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Coronavirus and the possible effect on your business and Insurance

By: Ryan McLaughlin, Jennifer Dollar and Jim Shriver  (Updated 3/12/2020)

Every day we hear about new areas where the coronavirus (more specifically known as COVID-19) is extending past the initial boundaries of the Wuhan Province in China where the virus originated. There are now confirmed cases of unknown origin in multiple states and the total number of cases has grown to over 1,300 confirmed cases across the entire country and is growing rapidly. The World Health Organization has officially classified COVID-19 as a global pandemic and it is clear that our daily lives will be influenced for at least the near future.  As such, businesses should be alert and have a plan in place to deal with the disruption the virus is sure to cause.

This leads us to epidemics and pandemics and how they relate to Business. As of now, the greatest impact from this virus from a business standpoint is with companies that fall in the travel and hospitality sector, as well as companies that rely on international manufacturing from nations located in the coronavirus hot spots in Southeast Asia and extending into Europe. For example, many airlines have had to cancel flights and impose restrictions on routes due to government mandates restricting travel to certain regions. We have also seen companies such as Starbucks, McDonalds and Disney close locations where there is a high risk of exposure. They will need to account for lost revenue and lost wages paid to employees while their business is closed. This can also be significant for businesses that rely on goods and manufacturing from heavily impacted regions. We have seen many companies temporarily close factories in China, South Korea, Italy etc.

As the virus expands stateside, many more businesses will find themselves impacted and most companies do not have effective insurance coverage to respond to a virus outbreak. The biggest exposure that presents itself is the interruption of your business activities leading to lost profits. In the event of a potential quarantine, like the restrictions that have already been implemented in parts of Southeast Asia, factories will be shut down, trucks will be taken off the road, and retail and hospitality establishments will see direct hits to their bottom lines. The coverage trigger for Business Interruption is direct physical damage to the location. There is also a Civil Authority trigger, but that must be preceded by direct physical damage in the area. Establishing direct physical damage from a virus outbreak will be difficult to establish thus making it unlikely to trigger the Business Interruption coverage.

The inadequacy of coverage in this area has not escaped the notice of the insurance industry. 12 Chinese insurers co-launched a specially designed insurance product to cover losses incurred by businesses as a result of the coronavirus outbreak. That being said, it is only being made available to key businesses within the country. The United States though has begun to follow suit in creating a product specifically designed to address a coronavirus outbreak. A form has been created by the Insurance Services Office (ISO) titled Business Interruption: Limited Coverage for Certain Civil Authority Orders Relating to coronavirus that has been made available for use by member carriers. The form will cover for lost income during a closure or quarantine ordered by civil authority to stop the spread of infection by a coronavirus. It is unknown how much the coverage will cost or if carriers will in fact offer the coverage as each insurance company is responsible for assessing the exposure and developing its own rules for use of the form.

So what should companies do? The first step is to have a plan. Having a preparedness plan in place ahead of time will go a long way towards keeping your employees safe and your business running. Many companies already have procedures in place that will be a good starting point in developing your plan. Each year businesses deal with the flu on a relatively routine scale. Roughly 5%-20% of Americans get the flu each year resulting in about 70 million lost workdays and a 10.4 billion-dollar impact on the economy. Those numbers are staggering, but the impact of a pandemic could cause chaos on a much larger scale. For example, according to the CDC, the Spanish Influenza of 1918 infected over 500 Million people (a third of the world population at the time) and 30 Million lost their lives. The world is in a much better place to face these challenges today, but the effects on commerce could still be devastating.

While claiming a loss under business interruption might be difficult, there are other policies that could still come into play.

  • Business Travel Insurance – For those companies with employees traveling internationally, it is important to have a travel insurance policy in place to protect employees when outside of the United States. Travel policies will provide coverage for emergency medical care received overseas by both accident and disease. It will also provide important coverage for emergency evacuation, medical transportation, and repatriation.
  • Workers Compensation – Workers Compensation not only covers for injuries sustained on the jobsite, but also occupational disease. The definition of occupational disease though will vary by state so coverage for the coronavirus can be dependent on the location of the employee. As a general rule, ordinary diseases of life, like the flu, would be excluded from Workers Compensation, but there can be instances where a viral infection could be considered an occupational disease. For example, there was a case under Minnesota law where a flight attendant successfully claimed coverage after coming down with the Hong Kong Flu. If you have employees whose job puts them at greater risk of catching the disease, Workers Compensation could potentially come into play.
  • Commercial General Liability Insurance – Your Commercial General Liability policy protects you against allegations of your negligence that led to a third party’s bodily injury or property damage. Retail and Hospitality businesses could be found liable if they negligently exposed their customers to employees they should have known to be ill. It is important that you remain cognizant of the health of your employees and customers and notify your carrier should such an allegation arise. While policies can include communicable disease exclusions, there’s a chance you could have coverage that will provide valuable protection.
  • Employment Practices Liability Insurance – There are certain members of our population that will be at greater risk of complications with COVID-19 than the general population. It is important that you take these vulnerabilities seriously and provide accommodations to employees where necessary. Failure to do so could trigger a discrimination claim due to violation of The Americans with Disabilities Act. Employment Practices Insurance will help respond to such allegations of discrimination and provide protection for the company should damages be awarded.

In addition to reviewing your policies, there are other things you can do to protect yourself and your company. You can limit risk by keeping employees aware of safe practices. Some ways to do this would be:

  • Restrict business travel plans for employees to areas that may have heightened risk.
  • Inform employees regarding personal travel plans how they may face restrictions and quarantines upon return. Some cruise lines have faced 14-day quarantines, as well as self-enforced quarantines for people returning from some locations.
  • Avoiding face to face interactions for employees who may be sick by providing work from home options.
  • For companies that rely on international manufacturing, stockpiling materials or seeking temporary alternate sources.
  • Health education for employees. Washing hands (or providing hand sanitizer) and wiping down computers and desks to reduce risk.
  • Making sure employees are up to date on sick leave policies.
  • Encouraging teleworking where possible.
  • Being prepared for workforce extended leave of absences due to sickness.
  • Monitoring health alerts and warnings from the CDC and local health organizations.

The best way to combat the coronavirus is to have a plan in place now so if the time comes you can be proactive instead of reactive.