By PAUL PRIMAVERA, senior vice president; WILLIAM BOECK, senior vice president/insurance and claims counsel; and KAREN ODUM, senior vice president/manager of quality assurance at Lockton Cos. LLC
Each day, the number of people and businesses affected from widespread flu-related illnesses grows.As companies prepare to deal with potential pandemic-related issues, such as from the H1N1 or Swine Flu, they need to be aware of the potential exposures they may experience.This includes a determination of which insurance coverages may respond to these losses.
The principal exposure will be alleged negligence.For example, a company may face allegations that it failed to protect a customer or invitee from being exposed to the virus. Preparation and reaction to an "outbreak" will become critical, both from a potential coverage and reputational standpoint.
Whether a general liability insurance policy will provide any protection is a subject of debate.Availability of coverage will depend on a company's specific situation.However, several key policy exclusions could mean that it has no coverage even for legal defense, especially if the insured is in the retail, service or food industry:
-- Expected or Intended: Injuries that could have been expected are excluded.Carriers may argue that any prudent person would have known there was an increased exposure to flu virus.
-- Pollution: Pollutants are defined as any solid, liquid, gaseous, or thermal irritant or contaminant, including waste.This exclusion is fairly broad, and in many cases depends upon case law in determining what is considered a pollutant. Though there is no case law to support this, there is a possibility that a virus is a pollutant
-- Impaired Property and Recall Expenses: Property damage caused by contaminated products that are integrated into another product.The impaired property exclusion excludes damage to "impaired property."When a policyholder's product (such as oil) becomes incorporated into a property other than their property (such as salad dressing), the combined ingredients are no longer considered "your product under the policy."If the oil was defective and caused issues with the salad dressing, this exclusion would apply.
-- Bacteria: Carriers may argue that this exclusion applies.A virus is different in that it includes DNA or RNA in its genetic makeup.
-- Biological Agents or Avian Flu: Many carriers have specific exclusions that will preclude all coverage related to biological agents or avian flu.
Directors' and Officers' (D&O) Liability
Directors and officers can anticipate shareholder suits in the event companies are inadequately prepared to handle a flu outbreak that hurts the company's business.Shareholders may allege that directors and officers failed to perform the necessary contingency planning and to disclose the risks a flu pandemic could have on the company's business and financial results.
Such preparation might include consideration of the Business Pandemic Influenza Planning Checklist prepared by the U.S. Department of Health and Human Services and the Centers for Disease Control and Prevention.
Directors and officers of companies that stand to benefit financially from a flu outbreak face similar exposures in the event a pandemic does not materialize.
Generally speaking, there are few issues that would affect coverage available for shareholder claims related to a flu outbreak.Most D&O insurance policies exclude claims for sickness and bodily injury.Such exclusions should not bar coverage for shareholder claims seeking recovery of economic loss.
Some exclusions are drafted more broadly, though, and apply to claims that directly or indirectly involve bodily injury. Such an exclusion could preclude coverage for shareholder claims.
Like general liability policies, D&O policies also have broadly worded pollution exclusions.Whether such exclusions would apply to a claim would depend on whether a flu-related claim involved "pollutants" as defined in the specific language of the policy.
Employment Practices Liability
Employees who get the flu and later lose their jobs or believe their working conditions deteriorated because they were sick may bring claims alleging wrongful termination, discrimination, harassment and other misconduct.Such claims are typically covered under employment practices liability (EPL) insurance policies.
Employees may also make claims asserting they became sick as a result of an employer's lack of action.Claims of this nature will have potential coverage issues.Exclusions for bodily injury, violations of labor, and safety statutes and obligations under workers' compensation laws likely will apply.
A flu pandemic will highlight the need to maintain the confidentiality of individuals' health information.Employers must be concerned about protecting employee information.With the passage of the Health Information Technology for Economic and Clinical Health Act, or "HITECH Act," many companies that do business with healthcare providers and other entities subject to the Healthcare Insurance Portability and Accountability Act (HIPAA) are now obligated to protect the privacy and security of personal health information and notify affected individuals in the event that protection is breached.
Disclosure of such information through privacy breaches could give rise to significant claims and losses that cyber- and privacy liability policies can be designed to cover.
WORKERS' COMPENSATION-BASED EXPOSURES
In determining coverage for potential workers' compensation losses, insurance carriers will initially attempt to determine if the exposure was obtained while the individual was in his or her scope of work.
Because of the complexity of this issue, it is often difficult to illustrate workers' compensation with specific examples; but suffice it to say, workers who are traditionally exposed to a higher risk than the general public will be covered, such as healthcare workers.However, increased exposure due to business-related travel may ultimately trigger coverage for other groups of workers as well.
Determined on a state-by-state and case-by-case basis, potential policy exclusions that are expected to be closely examined by carriers include:
-- Your serious and willful conduct.
-- Your failure to comply with health and safety law or regulations.
Allegations of "your serious and willful conduct" or "your failure to comply with health and safety law or regulations" are determined by each individual case and the applicable jurisdictions.In these cases, the failure of the employer or their representative must be directly related to the claimant's injury.Both of these situations are usually difficult to prove, and a higher degree of liability is warranted.
Exposures to pandemic-type illnesses may also include employee liability claims by workers' families alleging contraction of the pandemic-related illness.Allegations may include the failure of employers to utilize reasonable care in the protection of workers and their families.
PROPERTY COVERAGE-BASED EXPOSURES
If organizations are forced to temporarily close their operations due to pandemic-related issues, they will seek business-interruption coverage under their insurance coverage.Most policies trigger coverage for business interruption only after the policyholder has experienced a direct physical loss to the premises in question.Thus, insurance carriers will closely examine if the temporary closure of a policyholder's business was due to a contamination.An evaluation will then be made to determine if the contamination (temporary or permanent) is considered a direct physical loss of the premises.
Policyholders can oftentimes work with their carriers to negotiate business-interruption coverage--cover that may also extend to temporary closures due to "dependent properties," such as a major supplier to the policyholder.
In addition, coverage may also be extended when civil authorities prohibit access to the policyholder's premises due to a direct physical cause of loss of another property.This may include the restriction of access to a contaminated entertainment or shopping venue in which the policyholder housed their business.
Specialized coverage for pandemic-related business-interruption exposures is available in the international insurance marketplace.These policies are well-defined regarding pandemic-related issues and create a greater certainty of coverage intent.
It is expected that all of the coverage issues related to pandemic-related issues will continue to evolve over time.Currently, the insurance carrier markets have been slow to respond to the potential exposures that may be experienced by various entities.Companies should be mindful of these identified exposures as they create and refine their response plans to these epidemics.
January 1, 2010
Copyright 2010© LRP Publications