By Charlie Wilmerding, CEO, Altus Partners
The COVID-19 pandemic has created a sudden feeling that the ground beneath us is unsteady, and most of us now reflexively include the sentence “this is crazy” in our conversations. There are many important things to pay attention to—the health of our family, friends, and ourselves, first and foremost. And for executives and business owners, there is also the real concern about the health and sustainability of our businesses.
This means that having an understanding of your insurance program and how it’s going to help you manage the risk ahead becomes vitally important.
There are a number of emerging liabilities and risks to consider. This article is meant to highlight key business coverages and what you need to know about them in this time of pandemic. Importantly, not all policies are the same, and you should conduct a thorough review of your current policies with your broker or agent to find out how best to structure your program to address the new realities we will all be facing.
As state and local governments have ordered businesses to close their physical locations, business interruption insurance, which covers lost revenues, has gotten a fair amount of attention.
As a rule, business interruption coverage is triggered only when there has been a “direct physical loss of or damage to” the insured’s property that is not otherwise excluded. The problem with business interruption in the context of COVID-19 is the loss was almost certainly caused by a virus, communicable disease, or contagion, all of which are generally excluded under most property policies, and thus also excluded under corresponding business interruption coverages. This sweeping exclusion first appeared about 15 years ago as commercial insurers adopted exclusions for infectious diseases, flu outbreaks, and epidemics. If your insurance program contains these exclusions, as most do, you likely are not covered. This is even true for contingent business interruption policies that would cover disruptions should a third party supplier suffer direct physical loss to their property, or if they covered forced closure by a “civil authority.” In both cases, because the underlying cause of loss is a virus, it’s hard to see how coverage would apply.
You may have seen news that one New Jersey legislator is trying to overturn these exclusions for pandemic, but legal experts we have spoken with do not believe this attempt to rewrite policies after the fact will withstand legal scrutiny.
Cybercriminals and hackers are never shy about taking advantage of a crisis, and there’s evidence that they see the COVID-19 pandemic as just another opportunity to ply their trade. With many employees now working remotely and relying more than ever on IT infrastructure and digital communication, we’re seeing that there’s an increase in efforts to steal company data and extort or steal funds through phishing scams.
Cyber insurance can protect your company from both first-party risks and third-party claims arising from the exposure of sensitive customer data. If your business does not have cyber insurance, now is a good time to consider it.
With people wary of or—increasingly—not allowed to congregate in large groups, most business events, trade shows, and conventions scheduled for the next few months have been canceled or postponed. Event cancellation insurance enables you to offset costs associated with an unexpected cancellation. These policies are typically tailored to a specific insured and event. Many policies exclude cancellations due to viruses or infectious diseases, but this protection can often be added for an additional premium.
Workers’ compensation policies generally cover injuries “arising out of or in the course of employment.” It is certainly possible that coverage could include illnesses such as COVID-19. For a workers’ comp policy to come into play, the employee must demonstrate that their illness was caused by their employment. However, because of the widespread nature of the coronavirus in most industries, many employees will have a difficult time demonstrably proving that they caught the virus at work unless they are healthcare providers and/or first responders.
Directors’ & Officers’ Liability
It’s possible that we’ll see shareholder lawsuits against a company’s directors and officers, claiming that these decision-makers’ actions (or inactions) caused economic loss for the company. Did management fail to follow protocols established by government authorities, leading to a loss of revenue? Did they not develop adequate contingency plans?
One area that will possibly be the subject of disputes is the very common exclusion most D&O policies have regarding “bodily injury.” The still-unanswered question is whether the “bodily injury” exclusion bars coverage for shareholder claims with any connection to COVID-19.
Commercial General Liability
As time goes by, businesses could face claims by customers, guests or other third parties that the business did not take reasonable measures to keep them safe. Commercial general liability (CGL) policies protect businesses against third-party claims for bodily injury resulting from exposure to harmful conditions; these should provide coverage for claims related to COVID-19. Note that general liability policies normally have a pollution exclusion, which may or may not specifically exclude viruses and/or communicable diseases.
CGL coverage typically does not extend to claims of injury by employees. As discussed above, it’s uncertain whether workers’ compensation insurance will provide coverage in these instances.
Professional liability insurance covers a firm for liabilities arising out of their alleged failure to provide the professional services they promised to provide. This type of insurance could be of specific interest to healthcare providers, who could face claims from people alleging bodily injury, either from the provision of medical care, or the failure to provide that care.
The information contained in this post is for educational and information purposes only, and is not intended to be an assertion of coverage for particular claims, nor does it constitute legal advice. The COVID-19 situation is fluid and changing rapidly, and we highly encourage you to contact Altus Partners, Inc. at email@example.com to seek specific advice about any particular insurance-related matters of interest.