SARS Excluded From Event Policies

Scott Brady, a director for Aon Corp. in New York, said that all insurers writing event cancellation coverage for his clients are excluding SARS.

"Event cancellation is a 'force majeure' type of policy, which means anything beyond the control of the owners or promoters of the event would normally be covered," Mr. Brady explained. So the only way to avoid SARS-related claims would be to specifically exclude them, he noted.

Mr. Brady was quick to point out, however, that the nature of event cancellation coverage is to write the policies well in advance of the event, so there are already many policies out there that do not exclude SARS. "Policies are generally written up to 12 months in advance, and the underwriters can't do anything about those."

As an example of how SARS can affect an event, Mr. Brady describes a convention at which attendance is expected to be 20,000, but only 2,000 show up due to fear of contracting SARS. He mentioned a buying show in China that is "open but empty," a victim of SARS-related fears, as well as a cancer society gathering that had to be cancelled.

LeConte Moore, a managing director of Marsh Inc. in New York, noted that it is sometimes possible for clients to negotiate off SARS exclusions. "Insurers took a 'better-safe-than-sorry' rationale and put on across-the-board exclusions," Mr. Moore said. He pointed out that the client and broker would have to convince the underwriter that the event was not at high risk for a SARS-related claim due to its location or precautions taken.

This type of coverage, which Mr. Moore refers to as "contingency insurance," cannot be cancelled except for non-payment of premium. So underwriters cannot cancel an already-written policy if they suspect that an event will be threatened by SARS.

Mr. Moore also pointed out that, for policies written before the exclusions went on, an issue may be whether claims from mere "fear" of SARS would be covered.

So far at least, SARS exclusions have not made their way into other types of policies, said consultant Bryan Tilden of Pittsboro, N.C.-based Tilden and Associates.

From a liability standpoint, SARS "doesn't meet the definition of 'accident,'" Mr. Tilden said. "It would be like people blaming you because they caught the flu or a virus. It just doesn't come within the four corners of the policy." So SARS exclusions will not become an industry trend in liability policies because there is no coverage to begin with, he said.

As for workers' compensation, Mr. Tilden said issues would revolve around whether SARS "arose out of the employment," such as during a business trip, in which event it may be covered.

But would SARS qualify as a covered "occupational disease" under workers' comp? Mr. Tilden doesn't think so, as it is not characteristic of any particular type of employment.

Aon's Mr. Brady, on the other hand, thinks that SARS exclusions may eventually make their way into other types of policies.

"Since 9/11, underwriters have been extremely sensitive to 'aggregation-type risks,' where you can have massive losses from a single cause," he said. "So I can't imagine that it's not an issue for them."

As for business interruption, Mr. Brady noted that there would generally be no coverage, as there would be no physical damage to trigger the loss. "The only way there would be a covered business interruption loss is if a civil authority restricted access to the insured's premises," he said. He did not know of any insurers that are endorsing policies to cover SARS-related business interruption for losses other than those relating to civil authority.