If you’re looking for coverage on your policies that respond to COVID-19, you’re likely out of luck. Insurers learned their lesson the hard way from previous health outbreaks by limiting coverage in their policies and adding exclusions for potential losses. But what exactly is the coronavirus and how could it affect several different lines of insurance coverage?
What is COVID-19?
COVID-19, also known as coronavirus, is a respiratory illness that can spread from person to person. Originating in Wuhan, China, coronavirus is thought to have been transmitted from infected bats that were eaten by snakes. The snakes were then sold for food in markets in China and were eaten by humans, thus beginning the spread from human to human.
The virus is spread by droplets made when infected persons cough, sneeze or talk. It is also possible that COVID-19 can be spread by touching a surface or object that has the virus on it and then touching the mouth, nose or eyes.
Coronavirus and Workers Compensation
How will workers compensation policies respond to the coronavirus? In order to pay out under a workers compensation policy, the illness or disease must meet two criteria:
- The illness or disease must arise out of and was in the course and scope of employment; and
- The illness or disease must arise out of or be caused by conditions specific to the work
It is typically quite simple to determine if an illness or disease arises out of the scope of employment. Qualifying as specific to the work is oftentimes more difficult. An illness or disease is peculiar to the work when it is found almost exclusively to workers in a certain field or there is an increased exposure to the illness or disease because of the employee’s working conditions.
Determining that an illness is occupational, specific to the work and ultimately covered under workers compensation law is not based on the disease itself but on the facts surrounding the workers illness and how it came to be contracted.. So does COVID-19 actually create a workers compensation exposure? Not likely, as it is not more occupational than the flu.
However, if it can be proven that an employee has an increased risk of contracting the virus due to the specificity of their job, the illness or disease could be covered under workers compensation. Healthcare workers may be able to prove specificity being face-to-face with sick people most all of their work day.
Workers compensation policies do state that the policy in effect at the employee’s last exposure responds to the illness even if the employee is working for someone else or is retired when the disease manifests. Just because someone contracts coronavirus at work doesn’t mean that it is covered as a workers compensation loss. It is very unlikely that both the occupational and specific thresholds can both be satisfied to provide coverage for coronavirus workers compensation claims.
Coronavirus and Event Insurance
Many events are susceptible to an epidemic and several large events have already been postponed or cancelled. However, the vast majority of event insurance policies have exclusions for infectious disease.
Coronavirus and Business Income
Many manufacturing operations and supply chains have been severely disrupted as a result of the coronavirus. So, is there business income coverage if the government requires businesses to close?
Short answer: no.
Business income coverage is only triggered by property losses that lead to business closure. The requirement not only applies to businesses themselves, but also to dependent property losses in the supply chain. A specific property exclusion applicable to viruses generally also applies.
As a result of the virus exclusion in most standard policies, the Insurance Services Office (ISO) created two business income endorsements as advisory forms that carriers can file with their state authorities if they so choose:
- Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus – Edition February 2020
- Business Interruption: Limited Coverage For Certain Civil Authority Orders Relating To Coronavirus (Including Orders Restricting Some Modes of Public Transportation - Edition February 2020
Both of these endorsements provide coverage immediately after the insured ceases their operations, with no waiting period. Coverage is provided for the amount of time specified in the schedule on an annual aggregate basis. While these endorsements do provide limited coverage under certain circumstances, there are several exclusions that severely restrict coverage.
Both of these two endorsements:
- Provide limited coverage when/if there is a suspension of operations due to closure or quarantine at the insured location ordered by a civil authority attempting to avoid or limit the spread of infection of coronavirus
- Extend contingent business income for name locations, if the policy includes dependent property coverage, when there is an interruption in the insured’s business due to closure or quarantine to avoid or limit the spread of infection by coronavirus ordered by a civil authority at the dependent property
- Apply to income loss suffered by insureds operating from a vehicle or mobile equipment, if the policy is endorsed to recognize such vehicle-based operation
Both of these two endorsements, however, do provide specific exclusions for:
- Intentional action by any person, group, organization or sovereign state to introduce or spread the virus
- Cost to clean, disinfect, dispose of or replace any property
- Costs to disinfect or dispose of any bodily fluids or waste materials
- Costs of testing for or monitoring the presence or absence of the virus
- Loss or expense due to feat of contagion
- Loss or expense related to absence of infected workers or those suspected of being infected, and
- Any fines or penalties
Individual insurance companies will have to decide whether or not to adopt these forms and, if so, how they are going to appropriately rate for the exposures.
If you have more questions about how your policy may respond to claims arising out of coronavirus, please give our office a call at 517-482-1316.