The currently ongoing coronavirus pandemic has already disrupted global markets, and will no doubt continue to do so as the spread continues unabated. Effectively every kind of business has been affected, though in very different ways. I thought I’d take the opportunity with this article to go over some of the lessons that can be learned from this outbreak, and discuss some concerns going forward.
The most immediate questions that many of our clients have relate to whether insurance will cover losses connected to coronavirus – for example, if they are unable to operate, or if they are in operation but have lost significant business. Unfortunately, the insurance industry has not yet come up with a good solution that comprehensively and predictably covers this risk for disease outbreaks.
Typically, Business Interruption coverage is included as part of Property Insurance and is triggered only by physical damage to the covered property. Policies also usually include a Civil Authority Clause, which covers business income losses resulting from loss of nearby access to the covered premises because of government closure responding to some specific peril. However, in those cases, the government closure typically must also be motivated by some kind of physical damage to a nearby property. While some property policies do have a “notifiable disease coverage” trigger, this tends not to be common in most North American property forms.
Workers’ Compensation will also fail to provide coverage in most coronavirus-related cases, as it is usually restricted to losses arising from the normal course of employment. This would cover claims arising from work travel to high-risk areas, but the extent to which a regular workplace can be counted as such an area is unclear – in both cases, it would be necessary to show that the disease was contracted in the workplace. With respect to General Liability, the standard of proof in demonstrating that a company is liable for customers or third parties contracting a disease is even higher. While there is a certain amount of legal precedent regarding how to resolve these cases, there will no doubt be a great deal more as the outbreak begins to resolve itself and claims start to pour in.
On the other hand, the circumstances relating to Professional Liability coverage tend to be different when concerning senior care and health care facilities. Most nursing homes, assisted living facilities, and health care providers cover their exposure with a combined General Liability/Professional Liability form, which typically does not exclude coverage for professional claims arising from the spread of disease. As an example, expenses relating to a lawsuit claiming a failure to properly sterilize a facility should typically be covered, though there may be exclusions for certain costs associated with the claim.
In anticipation of the continued worsening of the outbreak, businesses should review their insurance coverage, and, if necessary, engage assistance in determining their extent of exposure. However, there are plenty of other risk management considerations outside of insurance coverage. For those companies that are able to do so, it is highly advisable that they begin to expand any policies they have in place regarding working remotely. This will slow the spread of the disease through one’s own workforce, decreasing the likelihood that huge numbers of employees will be out of work all at once. Serious consideration of sick day policies is also advisable – by making it easier for employees to stay home when ill, it again minimizes the risk of the disease spreading, not to mention potential negative PR and employee dissatisfaction.
These are things to consider going forward as well. In addition, while not as immediate a concern at this point, the current crisis has already generated a great deal of discussion regarding supply chain vulnerability. We’ll address the insurance and risk management concerns relating to this point in a later post.
Coronavirus is forcing all of us – government, business, and individual – to consider our readiness for serious global disasters. Having appropriate risk management in place will be necessary for the next time we are threatened by a global pandemic and may be all the more important at that point given the potential for far more lethal diseases.
