Let's face it, insurance simply doesn't cover three of the Four Horsemen of the Apocalypse.
Yes, life insurance does cover death. But when it comes to war, famine and pestilence--a contagious, epidemic disease that is virulent and devastating-- there's usually not much insurance can do.
And if the avian flu virus mutates, as world health experts fear, and begins to spread easily from person to person, it could trigger a pandemic that kills millions.
There may be some limited coverage under certain policies for a pandemic influenza outbreak, depending on the circumstances. But for the most part, a pandemic flu is not an insurable event.
"If we're talking about the type of pandemic that occurred in the early 1900s, we wouldn't even construct a cover for that," says Richard Thomas, chief underwriting officer at American International Group Inc. "There's no way we could underwrite it. And, if we could construct a product, no one would want to buy it at the price we would charge," he says.
"You can always design an insurance response," he says. "But you have to look at it from a very practical standpoint: how much risk the customer is willing to take themselves before they actually will spend the money to buy the cover. Now, if we offered it to them at a very inexpensive price, they'd certainly buy it. But then I'd have to worry about solvency of our company," he says.
In the beginning of a pandemic, there might be some limited coverage under current commercial general liability and workers' compensation insurance policies, brokers say. But there would be little property or business-interruption coverage for most businesses. Specialized policies might provide coverage. Trade disruption and special business-interruption policies, for instance, may respond to certain losses arising from a pandemic flu.
In the meantime, there have been some discussions with underwriters to try to find alternatives that could help companies in the event of a pandemic flu, says Geoffrey Peters, managing director at Willis Risk International.
"We're working with underwriters to find out if they can come up with a solution to cover this," he says.
But AIG's Thomas says the risk management community has shown little interest in business-interruption coverage for a pandemic flu.
"In talking with the risk management community of our major customers, there's been no discussion of, 'Gee, will underwriters provide us with business-interruption coverage for this,' " Thomas says. "Now, it may come to pass that we're going to have to address that issue, but right now there's nobody out there who wants that--at least who's come to us to ask for it," he says.
Even though there may be only limited coverage under current policies, risk managers should be familiar with their policies and be prepared to notify their insurers immediately if they believe they have a claim, brokers say.
Here's a closer look at the coverage provided by various types of insurance policies.
The typical workers' comp insurance provides benefits for employees who are injured or become ill during the course of employment. Coverage will hinge, in large part, on whether employees can show they became sick while on the job, in the course of employment.
"If it is as fast moving as they fear, they will have a tough time proving (the exposure) wasn't on the subway, or the bus on the way to work, or worse, that you got it from your kids," says Mark Noonan, managing director and practice leader for workers' comp at Marsh.
"The causality issue is going to be a challenge--establishing how you got it will be one of the major obstacles," he says.
In some jurisdictions, there also might be a question about whether a disease would be an occupational disease risk as well, he says.
Employees who become sick with H5N1, the flu virus that experts fear might cause the pandemic, while traveling outside the United States on business, however, would have coverage under foreign voluntary workers' comp policies, he says.
Foreign voluntary workers' comp provides coverage for employees who become sick with an endemic disease while on business overseas. Because avian flu has become endemic in certain countries in Asia, an employee on a trip to that region should be covered under foreign voluntary workers' comp, which provides coverage for healthcare costs as well as repatriation expenses.
Companies that have employees traveling to foreign countries where there have been human cases of avian flu need to start taking precautions, Noonan says. "We're counseling our clients to think about putting people in a quarantine situation if they are coming back from a country where it exists," he says.
Once the disease spreads to the United States, it would no longer be considered an endemic disease, Noonan says. It would then become a workers' comp issue and then would depend on whether the employees could show they became sick with the flu during the course of their employment.
Most employees who have health insurance would be covered for their medical expenses no matter where the contracted the disease. Health insurers, therefore, could see heavy losses in the event of a pandemic flu.
They would, however, be left without any disability insurance to cover any extended stay away from work.
COMMERCIAL GENERAL LIABILITY
The standard commercial general liability policy typically responds to bodily injury, sickness or death allegedly caused by the insured. The trick for plaintiffs will be to show that they became sick because of the negligence of the insured.
"Causation will be a big defense and a big concern for plaintiffs," says Will Eustace, senior vice president in the national casualty practice at Marsh. "How do you show the connection between the flu and something that X company or X person did--it's very difficult," he says.
But because it can take a number of days before an infected person begins to show symptoms of the disease, a company would not be able to take precautions until it was already too late, Thomas says.
"If you don't know you have it, how can you be held liable for spreading it," Thomas says. "The burden of proof on that will be virtually impossible," AIG's Thomas says.
In addition, most liability policies also contain a broadly worded pollution exclusion, which applies to, among other things, all "solid, liquid or gaseous . . . contaminants or irritants," according to a Marsh white paper, "Avian Flu: Preparing for a Pandemic." It is possible some insurers will argue that viruses constitute a "contaminant" within the meaning of the exclusion and use that as a basis to deny claims, according to the white paper.
Even so, businesses in the service industry will really have to think about how they protect their customers to protect themselves from liability, says Tom Falzarano, managing director and head of the global casualty claims practice at Marsh.
They could be negligent if they fail to identify the problem and take the necessary precautions to isolate infected individuals. They will be questioned about what steps were taken to prevent exposure and what notification was given to others to let them know there could be a risk of exposure.
Property policies typically provide coverage when there is a direct physical loss of property or when there is a time-element loss related to property damage from insured perils.
Although businesses could suffer heavy losses as a result of a drop in sales or a business interruption, their property policies would not respond because there usually would be no damage or loss of property.
Even poultry farms that have to destroy their flocks to prevent the spread of the disease would probably have little recourse to insurance unless they purchased coverage for chicken mortality, Thomas says.
And again, the issue comes down to price. How much would a poultry business be willing to pay for life insurance for its chickens, Thomas says.
"We could conjure up a product, but I don't think anybody would buy it, because we would underwrite to the potential of a catastrophic loss," he says.
Besides, he says, the typical property policy covers physical structures, not live assets.
There are a few covers and extensions, however, that could help mitigate losses.
Civil Authority: The "Civil Authority" extension is commonly found in business interruption and other time-element forms. Coverage may be negotiable to cover losses due to business interruption caused by an act of civil authority that would prevent access to the premises covered under the policy. Coverage would typically be triggered only if there were a specific order issued by local authorities to evacuate.
Some large hotel, hospitality and entertainment companies have obtained programs that contain an endorsement originally developed in the London market. These products cover time-element loss resulting from closure of premises by a public authority after one or more guests exhibit symptoms of a contagious disease, according to Marsh.
SPECIAL B.I. AND TRADE
It also may be possible to negotiate special business-interruption cover, though capacity would be on a limited to a net-line basis as it would respond without physical loss or damage and would be therefore not generally covered by property treaties, according to Willis.
"No one has reinsurance for that," Peters says. "If they did, then I think the underwriters would have a different attitude."
Trade-disruption insurance can potentially provide limited coverage for loss or extra expense due to emergency partial or total closure of any port due to order of the local government; quarantine; confiscation or seizure of a product in transit; embargo of potential contaminated product; and alternate sourcing of product, according to Willis.
The coverage is offered to a limited degree through Lloyd's underwriters. Unlike standard business-interruption coverage, trade-disruption insurance does not require that there be a direct physical loss of goods. This could provide some protection to companies with complex global supply networks, says Willis.
PATRICIA VOWINKEL lives in New Jersey..
April 15, 2006
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