Advisory Paper on Occupy Central. October 2014

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1 Advisory Paper on Occupy Central October 2014 Executive Summary Occupy Central raises complex risk and insurance issues which will require ongoing assessment based on changing day-to-day developments and activities. This advisory paper represents our first response to advise clients on how Occupy Central could impact your risk and insurance coverage. In Section One of this paper, we have reviewed the implications of Occupy Central on typical Hong Kong insurance programme. This covers typically your property, business interruption, public liability, money, professional indemnity, directors and officers insurance, employee benefits and employers compensation policies. We also provide you with guidance on how to prepare for potential notifications under the policies. Section 1: Insurance Policy Review Property All Risks (PAR) / Business Interruption (BI) Insurance Policies: 1. Most Hong Kong PAR/BI policies have a SRCC (Strike Riot and Civil Commotion) Extension included in the Property All Risks insurance policy which covers physical damage to the property insured arising from or caused by Strike, Riot and Civil Commotion. Regardless of whether Occupy Central is classified as a formal Riot or Civil Commotion, most Hong Kong companies will be covered from property damage to its locations. 2. In respect to Business Interruption, most Hong Kong policies have an indemnity period of 12 months. The typical Excess (or Deductible) is 3 days. The trigger point is that the insured property is required to have damage as a consequence of insured loss under the Property All Risks Insurance which in turn causes business at the premises to be interrupted or interfered with. This can occur at any time during the period of insurance. 3. Denial of Access Clause This extension is also typically included in the PAR / BI insurance policy. This extension will indemnify against loss resulting from interruption or interference with the business in consequence to damage to property in the vicinity of the premises which shall prevent or hinder the use thereof or access thereto whether the premises or property of the insured therein shall be damaged or not. It is our opinion at this stage that the prevention of access or barricading of roads within the vicinity is unlikely to be classified as property damage under the Denial of Access clause. 4. In respect to point (2) and (3) above, it is a requirement in the policy that the insured s property suffers physical damage or the vicinity of the insured premise suffers from 1

2 damage. The current status of the Occupy Central situation suggests that it is unlikely that any damage will occur as required in the insurance policies and as such, most companies will not be able to claim against these policies for indemnification unless some actual damage was incurred. 5. The legal firm, Reynolds Porter Chamberlain (RPC) suggest that clearly, access being hindered is a lower threshold than access being prevented. The term hindered has not been considered in this context by the courts in Hong Kong. Therefore, in accordance with established insurance principles, hindered should be given its ordinary meaning; make it difficult for someone to do something or for something to happen. In this context, hindered is likely to be construed widely by the courts when applied to any given facts. When determining whether access has been hindered, a consideration could be the number of access routes to the premises. For example, access to a shop in a building that has several entrances and an entrance from a metro station below may not be hindered if only one of the entrances is forced to close. The fact that several thousand people might take to the streets making movement difficult and access to certain parts of the city impractical is irrelevant for cover, unless access to the insured s premises is actually hindered or prevented. Based on this feedback and advice, we believe that most companies should be able to seek recovery under your Denial of Access Clause in your Property and Business Interruption Policy if there is property damage proximate to your branch and property locations. Public Liability Insurance Please bear in mind that no specific SRCC exclusion is included in most Public Liability policies and so therefore, as long as a company are liable for the loss of or damage to third party property or third party bodily injury, the insurance policy will be triggered subject to the terms and conditions of the policy. Money Insurance In the event any Money owned by a company has been lost or damaged due to events of Occupy Central and the company has a typical Money Insurance policy, Hong Kong companies can seek recovery under this policy. Directors & Officers Liability (D&O) Most Hong Kong Directors and Officers Liability policies have no exclusion in respect of riot or civil commotion. The D&O policy shall pay the legal liability of a director or officer on account of any written demand or legal proceedings for monetary damages alleging an act or omission in the capacity as a director or officer. The policy is also extended to cover alleged violation or breach of an 2

3 occupational health and safety law. Therefore, coverage under the D&O policy will depend on the way a claim may be brought against a director or officer of a company in relation to the Company s management of its business during the Occupy Central movement. Employee Benefits: The majority of Group Personal Accident (GPA) policies offer coverage on a 24 hours basis and offer worldwide cover. However, most GPA policies do not cover death or bodily injury to the Insured Person if they are a direct participant of the strike. Therefore, if the insured person is not a participant of Occupy Central, the policy is still valid. We advise that companies should check your current policy in detail. It is our professional opinion that insurers in Hong Kong will not pay out a claim under most GPA insurance as a result of employees of a company participating in Occupy Central. Employees Compensation (EC) Since EC policies are in strict liability in accordance with EC s ordinance, the trigger point is when a claim occurs arising out of and in the course of employment. As long as these two criteria are fulfilled, the policy will still respond to injuries incurred as a result of Occupy Central. Conclusion Having examined the above insurances and respective coverage, we suggest that coverage under most policies will only trigger if there is damage to the tangible properties itself, or if a denial of access is caused by damage to property in the nearby vicinity. Since extremely limited loss / damage have been reported as part of Occupy Central, Willis advises that most Hong Kong companies will not be able to claim under these policies until such physical damages to properties are reported. In respect to Public Liability / PI / D&O policies, companies should report to their broker or their insurer immediately if they become aware of any third party injury / property damage directly due to a company s action, or if you have received any complaints about the bank s decision to close certain branches or suspend services. At the moment you may not have to take specific action for these policies if such complaints have not been received. The difficulty, in our view, is that most of the anticipated financial loss in Hong Kong will result from denial of access and/or reduced access that prevented customers from using services, leading to reduced earnings. Much of these financial losses, in our view, will likely result from conscious and well-intended business decisions to voluntarily close businesses to protect visitors and employees from harm, had events taken a more violent turn. At this stage of the Occupy Central protest, and in light of the limited damage to property, and injury to protesters, police / service unites and the general public, our view remains that 3

4 insurance is an unlikely recovery backstop for most companies actual financial losses. The exception is for an extremely small number of business owners who may have suffered direct physical damage to property or equipment or injuries to their customers or employees resulting from government or protestor actions. The reality for companies in general is that the anticipated financial losses due to Occupy Central will manifest itself primarily in extra costs or revenue disruptions that are not insurable losses. Recommendations Companies Should Consider Willis recommends to most companies to keep a list / track the following: 1. Any property damage losses. This can be covered by the PAR insurance policy if any. 2. Which sites/locations were closed and for how many days (date closed and reopened). Is the insured premises closed due to any difficulty of getting to the insured premises (i.e. hinder standard). 3. Customer complaints and how these are being addressed. This should also extend to the services of Outsider Service Providers that are overseen by the Company. 4. Loss of income and/or extra expense incurred. We would recommend that in tracking these costs and expenditures, a company track such costs broadly to include items such as: a. Provision of alternative transportation or premises to employees; b. Costs incurred for Business Continuity Planning including overtime costs and monitoring costs incurred for executing this plan; c. Alternative housing and communication costs for employees requiring special arrangements during Occupy Central ; d. Costs to cover enhanced data back-up and IT system security enhancements as a result of Business Interruption; e. Cancellation costs for events, trainings and conferences; f. Enhanced costs for security at facilities and critical locations; g. Clean-up costs to your locations and facilities; and h. Fines and penalties incurred to customers and partners as a result of business interruption. For companies with an upcoming insurance renewal, Occupy Central losses are not a major issue for Hong Kong insurers yet. However, this is a developing issue and might later become a concern for the insurance markets (similar to the Business Interruption losses due to SARs disease). Our advice is to start the insurance renewal negotiation with insurers EARLIER this year and obtain a renewal proposal WITHOUT any restriction on this issue. We are available to meet and discuss with you on whether it is a possible to seek coverage under the Denial of Access Clause or any other clause in your insurance program. 4

5 We will be available to discuss the subject with you in person or over the telephone at any time, whichever is the more convenient and of more assistance. For further assistance, please contact the below Willis associates: Lincoln Pan Executive Director