EPIC Risk Advisory Bulletin
Volume 1, Issue 19
The global COVID-19 (coronavirus) pandemic remains both dynamic and fluid. We continue to see unprecedented disruptions at home and abroad. In this issue, we take a focused look at:
- General Information on Coronavirus
- Insurance Products and Coverage Information
- Pandemic Insurance – Public Private Partnership?
- D&O Insurance Impacts of Coronavirus Claims
- Cyber Rates May Continue to Rise
- London’s Role in U.S. Business Interruption Cases
- News of Note
- Human Resources and Employee Benefits
- OSHA Answers to Frequently Asked Questions
- Guidance for Employers on Managing Leave, Closures
- Presumptive Compensability Legislation Update
- Insights from Across the Firm
The information presented here is intended to provide a high level overview of critical areas of concern for businesses around coronavirus. Consult your EPIC insurance broker for more in-depth guidance.
General Information on Coronavirus
The best sources overall for timely information on the coronavirus pandemic remain the Centers for Disease Control (CDC), the World Health Organization (WHO) and Occupational Safety and Health Administration (OSHA).
EPIC continues to compile resources to aid in understanding the impact of the pandemic on employers, their workforces and the management of risk.
Insurance Products & Coverage
Pandemic Insurance Could Emerge as a Public Private Partnership
Insurers are lobbying for a federal pandemic insurance program that would pair up their capital with federal government backing to deliver funds to businesses damaged by the next outbreak. This would exclude any future outbreaks of the current coronavirus, and the hope is that the government would bear the largest burden.
The move comes in response to earlier legislation proposed by congresswoman Carolyn Maloney (D-N.Y.), the Business Continuity Protection Program. According to CNBC, this program has been criticized by industry groups as being a “bailout program masquerading as insurance.”
Insurers have largely denied claims for losses caused by coronavirus-related shutdowns through business-interruption policies, much to the dismay of policyholders. The central argument is that insurers view business interruption losses caused by pandemics as excluded and therefore uninsured risks.
Denials have led to lawsuits, which have been thus far decided in favor of insurers. Absent specific policy language allowing coronavirus as a covered event, policyholders have found themselves without redress. In response, many states have attempted to enforce rules requiring insurers to pay business interruption claims on the basis of closure due to stay-at-home orders.
Amid ongoing debates as to whether or not the insurance industry can remain solvent in the face of paying out on a predictably large volume of claims, and whether or not states have the authority to amend contracts already in force, insurer Chubb is taking the lead to forge a public-private partnership that would fund payout of claims related to losses from future pandemics.
In early July, it circulated its long-awaited proposal outlining how a public-private partnership program could be implemented. Defining losses from the coronavirus pandemic as “so great that they are not insurable in the private insurance market without substantial government support,” the proposal outlined its key components of a potential public-private partnership as beneficial to businesses of all sizes.
Outlined within the program are the need for affordability and certainty for small businesses as to the amount of financial support to expect in the face of another economic shutdown; efficient payment of a pre-determined sum to small businesses without the need to adjudicate individual claims; an incentive to keep workers employed; a program for larger businesses intended to stimulate the private market for pandemic coverage; and insurance industry risk-sharing with the federal government.
The proposal calls for distinctive benefits depending on the size of the affected business. Through its Business Expense Insurance Program, an immediate cash payment would be made for small businesses when a pandemic is declared, while a separate, voluntary offering (“Pandemic Re”) would exist for medium and large businesses with 500+ employees. In those cases, losses would be paid through the existing claims adjudication process. Both options require substantial funding from the federal government to succeed.
For more information about how this developing situation may impact you, contact your EPIC broker.
How Will D&O Insurance be Impacted by Coronavirus-Related Claims?
A recent report from AM Best alerts policyholders of directors and officers (D&O) insurance to expect radical changes to coverage going forward. Financial results and turbulence caused by the coronavirus pandemic have created uncertainty and unprecedented levels of strain.
High profile lawsuits arising out of the #metoo movement alleging sexual harassment by well-known executives resulted in large payouts from insurers. Aggregate defense and cost containment expenses of $973 million were recorded for the industry last year (AM Best, 2020). Those costs are up from the previous record high of $946 million in 2017 (AM Best, 2020). While D&O prices rose by 44% in the United States in the first quarter of 2020, AM Best expects additional triple-digit increases going forward.
Protracted claims litigation may arise for insureds seeking reparation under D&O policies, given the complexities of the current climate. Future complex claims now developing could include those alleging that directors and officers failed to properly disclose the risks the virus posed to a company’s business and financial performance.
Bankruptcies could also impact D&O coverage in the immediate future. As some companies close their doors for good due to the strains and stresses brought on by the pandemic, policyholders may look to their D&O policies to provide some measure of compensation.
There may also be litigation related to the mismanagement of a company’s pandemic response. Additional potential triggers for D&O claims may come as employees return to work. Given the current social climate, allegations of discrimination or wrongful termination might gain traction, as well as Failure to Accommodate (ADA), FMLA issues, and Wage and Hour and Retaliation. Employment Practice Liability and D&O policies could respond to such claims. A prudent practice is to review policy wording and terms and conditions, and continue to closely follow the CDC and other governmental recommendations regarding the setup and maintenance of a safe work environment. Often a word or phrase can make the difference between whether a claim is denied or paid out.
Finally, policyholders must not ignore the ongoing impact of climate change on operations. As evidence mounts that forest fires, floods and storms are connected to climate change, companies must take reporting requirements seriously. This is particularly important for companies with operations in countries like Canada, where Large Employer Emergency Financing Facility (LEEF) regulation has strengthened disclosure obligations regarding material risks. A failure to disclose climate change risks could result in D&O-related claims in these situations.
For more information or questions about your D&O coverage, contact your EPIC broker.
Cyber Rates Will Continue to Rise
While Cyber insurers have enjoyed profits for the last few years, the tide may be turning as the risk landscape evolves under increased threats of data breaches, ransomware attacks and insurance claims. A recent AM Best report outlined slowed growth and increased rates on the horizon. Prior to the onset of the pandemic, rates were rising at a rate of 4% to 5% and the number of claims had doubled as compared to two years prior.
Standalone Cyber coverage outpaced the growth of packaged Cyber policies as well, according to the report. Premiums for these policies rose 14% in 2019, while packaged policies grew at just half this rate. The shift toward standalone coverage may reflect companies’ growing concern over cyber risk and desire to protect themselves more comprehensively. Protracted litigation, frequency and severity of ransomware attacks, and increased average ransom payments indicate a need for policyholders to carefully review existing Cyber policy wording and coverage. It is important to ensure it adequately meets evolving risk exposures.
For more information or assistance evaluating your needs, contact your EPIC broker.
London Litigation Could Hold Key for U.S. Business Interruption Cases
While the proposal and adjudication of business interruption-related claims continue in the U.S., all eyes are on London as a critical case is being decided there between U.K. financial regulators and insurers. The case concerns whether or not coronavirus-related business interruption claims should be paid.
The U.K.’s Financial Conduct Authority has said that the coronavirus outbreak should trigger payments under insurance policies which provide cover when insured premises cannot be used due to restrictions imposed by authorities in the event of a pandemic. The regulator has taken eight insurers, including Hiscox Ltd., RSA Insurance Group PLC, QBE Insurance Group Ltd., and Zurich Insurance Group Ltd., to court for denying business interruption claims of hundreds of thousands of small businesses.
A ruling against the insurers could not only result in tens of millions of dollars in additional claims in the U.K., it could also have ramifications on claims activity in the United States.
News of Note
The passage of another two weeks has brought forth more developments across the insurance world. Here is a rundown of recent news stories of interest.
- Cheers bar owners file lawsuit against insurance company over coronavirus closure, WHDH, July 26
- Will they work again? Fears over insurance for older actors after coronavirus, The Guardian, July 26
- Insurance companies battle their clients over the coronavirus, Axios, July 23
- Proposed CA legislation would create rebuttable presumptions supporting business interruption coverage, JD Supra, July 22
- Telemedicine revolution, deferred, Politico, July 22
HR & Employee Benefits Insights
OSHA Provides Answers to Frequently Asked Questions About Coronavirus
Keeping up to date with the latest guidance and recommendations from the CDC, OSHA and Department of Labor around coronavirus can be time consuming and stressful. OSHA recently updated its website to include answers to frequently asked questions from employers about coronavirus.
OSHA’s FAQ resource addresses common questions in a variety of topics including the following:
- Cleaning and disinfection
- Cloth face coverings and PPE
- Employer requirements
- Reporting
- Restrooms and handwashing facilities
- Retaliation
- Return to work
- Testing for coronavirus
Each topic has specific questions that expand to reveal detailed answers. For example, consider this question and response regarding cloth face coverings:
Are employers required to provide cloth face coverings to workers?
“Cloth face coverings are not considered personal protective equipment (PPE) and are not intended to be used when workers need PPE for protection against exposure to occupational hazards. As such, OSHA’s PPE standards do not require employers to provide them.
- The General Duty Clause, Section 5(a)(1) of the Occupational Safety and Health Act, requires each employer to furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm. Control measures may include a combination of engineering and administrative controls, safe work practices like social distancing, and PPE.
- However, employers may choose to ensure that cloth face coverings are worn as a feasible means of abatement in a control plan designed to address hazards from SARS-CoV-2, the virus that causes COVID-19. Employers may choose to use cloth face coverings as a means of source control, such as because of transmission risk that cannot be controlled through engineering or administrative controls, including social distancing.”
Answers are helpful and clear without being overly burdensome. Read the full FAQs
For more information or assistance, contact your EPIC team member.
Guidance for Employers on Managing Paid Leave, Closures
The Department of Labor (DOL) recently issued updated guidance on how paid leave law applies to businesses reopening and bringing workers back. The guidance is helpful to consider for employees, who may be struggling with returning to work safely while navigating the uncertainty of schooling and child care.
The DOL’s Wage and Hour Division posted updated guidance online clarifying four scenarios that would temporarily give workers at medium-sized businesses access to up to 12 weeks of paid sick leave and family leave. This provision is afforded under the Families First Coronavirus Response Act (FFCRA), which was passed by Congress and went into effect on April 1.
Now the DOL has clarified that employers rehiring workers they previously furloughed during the pandemic must honor any paid-leave benefits they accrued prior to the employment separation, and cannot extend a temporary layoff based on a request for additional leave.
For example, if an employee had four weeks of paid-leave benefits after April 1, but before he or she was furloughed, that employee would still be eligible for the remaining eight-week balance if the employer brings him/her back to work.
It also addresses furloughed workers who are recalled. If such a worker requests benefits under the FFCRA to care for a child, the employer may not use it as a reason to maintain the furlough. Access the full DOL guidance
For more information, contact your EPIC team member.
Presumptive Compensability Legislation Update
An ongoing issue affecting workers’ compensation is presumptive compensability legislation from states. At least 18 states have proposed workers’ compensation bills related to coronavirus, including expanding coverage for either frontline, essential or all workers. Some states have issued executive orders, bulletins, emergency rules and directives on workers’ compensation coverage for certain workers. It is a dynamic situation that warrants monitoring by employers.
An excellent resource for staying current on legislative activity is the National Council on Compensation Insurance (NCCI) site. NCCI is tracking state compensability presumption legislation and updates state statuses weekly. Its coronavirus workers’ compensation compensability presumptions chart is updated weekly with developments around state legislative activity in this area. Access the chart
Ogletree Deakins has assembled a searchable table to track which states have implemented or proposed amendments to state workers’ compensation statutes. The table also addresses workers’ compensation benefits for health care workers and first responders. Access the table
For more information, contact your EPIC team member.
Insights From Across the Firm
EPIC thought leaders have written numerous articles on matters relating to coronavirus, all of which are available on EPIC’s website. Those most recent articles include:
- Community Wellness: Considering Paid Sick Leave, July 27
- Health Insurers are Making a Lot of Money – Will You Get Your Share?, July 23
- COVID-19 Update from the EPIC Pharmacy Team, July 16
Conclusion
Our understanding of coronavirus and its impact around the world continues to evolve at a rapid pace. This newsletter briefly touches on issues that businesses may want to consider as they approach their response to novel coronavirus. More topics will be considered in future issues as our understanding of the virus and its impact continues to evolve. Please reach out to your EPIC broker for more information.
For all of EPIC’s coronavirus coverage, visit epicbrokers.com/coronavirus
Disclaimer: This has been provided as an informational resource for EPIC clients and business partners. It is intended to provide general guidance on potential exposures and is not intended to provide medical advice or address medical concerns or specific risk circumstances. Due to the dynamic nature of infectious diseases, EPIC cannot be held liable for the guidance provided. We strongly encourage readers to seek additional safety, medical and epidemiological information from credible sources such as the Centers for Disease Control and Prevention and the World Health Organization. Regarding insurance coverage questions, whether coverage applies or a policy will respond to any risk or circumstance is subject to the specific terms and conditions of the policies and contracts at issue and underwriter determinations.
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