Communicable disease exclusion

Before 2020, most property and business interruption policies did not mention epidemics. They assumed physical damage, which the virus did not cause, and sometimes carried extensions, administrative closure, notifiable disease within a given radius, drafted without imagining a global pandemic. The closures imposed in 2020 led to thousands of claims and to litigation in many countries over the meaning of these extensions and the notion of physical damage. The market reacted quickly. From March 2020, the London market insurers' association published model communicable disease exclusion clauses, and most insurers inserted equivalent clauses at renewal. They exclude loss, damage, cost and liability arising from a communicable disease, the fear or threat of it, actual or perceived, and often measures taken to prevent or contain it. Some keep a limited carve-back for decontamination costs after covered damage. These exclusions were also adopted in reinsurance, sometimes more broadly, which created gaps between what insurers still cover and what their reinsurers accept. The episode illustrates how a loss reveals a silent risk, and how the market then closes it through wording rather than price.