing concurrently or in any other sequence thereto.

What is LMA5393 excluding?

The answer to this question may depend on whether the ‘read down’ version or ‘re-drafted’ version of LMA5393 is applied. Specifically,

the ‘read down’ version of LMA5393 excludes damage or loss that ‘arises out of’ or is ‘attributable to’ a Communicable Disease or the fear or threat of a Communicable Disease. This would require the Communicable Disease to be a remote cause of the loss; whereas
at its broadest, the ‘re-drafted’ version of LMA5393 excludes damage or loss that has a ‘connection with’ a Communicable Disease or the fear or threat of a Communicable Disease. This would not require the Communicable Disease to be a cause – proximate or remote – of the damage or loss for the exclusion to apply.

Returning to the question: what is LMA5393 excluding? I do not think that anyone can be certain. LMA5393 appears to be a ‘market failure’ by the insurance industry because people who should have known better could not find the right words. Given this failure, a court may be reluctant to give insurers the benefit of the broader, re-drafted version of LMA5393 above, though this is speculation and not professional/legal advice.

Clause 2: clarification of exclusion

Clause 2 of LMA5393 of clarifies that the exclusion in clause 1 excludes costs to clean-up, detoxify, remove, monitor or test for a Communicable Disease or property insured that is affected by such Communicable Disease. 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.

For consistency with clause 1, it would be preferable if clause 2 also referred to the ‘fear or threat (whether actual or perceived) of a Communicable Disease’. Given the breadth of clause 1, however, such an amendment does not appear strictly necessary.

Clause 3: definition of ‘Communicable Disease’

In clause 3 of LMA5393, ‘Communicable Disease’ is defined as ‘any disease which can be transmitted… from any organism to another organism’. Requiring the disease to be transmissible between organisms does qualify the scope of the definition; food poisoning, for example, would not be excluded as a ‘Communicable Disease’ because it is transmitted by the ingestion of contaminated food or water, not by a pathogen that is transmitted between organisms.

Beyond this,

sub-clause 3.1 inclusively identifies types of pathogens;
sub-clause 3.2 inclusively identifies means of transmission; and,
sub-clause 3.3 identifies possible effects of the disease or pathogen.

None of these sub-clauses, however, are essential to the operation of the endorsement.

Clause 4: primacy clause

Clause 4 of LMA5393 is a ‘primacy clause’ which states that the endorsement shall apply to all extensions, additional coverages, exceptions and other coverage grants.

LMA5394: Communicable Disease Exclusion for property treaty reinsurance

August 2, 2020 by Stephen Tomlinson

Analysis of LMA5394

About LMA5394

Drafted by the Lloyd’s Market Association (LMA) and released in March 2020, LMA5394 is a Communicable Disease Exclusion for property treaty reinsurance.

Clause 1: the Communicable Disease Exclusion

At its broadest, LMA5394 excludes damage or loss ‘in connection with’:

a Communicable Disease; or
the fear or threat of a Communicable Disease.

Furthermore, LMA5394 is explicit that this exclusion will apply regardless of any other cause or event which may have contributed to the damage or loss.

Clause 2: definition of ‘Communicable Disease’

In clause 2 of LMA5394, ‘Communicable Disease’ is defined as ‘any disease which can be transmitted… from any organism to another organism’. Requiring the disease to be transmissible between organisms does qualify the scope of the definition; food poisoning, for example, would not be excluded as a ‘Communicable Disease’ because it is transmitted by the ingestion of contaminated food or water, not by a pathogen that is transmitted between organisms.

Beyond this,

sub-clause 2.1 inclusively identifies types of pathogens;
sub-clause 2.2 inclusively identifies means of transmission; and,
sub-clause 2.3 identifies possible effects of the disease or pathogen.

None of these sub-clauses, however, are essential to the operation of the endorsement.

LMA5395: Coronavirus Exclusion for marine and energy liability policies

August 2, 2020 by Stephen Tomlinson

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.

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.

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.

LMA5396: Communicable Disease Exclusion for liability policies

August 2, 2020 by Stephen Tomlinson

Analysis of LMA5396

About LMA5396

Drafted by the Lloyd’s Market Association (LMA) and released in April 2020, LMA5396 is a communicable disease exclusion for use on liability policies.

Clause 1: the ‘Communicable Disease’ exclusion

At its broadest, LMA5396 excludes liability and costs ‘in connection with’:

a Communicable Disease; or
the fear or threat of a Communicable Disease.

Because all that is required between the loss and Communicable Disease is a ‘connection’, the Communicable Disease may not need to be a cause of the loss for the exclusion to apply. The breadth of the exclusion is also demonstrated by the anti-concurrent causation phrase ‘regardless of any other cause contributing concurrently or in any sequence’ in clause 1.

Clause 2: clarification of exclusion

Clause 2 of LMA5396 clarifies that the exclusion of clause 1 includes costs to clean-up, detoxify, remove, monitor or test for a Communicable Disease. 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.

Clause 3: definition of ‘Communicable Disease’

In clause 3 of LMA5396, ‘Communicable Disease’ is defined as ‘any disease which can be transmitted… from any organism to another organism’. Requiring the disease to be transmissible between organisms does qualify the scope of the definition; food poisoning, for example, would not be excluded as a ‘Communicable Disease’ because it is transmitted by the ingestion of contaminated food or water, not by a pathogen that is transmitted between organisms.

Beyond this,

sub-clause 3.1 inclusively identifies types of pathogens;
sub-clause 3.2 inclusively identifies means of transmission; and,
sub-clause 3.3 identifies possible effects of the disease or pathogen.

None of these sub-clauses, however, are essential to the operation of the endorsement.

LMA5397: Communicable Disease Exclusion for power generation, construction and engineering policies

August 2, 2020 by Stephen Tomlinson

Analysis of LMA5397

About LMA5397

Drafted by the Lloyd’s Market Association (LMA) and released in April 2020, LMA5397 is a communicable disease exclusion for use on power generation, construction and engineering policies.

Clause 1: the ‘Communicable Disease’ exclusion

At its broadest, LMA5397 excludes loss ‘in connection with’:

a Communicable Disease; or
the fear or threat of a Communicable Disease.

Because all that is required between the loss and Communicable Disease is a ‘connection’, the Communicable Disease may not need to be a cause of loss for the exclusion to apply. The breadth of the exclusion is further demonstrated by the words ‘regardless of any other cause contributing concurrently or in any other sequence thereto’ in clause 1.

In clause 2 of LMA5397, ‘Communicable Disease’ is defined as ‘any disease which can be transmitted… from any organism to another organism’. Requiring the disease to be transmissible between organisms does qualify the scope of the definition; food poisoning, for example, would not be excluded as a ‘Communicable Disease’ because it is transmitted by the ingestion of contaminated food or water, not by a pathogen that is transmitted between organisms.

Beyond this,

sub-clause 2.1 inclusively identifies types of pathogens;
sub-clause 2.2 inclusively identifies means of transmission; and,
sub-clause 2.3 identifies possible effects of the disease or pathogen.

None of these sub-clauses, however, are essential to the operation of the endorsement.

LMA5398: Infectious or Contagious Disease Exclusion

August 2, 2020 by Stephen Tomlinson

Analysis of LMA5398

About LMA5398

Drafted by the Lloyd’s Market Association (LMA) and released in May 2020, LMA5398 is a communicable disease exclusion for UK consumer and commercial property risks.

LMA5398 exclusion

LMA5398 excludes loss or damage that is ‘in any way caused by or resulting from’:

infectious or contagious disease;
any feat or threat of infectious or contagious disease; or
any action taken to minimise or prevent the impact of an infectious or contagious disease.

Significantly, the words ‘in any way caused by or result from’ have the effect that the exclusion only applies where the listed items are an actual cause of loss, whether the proximate or remote cause.

Definition of ‘infectious or contagious disease’

The second sentence of LMA5398 defines ‘infectious or contagious disease’ as any disease capable of being transmitted from an organism to another organism. Strictly speaking, however, it is pathogens which are transmitted between organisms and pathogens which cause diseases (since the disease is the condition that affects the organism).

LMA5500: Infectious or Contagious Disease Exclusion during a PHEIC

August 2, 2020 by Stephen Tomlinson

Analysis of LMA5500

About LMA5500

Drafted by the Lloyd’s Market Association (LMA) for use on consumer and commercial Accident/Accident & Illness policies, LMA5500 is an infectious or contagious disease exclusion which is triggered by a Public Health Emergency Of International Concern (PHEIC).

LMA5500: the exclusion

Clause 1 of LMA5500 excludes claims that result from an outbreak of an ‘infectious or contagious disease’ that has been declared a PHEIC by the World Health Organization (WHO).

What is a PHEIC?

Under the International Health Regulations (2005), a Public Health Emergency Of International Concern (PHEIC) is defined as “an extraordinary event which is determined to constitute a public health risk to other States through the international spread of disease and to potentially require a coordinated international response”. This definition implies a situation that is:

serious, sudden, unusual or unexpected;
carries implications for public health beyond the affected State’s national border; and
may require immediate international action.

To date, there have been six PHEIC declarations:

the 2009 swine flu declaration;
the 2014 polio declaration;
the 2014 Ebola declaration;
the 2016 Zika virus declaration;
the 2019 Kivu Ebola declaration; and,
the 2020 COVID-19 declaration.

LMA5500 is therefore only likely to exclude particularly serious diseases.

LMA5500: Clauses 2 and 3

Clause 2 of LMA5500 states that the exclusion of Clause 1 shall apply to claims made:

after the date of the PHEIC declaration; and,
where the disease has been diagnosed by a qualified medical practitioner prior to such declaration.

Clause 3 states that the exclusion shall apply until the WHO ‘cancels or withdraws any relevant PHEIC’. These words are not entirely accurate since the WHO cannot cancel or withdraw a PHEIC, but the WHO can declare that a PHEIC no longer exists. For an example of such a declaration, see Fifth meeting of the Emergency Committee under the International Health Regulations (2005) regarding microcephaly, other neurological disorders and Zika virus.

LMA5500: definition of ‘infectious or contagious disease’

In Clause 4, LMA5500 defines ‘infectious or contagious disease’ as ‘any disease capable of being transmitted from an infected person, animal or species to another person, animal or species by any means’. Strictly speaking, however, it is pathogens which are transmitted between organisms and pathogens which cause diseases (since the disease is the condition that affects the organism).

LMA5501: Political Risk Communicable Disease Exclusion

August 2, 2020 by Stephen Tomlinson

Analysis of LMA5501

About LMA5501

Drafted by the Lloyd’s Market Association (LMA) and released in May 2020, LMA5501 is a Communicable Disease exclusion for political risk insurance. Generally, political risk insurance is used to cover infrastructure developers, importers, exporters and other companies against financial loss resulting from political instability.

LMA5501 exclusion

At LMA5501 excludes loss arising out of any action taken by a government in:

controlling, preventing, suppressing; or
in any relating to

any actual or suspected ‘Communicable Disease’.

While ‘government’ is not defined in the exclusion, LMA5501 states that that term is to take its definition from the policy.

Definition of ‘Communicable Disease’

In LMA5501, ‘Communicable Disease’ is defined as ‘any disease which can be transmitted… from any organism to another organism’. Requiring the disease to be transmissible between organisms does qualify the scope of the definition; food poisoning, for example, would not be excluded as a ‘Communicable Disease’ because it is transmitted by the ingestion of contaminated food or water, not by a pathogen that is transmitted between organisms.

Beyond this,

sub-clause 2 i inclusively identifies types of pathogens;
sub-clause 2 ii inclusively identifies means of transmission; and,
sub-clause 2 iii identifies possible effects of the disease or pathogen.

None of these sub-clauses, however, are essential to the operation of the endorsement.

LMA5502 and LMA5503: Communicable Disease (Property Treaty Reinsurance)

August 2, 2020 by Stephen Tomlinson

LMA5502 and LMA5503 Analysis

About LMA5502 and LMA5503

Drafted by the Lloyd’s Market Association (LMA) and released in May 2020, LMA5502 and LMA5503 are limited communicable disease exclusions for Property Treaty Reinsurance.

Clause 1: the exclusion

At its broadest, Clause 1 of LMA5502 and LMA5503 exclude damage and loss ‘in connection with’:

a Communicable Disease; or
the fear or threat (whether actual or perceived) of a Communicable Disease.

Because all that is required between the damage/loss and Communicable Disease is a ‘connection’, the Communicable Disease may not have to be a cause of the damage/loss for the exclusion to apply. This intended breadth of the exclusion is further demonstrated by the words ‘regardless of any other cause contributing concurrently or in any sequence thereto’ in clause 1.

Clause 2: exception to the exclusion

Clause 2 of LMA5502 provides an exception to the exclusion of clause 1 such that the reinsurance agreement will cover:

physical damage to property insured; and,
business interruption (‘Time Element Loss’)

that arise from the listed perils, i.e. fire, lightning, explosion, aircraft or vehicle impact, falling objects, windstorm, rainstorm, hail, tornado, cyclone, typhoon, hurricane, earthquake, seaquake, seismic and/or volcanic disturbance/eruption, tsunami, flood, freeze, ice storm, weight of snow or ice, avalanche, meteor/asteroid impact, landslip, landslide, mudslide, bush fire and forest fire.

LMA5503 preferable to LMA5502 for insureds

The exception for LMA5503, however, extends to the following additional perils: riot, riot attending a strike, civil commotion, vandalism and malicious mischief. As such, LMA5503 is preferred to LMA5502 from an insured’s perspective.

Clause 3: definition of ‘Communicable Disease’

In clause 3 of LMA5502 and LMA5503, ‘Communicable Disease’ is defined as ‘any disease which can be transmitted… from any organism to another organism’. Requiring the disease to be transmissible between organisms does qualify the scope of the definition; food poisoning, for example, would not be excluded as a ‘Communicable Disease’ because it is transmitted by the ingestion of contaminated food or water, not by a pathogen that is transmitted between organisms.

Beyond this,

sub-clause 3.1 inclusively identifies types of pathogens;
sub-clause 3.2 inclusively identifies means of transmission; and,
sub-clause 3.3 identifies possible effects of the disease or pathogen.

None of these sub-clauses, however, are essential to the operation of the endorsement.

Clause 4: definition of ‘Time Element Loss’

Finally, clause 4 of LMA5502 and LMA5503 define ‘Time Element Loss’ as business interruption, contingent business interruption or any other consequential losses.