In these unprecedented times, we here at Gunn-Mowery understand the questions and concerns our clients have regarding how this pandemic will impact business operations. We are in the same situation.
The impact of Covid-19 is apparent throughout the world and the effect this virus is having on businesses does not discriminate on industry or size. Covid-19’s devastation has been visible in the United States over the last two months, but its impact will be felt long into the future.
We have been getting numerous questions from clients and partners about how COVID-19 will impact their commercial insurance coverages. Our Upside Agents have some answers for you and we will be updating this article as more information becomes available.
BUSINESS INCOME COVERAGE
As this type of global emergency has not been experienced in our lifetime, it is unclear how the insurance industry will address coverage as it relates to claims filed, specifically for business interruption/income. This is especially important due to the enforced cessation of business operations. It is our professional opinion that coverage will not apply and claims will be denied based on current policy wording. Virtually no business income policy written in the United States (or possibly worldwide) will provide coverage.
Nearly all commercial property policies contain exclusions for the following:
- Virus/bacteria
- Pollution
- Governmental action
- Ordinance or law
In addition, there is fundamental language that states there must be an actual direct physical loss of or damage to covered property at your place of business for coverage to apply.
WORKERS COMPENSATION COVERAGE
On March 16, 2020, the Pennsylvania State Department of Labor and Industry informed workers that those who contracted coronavirus may be eligible for Workers Compensation.
In order for a claim to be covered under Workers Compensation, the claimant must prove that their sickness originated at their workplace or while they were on the job. This will be a very difficult task as the number of positive cases is doubling every 2-3 days in Pennsylvania.
For essential workers such as health care employees & first responders, there are some States who are considering covering their workers compensation claims. As of March 5, the Washington State Department of Labor and Industries agreed to pay wage-loss and medical treatment expenses for any health care worker or first responder who is quarantined because of Coronavirus exposure. However, for those who are not in the health care field, their claims will be reviewed case by case to determine if there will be coverage.
CONTRACTS
With the novel coronavirus-related restrictions surfacing and being altered almost daily, many firms may find themselves in the undesirable position of not being able to fulfill contractual requirements. Many contracts address work requirements with allowances for unforeseeable circumstances that prevent the delay or fulfillment of a contract. This type of contract language is referred to as force majeure.
Components of the force majeure language may be activated by several coronavirus restrictions such as:
- Travel restriction imposed by the federal, state or local governments (travel restrictions impact the firms ability to coordinate site inspections and enforce OSHA regulations, as well)
- Employer restriction for travel
- Labor shortages
- Supply chain disruption from locally to globally sourced materials
- Lost productivity due to office closures
Other contractual force majeure clauses may specifically identify disease, epidemic, pandemic, any "act of God", or may generally identify and factor outside the party's control as a basis. Conversely, some contracts may not contain any language for softening requirements at all.
A review of your contract language is critically important in determining whether legal liability exists, particularly in light of the current pandemic and the evolving operational changes for all businesses. Force majeure can provide relief to both parties to a contract. Without other contractual terms however, additional compensation associated with a delay or disruption, shutdown, lost productivity, etc., is not automatically granted.
We would highly recommend that firms notify every client for which there is an ongoing contract or project that the coronavirus pandemic may delay their ability to perform in accordance with the time frame envisioned under the contract. It's in your best interest to advise the contract holder that daily changes are impacting the estimates provided in the contract, and that your firm will make every effort to provide better assessments as the pandemic restrictions unfold. And most importantly, check with your legal counsel.
CYBER INSURANCE COVERAGE
During this time when many are working remotely from home, cyber security is EVERYONE’S responsibility. This becomes vitally important as human error is a primary source of cyber loss under normal working conditions, let alone these unusual circumstances. So, the first place to start protecting your business is making sure employees are properly equipped.
- Are you using outdated programs no longer supported with security updates?
- Are employees properly trained to recognize common cyber attacks like social engineering?
- What about privacy laws and personally identifiable information that employees have access to and how is it being protected?
If you are impacted by a cyber attack and are fortunate to have cyber insurance, you may still face hurdles. Since every policy is different, be certain your policy protects you for those areas your business is most vulnerable. Some policies contain sub-limits on coverages and may not offer enough protection. Just having coverage isn’t good enough, you need to have the right coverages for your business. In addition, make sure you are maintaining minimum cyber security standards your policy may require. Coverage is going to be of little value if you lack the basic security standards your policy requires for a claim to be covered.
Cyber criminals are constantly searching for vulnerabilities to exploit. What better time than during all the uncertainty we are currently facing? It is important to be vigilant and proactive.
DIRECTORS & OFFICERS COVERAGE
Directors and Officers liability insurance coverage, often called D&O Insurance, is designed for instances when any party sues the officers or directors (or the entity) of a private or public organization or non-profit for alleged negligence or mismanagement that causes financial loss. An example could be if shareholders sue the management team of an organization that built a supply chain that totally relied on products coming from a country that is effectively shut down by Coronavirus. It could be alleged that they should have had alternate supply chain options available.
Claims can also be brought by investors against a board alleging the board was negligent in guiding the rollout of a product and it did not get into the market because of COVID-19 or did not get into the market prior to the onset of Coronavirus and the investors suffered a financial loss as a result.
An example of a claim scenario provided by Chubb for this type of loss is listed below:
| COVERAGE | Directors & Officers Liability |
| CAUSE OF ACTION | Misrepresentation |
| TYPE OF ORGANIZATION | Private |
| NUMBER OF EMPLOYEES | 230 |
| ANNUAL REVENUE | $55 M |
DESCRIPTION OF EVENT: An officer of XYZ Corporation held a conversation with a potential investor in which they discussed the future plans for the company, including the launch of new products over the coming six months. Based on this information, the investor committed over $500,000 to the company. After a year, the products the investor had anticipated did not appear in the marketplace. During this time period, the value of the original investment declined. The investor sued XYZ and its directors and officers for misrepresentation, seeking over $10 million in compensatory and punitive damages.
RESOLUTION: Following two years of litigation and $250,000 in defense costs, the parties finally reached a settlement with the plaintiff for $335,000.
The longer this Pandemic goes on, chances are that it will last through your policy renewal period. It is extremely important to have a thorough review with your insurance advisor to ensure that any new exclusions added because of Covid-19 will not affect your business.
EMPLOYMENT PRACTICES LIABILITY INSURANCE (EPLI) COVERAGE
Employment Practice Liability Insurance (EPLI), is insurance that is designed to protect a business from lawsuits coming from employees alleging harassment, discrimination, wrongful termination, among a host of other accusations. If the policy is endorsed correctly, it can also protect a business from third party suits of the same nature. This insurance is important for a business to have during normal operations, but with the current COVID-19 situation, it is even more important that companies have this coverage in place.
With uncertain times ahead, to properly protect your business, we suggest that companies have this coverage and carry sufficient limits. EPLI can be written in various ways, such as:
- You can add this coverage to General Liability policies, however, one is typically capped at limits such as $100,000, $250,000 and $500,000.
- In order to obtain higher limits, EPLI should be written as its own policy where a business can obtain limits starting at $1 Million and can purchase more if so desired.
- EPLI can be sold by itself or as part of an Executive suite of coverages such as Director’s & Officers and Fiduciary Liability. The limits can be separate for each coverage item, or aggregated together with shared limits.
There is no one specific industry that needs this coverage over another. We recommend that all businesses in all industries carry this coverage to properly protect themselves. This insurance should be carried year-round, and especially at times like the one we are currently facing.
Please contact the Gunn-Mowery Team with any questions pertaining to COVID-19 and your commercial insurance. We are here to help you navigate!