By Marc McCabe, Vice President, Alliant Insurance Services
As an insurance professional for more than 35 years and who has witnessed countless regional wars, the Dot-Com Bubble Burst, the 9/11 Terrorist Attacks, the 2008 Financial Crisis and Hurricane Sandy, no one could have foreseen the unprecedented coronavirus pandemic and its global impact on business and industry.
For the past two weeks, I have had countless discussions with my business clients about their continuing operations, lost business deals resulting in lost revenues, the potential impact on claims recovery and managing the well-being of their employees. Clearly, the economic impacts of COVID-19 will test their go-forward operations over the long-term, but closer to my world the questions have been, how their policies will provide indemnification relief, if any. Rather than addressing every possible insurance coverage scenario, let’s explore at a high level my two most talked about conversations — business interruption and employee safety in the workplace.
Firstly, what is happening with the business interruption coverage and how is the insurance industry addressing what is covered or what is the likelihood of recovery with respect to such reported claims? My expectation, as outlined below, is that few damages directly incurred are likely covered under the typical property/business interruption policy…at a macro level. The concept of Business Interruption (BI) under both the Property policies is to protect your insureds against the loss of income following a claims event and after the policy deductible/waiting period has been satisfied. BI is generally defined as the “net income (not loss of revenue)” that would have been earned, “continuing normal operating expenses” and including payroll for key personnel. Typically, for BI coverage to trigger insurance company reimbursement, there must be a suspension of operations and the suspension must be caused by a direct physical loss of or damage to property at an insured’s premises. Regarding Civil Authority (i.e., a government-mandated shutdown) coverage, the Property/BI policy generally has three provisions that all need to be satisfied:
- Access to the insured’s business must be denied by the order of civil authorities
- The denial of access must be caused by damage or destruction of property
- The direct property damage must be from an insured peril (this is where the pandemic exclusion issue arises)
The bottom line is that many businesses across the U.S. have now been adversely affected by Civil Authority actions taken by various governmental entities. The insurance companies underwrite these insurance policies but choose carefully what “Acts of God” to cover or exclude from the policy contract. As such, many of these exclusions apply to the actual or suspected presence or threat of any virus, organism or like substance that is capable of inducing disease, illness, physical distress or death, whether infectious or otherwise, including but not limited to any epidemic, pandemic, influenza, plague, SARS or Avian Flu.
As negative as this may read, none of us know how the insurers are going to respond to any of the COVID-19 claims, albeit, as I noted in the pandemic exclusion above. As such, it is our recommendation that your finance teams begin collecting records of expenses and losses of revenue/net income. Tracking these expenses and losses in real time is far easier than doing so after the fact and will aid in properly assessing the magnitude and viability of a potential business interruption claim. Other reasons to pursue this strategy involve government and lobbying groups now focused on the prospect of a relief package similar in scope to the 9/11 Victims Compensation Fund. It is quite premature to consider the potential horse trading that could happen, but it remains prudent, at a minimum, to track your records relevant to lost revenue, continuing expenses and maintaining key payroll expenses.
The second issue to be explored includes business exposures due to an employee testing positive for COVID-19 and the potential impact such an event has on the Workers Compensation and Employers Liability policy:
If an employee contracts COVID-19 arising out of or in the course of employment, then the workers’ compensation and employer’s liability coverages respond with coverage for medical costs and lost wages in accordance with state statutory requirements. That said, similar to the business interruption exposure, viral diseases typically are not presumptively considered as arising out of or contracted in the course of employment, and it would be the employee’s burden to establish the causal connection between infection and employment by a preponderance of the evidence.
I have been asked by several clients “If my employee is infected with the COVID-19 virus, will this trigger coverage under the WC policy?” Again, depending on the state of jurisdiction in question, it is difficult to expect compensability unless you’re a medical professional. The employee must show that his employment put him at a higher risk than the general public, and in most cases, expectation of coverage will be arbitrated by the insurance company.
Ask your insurance broker or agent to assist with preparing the claims notices to the insurer within the reporting period guidelines written within each policy. The insurers will review all claims submitted and will issue a coverage position. At such time, you can determine appropriate next steps.
BMK invites articles that may be of interest to our clients, colleagues, and friends during these trying times. BMK is not affiliated with Aliant Insurance Services and it does not endorse the content or views expressed by Alliant or by Mr. McCabe. Should you have questions or comments concerning the article, we suggest that you contact Mr. McCabe directly on his office telephone, (212) 504-1807 or his mobile telephone, (908) 347-4558, or via email: email@example.com
The article is not and cannot be construed as legal advice.
The views expressed in this article were prepared by Marc McCabe in his personal capacity and are for general information purposes only. The views expressed in the article are the author’s own and do not reflect the views of Alliant Insurance Services.