Risk managers should check liability policies now to prepare for virus claims

Risk and insurance managers worldwide will be currently focused on efforts to protect their employees from the impact of coronavirus (Covid-19) and ensure business continues as normal as possible. But they will also have to closely look at the liability implications of the varied effects of the virus on their business and prepare to answer awkward questions from bosses about how the virus will impact cashflow and the balance sheet. Paul White of US law firm Wilson Elser published late last week an excellent note that summarised the liability and workers compensation implications of the virus for firms of all shapes and sizes. “Given the risk to life and the economic impact of coronavirus, policyholders and the insurance industry alike are watching and considering whether business interruption, event cancellation, or liability and workers compensation insurance benefits may be available, while similarly assessing liability risks,” wrote Mr White. The lawyer said that if the coronavirus continues to spread worldwide, insurers are likely to confront liability claims that span the spectrum of their insurance product lines. General liability policies will possibly be triggered when businesses, particularly those that open their doors to the general public, find themselves the targets of claims that their negligence led to the exposure and infection of clients. The trigger points would be: Exposure resulting in bodily injury or property damage Negligence related to visitors to businesses or locations such as offices, daycare centres, retail shops, hotels and places of worship Product liability related to air filtration and recirculation, particularly in situations involving airplanes and hospitals Personal injury involving occurrences such as wrongful eviction or imprisonment Constitutional claims involving the quarantine or restriction of infected or exposed persons Negligence or other liability suits against a company or organisation that fails to implement a pandemic contingency plan. Mr White pointed out that the target of such claims will be not only the business but also the business’s general liability insurance and its coverage for bodily injury. “Policy exclusions may exist for claims arising from a pandemic, virus or bacteria. Many insurers also include broadly worded pollution exclusions that could serve to preclude or limit coverage,” he stated. Errors & Omissions (E&O) insurance is another likely exposed line of business. “There is an adage that the most likely place to get sick is in a hospital. Medical care and managed-care providers purchase errors and omissions insurance that provides coverage for bodily injury arising out of their providing or failing to provide medical care. While such policies generally preclude coverage for bodily injury to employees during the course of their employment (such as an employee being exposed to an infectious or contagious disease), such policies may respond to claims that a healthcare professional acted or failed to act in a manner that led to a patient (non-employee) contracting a coronavirus bodily injury,” explained Mr White. Another area of coverage that will always spark interest among the board is of course directors and officers (D&O) insurance. Mr White argued that the coronavirus has “roiled” stock markets worldwide, resulting in ups and downs depending on whether the market perceives that the crisis is being managed appropriately and whether global supply chains will be impacted. “Ultimately, how a company responds to the coronavirus may subject its directors and officers to the scrutiny of the company’s shareholders. Shareholder suits have become commonplace when market valuations are purported to have unreasonably dipped. In response to a coronavirus-based loss in value, shareholders may argue that the directors and officers committed acts or omissions responsible for the loss in valuation and, in turn, the loss befalling the individual shareholder,” he stated. “Most D&O insurers include absolute bodily injury exclusions that expressly preclude coverage for any claim or loss ‘based on, directly or indirectly arising out of or relating to actual or alleged bodily injury’. While there are different versions of the exclusion, the insurer’s intent is generally to preclude coverage for any claim, even one for economic loss, if it is based on, arising out of or related to bodily injury. Of note, such exclusions continue to be challenged in the courts,” added Mr White. Workers compensation policies generally extend insurance benefits to employees for injuries “arising out of or in the course of employment”, so must be exposed to the virus. The key for risk managers is to identify the risk and document what is being done about it, said Mr White. “Workers’ compensation actions concerning the language often address whether the claimed injury is truly work-related, focusing on such factors related to the loss as its nature, the injured employee’s activity, the time and the location. Consequently, employees and employers whose work is related to coronavirus should maintain detailed records identifying potential exposures,” he stated. Mr White’s advice to risk managers is to prepare for the potentially “catastrophic” impact of a global pandemic or similar health crisis. This means that policyholders and insurers need to review liability and workers compensation polices right now to determine: What new exposures and risks are present given the unique nature of the coronavirus? Are coverage changes needed? Which current policyholders are likely impacted most? Are we receiving early inquiries and claims and, if so, what do they indicate? Do we have a process to triage claims to ensure they are handled in the best interest of all stakeholders? “The risk of a global pandemic with catastrophic consequences seems to grow more prevalent every few years. To prepare for the potentially catastrophic impact of a global pandemic, insureds, insurers and brokers must understand what is and is not covered under such policies, and should work together to minimise potential losses by evaluating potential claims as early as possible,” concluded Mr White.

Risk managers should check liability policies now to prepare for virus claims

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