40
MARINE | COVID-19
Covid-19
demands urgent business continuity action from shipping sector The maritime sector is highly exposed to the fast rising threat of coronavirus (Covid-19). It is not clear how the insurance market will help out and so shipping firms need to act fast to mitigate the risk. Peter Birks reports. At the time of writing the extent of the global spread of Covid-19, the coronavirus that was first reported in Wuhan, Hubei Province, China on December 31st 2019, is unknown, but, it is spreading rapidly across Asia and worldwide. In late February the World Health Organization (WHO) said that it was too early to declare the virus as a pandemic but the world should do more to prepare for this outcome. It also said that it is worried that the window of opportunity to stop the virus has narrowed significantly. By the time you read this the world could be facing up to a pandemic. The virus’s relatively long incubation period, and the possibility of passing on the virus while still asymptomatic means that the illness poses a greater potential threat than its coronavirus predecessor, SARS. In economic terms, shipping companies in commodities, finished goods, components and, in particular, cruise lines, have been impacted. AP Moller-Maersk said on February 20th that the outbreak would weigh on earnings this year, although it still expected global container demand to grow by 1% to 3% in 2020, compared with 1.4% last year and 3.8% the year before. The outbreak has been described by the International Monetary Fund as a global health emergency. Morgan Stanley has estimated that Covid-19 could knock 0.5pp off the previously predicted Q1 2020 global growth rate of 2.5%, China’s GDP was expected to expand by just 4.2% in Q1, year on year. Covid-19 is a particular threat for two obvious reasons. First, it has shown itself to be more infectious compared with SARS The Marine Insurer | March 2020
or MERS. Second, China is far more integrated into the global economy today than it was when SARS emerged 15 years ago. Insurers are writing far more Asia-related business today than they did in the early 2000s. As BIMCO observed in a February note, “when China sneezes, we all catch the flu”.
THE LEGAL BIT Legal firm Clyde & Co observed that one aspect of insurable cover thrown into the spotlight as a result of the outbreak of Covid-19 had been the concept of force majeure. Nearly all legal experts have come up with the same answer. “It depends”. Early in February the Chinese authorities effectively gave buyers in the country the right to declare a force majeure (FM) situation. So, if you were thinking of taking legal action in China, good luck. China’s various measures have meant that many companies have found themselves unable to perform their contractual obligations, or were at risk of being unable so to do. Although the concept of FM was globally recognised in commercial transactions, there were key differences in the treatment and recognition of FM across different jurisdictions. Under common law systems such as English law, parties who wish to rely on FM must come within the express wording of the FM clause, one which expressly excuses non-performance upon the occurrence of certain specified events beyond a party’s control. A party must bring itself clearly within the wording of the FM clause before it can claim FM. Civil law systems are different. They may excuse nonperformance of a party based on FM, even in the absence of an express FM clause.
