Insurance and Risk in the Age of COVID-19

As we continue to navigate through the many uncertainties presented by our country’s response to the COVID-19 pandemic, many of our clients are asking how or if their insurance programs are going to help. HoganTaylor recently met with Jerry Messick[1], an insurance expert with Elevate Risk Solutions, and asked him that very question.  Before we dive off into this topic, please note that no two insurance policies are the same, and we urge you to consult with your broker or other professional risk management advisor on your specific polices.

We began our conversation with Mr. Messick discussing which policies would assist the business owner and what data would be needed to file a claim. Messick quickly dashed our hopes. Unfortunately, most business owners are going to find their general liability policies contain a virus exclusion; business interruption policies only cover property losses; most policies have an exclusion for Force Majeure or Acts of God; and most policies have an exclusion for governmental response, i.e. forced business shut downs.

Messick’s comments begged the question “How did the insurance companies predict these events when writing the policies?” He reminded us the insurance industry is over 300 years old and that insurance companies did not predict these scenarios, they have lived through them in the past.  For example, the virus exclusion dates to the Spanish Influenza of 1918. Messick stated that insurance companies cannot cover perils that cannot be estimated in some way, so these perils are often excluded or the coverage is often limited to a manageable amount.

Our conversation then turned to the new risks clients should be considering while managing through the COVID-19 crisis.

5 New Risk Areas Businesses Should Consider During the COVID-19 Crisis

• Clients in health care and senior care will see a spike in claims as medical malpractice claims over the treatment or lack of treatment related to COVID-19 are going to be significant. According to Messick, many senior care facilities with virus outbreaks will unfortunately simply have to "turn over the keys" to their facilities as the damage awards will greatly outweigh their financial resources.
• Self-funded medical programs should brace for the extensive costs of COVID-19 testing. While government officials state there will be no cost for the testing, there is no guarantee that some or all of these costs will be pushed to insurance carriers which could also include self-funded medical plans sponsored by employers.
• Workers’ Compensation claims may also skyrocket as employees point the finger at employers for failing to take protective action and exposing them to the virus by making them come to work.
• Directors and Officers (D&O) Liability policies may also be put to the test by claimants challenging management’s business judgement and failure to warn shareholders of the impact of COVID-19 on the company’s business, and
• Employee Practice Liability Insurance (EPLI) claims are expected to increase as more layoffs and furloughs occur.

How Should Business Leaders Operate in This Environment?

• Communicate and over-communicate with your employees. Put your employees and their welfare first and be as transparent as possible.
• Document the financial damages, both losses in revenues and extra expenses, being incurred as a result of COVID-19
• Make claims on your policies. Despite Mr. Messick’s concern that most policies will not respond to these damages, you should still notify your insurance carrier and make a claim. These issues will be litigated in the years to come and may result in some or all your losses being covered. You will not enjoy a recovery down the road if you did not file a timely claim
• Manage your new risks. Work with your broker or another risk management professional to understand the new risks you may be incurring in this environment and take steps to mitigate them. Consult regularly with your legal, financial and human capital advisors to talk through the crucial decisions that have to be made.

In closing, Messick noted, "we are living someone else's history lesson today".  We will come through these challenges and have a new risk tolerance and experience to base our future decisions on. When this is over, we will look back and document the challenges we faced and implement new policies and procedures, controls, technology and asset protection systems to prevent having to relive this event.

[1] Jerry is the CEO of Elevate Risk Solutions. Elevate has operations in Arizona, Delaware, Oklahoma, Hawaii, and New York. Elevate is a captive consulting and risk solutions firm focused on multiple industries and trade groups as well as providing enterprise risk management services to companies ranging from $20MM to $2B in assets. Jerry has over 36 years of experience in the insurance and alternative risk transfer industry. He is actively involved as a speaker and participant on various committees for both captive trade associations and nonprofit entities.