Broker Check

Coronavirus Insurance and Risk Management

February 05, 2020

The Coronavirus has been declared a world health emergency. As of February 4th, there were over 17,000 confirmed cases mostly in China but spreading to 23 other countries.

Besides the cost in illness and death, there are questions businesses should be asking:

  • What are the risks of loss?
  • What insurance could cover potential claims?
  • What can be done to mitigate the risks? 

Two articles addressing these questions have been published, one by law firm Jones Day, the other in Business Insurance. Here is a summary with my own comments.

Risk and insurance:

Business interruption:  Businesses with branches in China or dependent on Chinese manufacturers or suppliers may have to shut down or find alternate suppliers. Direct loss is unlikely to be insured unless a policy explicitly covers endemic disease or contamination. Provided the peril is covered, shutdown by order of civil authority is covered for a limited period, usually four weeks or 30 days.Businesses should have dependent business interruption to cover a manufacturer's or supplier's loss, but beware of limitations:

  • Coverage should be worldwide.
  • The peril must be covered for direct loss.
  • Sub-limits apply.

There are specialized policies that cover pandemics using a parametric trigger, or political risk with business interruption due to government regulations. Read policies carefully to determine terms and conditions.

General Liability: Standard coverage includes bodily injury for exposure to harmful conditions. (Some insurers use a "communicable disease" exclusion, and others may introduce it on renewal policies.)

Workers Compensation: Employee disease is only covered in domestic policies when it arises from workplace conditions. (Firms with employees in China should have "foreign" extensions or stand-alone coverage, including endemic disease and repatriation of sick employees. Precautionary evacuation would not be covered.)

Professional Liability: Healthcare providers could be sued for improper treatment or failure to follow protocols.

Directors and Officers Liability: Companies can be sued by shareholders for not having response plans in place, or failing to disclose the risk of pandemics. Even if groundless, these suits require defense. Some policies exclude claims "based on, directly or indirectly arising out of, or relating to actual or alleged bodily injury". (These exclusions should be limited to claims "for" bodily injury. When reviewing policies, watch out for the more stringent exclusion.)

Travel Accident: Businesses whose employees travel extensively should either have stand alone policies or include coverage in"international" package policies. The policy or coverage form should include sickness in the course of travel. Insurers with a worldwide presence usually include "extras" with their policies, covering expenses for situations such as illness or evacuation outside policy terms.

If any of the above policies have "crisis management" extensions that would apply to a disease outbreak, use it to address any public relations issues.

Risk mitigation:

Companies may have developed a disaster response plan for previous outbreaks such as SARS and Ebola. Those that haven't should update their plans. Be sure all employees know how to react. Follow instructions from the CDC or WHO on quarantine. Employees with symptoms should stay home and get prompt medical treatment. If their work is vital to the company they should have the tools to work from home.

Above all, keep this pandemic in perspective. Flu is more deadly.

My thanks to Kari Hagglund-Graver for finding the articles referenced in this post.

If you would like to learn more about what your company can do to better prepare themselves for the possible fallout of this pandemic, please feel free to schedule a quick 10 Minute Introductory Call with our Risk Management exert Steven Sharkey below.