COVID-19: The Yellow Brick Road is Under Construction
Currently there is no clear Yellow Brick Road that will allow you to navigate what continues to appear more and more like a trip through Oz.
First, we had the shutdowns and disruptions to the economy; now we have a reopening of that economy with many unanswered questions. The state and federal governments are playing their respective roles (sometimes arguing the finer points) and the partisan bickering has not made this any easier.
Insurance is regulated at the state level and there really has not been much interference in the industry by the federal government. However, in March 2020, the United States Congress decided to draft legislation that would force the insurance industry to retroactively recognize financial losses relating to COVID-19 as covered claims under commercial property policies. While they have no jurisdiction and even less of an understanding as to the implications, it was a proposal that then spurred a number of state legislatures to draft similar legislation. In response to this effort, trade organizations that represent the insurance agents and brokers in this country have advised their clients to file claims for the business interruption loss they have incurred. We have heard many explanations, including that the denial of the claim by the insurance carrier will support the businesses application for funds from the Small Business Administration. It sounds simple but remember the courts will have to decide whether coverage exists or not. Not just one court, but possibly as many as 50 courts and it could be years before there is any decision.
In the meantime, faced with this uncertainty, the insurance carriers need to begin to fund this potential loss. Where does this funding come from? Mainly insurance premiums collected from you the struggling business. As the premiums rise, it creates a perfect time for new insurers to enter this market. They may not have any exposure to a business interruption loss from COVID, but in efforts to gain market share, they can charge the going rate or just less than the going rate as they move forward.
Workers’ Compensation is driven at the state level for the most part. There are a few federal acts such as US Longshoreman and Harbor Workers, FELA (railroad workers), Jones Act and Black Lung Benefits but the day to day injuries are covered under specific state laws.
With regard to the shutdowns of the economy and the work from home requirements of many states the payroll amounts and the classification of your employees may need to be reviewed. Some of the payroll was reduced as employees were furloughed or given reduced work hours. The work may have been performed in different jurisdictions. Depending on the applicable rules and laws, the payroll may need to be reported for the state in which the work is being performed versus the state of hire. This is an area that needs to be reviewed, but first there has to be some guidance as to how it will be applied.
With more than 30 million people filing for unemployment, the reduction in covered payroll is significant. For some business it could translate to large returns in Workers’ Compensation premium depending on your retention and insurance structure. Now is the time to discuss this with your agent / insurance carrier to get some monetary relief. Even if you pay in on a quarterly basis the estimates may have changed enough to make a material difference to your business.
There are other exposures that may be significantly reduced. These may be industry specific, but nevertheless they need to be evaluated. A good example is the automobile liability insurance for school districts. If the District’s buses are parked, there could be a corresponding reduction in premium. This may also impact their liability exposure as it relates to sports and the crowds gathered for such various events. For clients in other business sectors, you may want to examine premium savings by considering actual miles driven vs. the number of power units in your fleet.
Insurance carrier audits can, and often do, provide a return on or credit toward future premium. It is even more critical during this volatile time to have someone help you navigate this process to determine if you meet the requirements for a refund or credit.
Property insurance issues may arise in several areas. Many property insurance policies have exclusions for certain risks and reduced coverage on other risks as relates to vacant properties.
The ISO CP 00 01 which is the standard property insurance form defines vacancy for the building owner or general lessee as a period of time when 31% of the total square footage of the premises is not being used for customary operations. If this condition is met, then the coverage is reduced by 15% and for some risks 100%. For many restaurant owners, even if they are conducting carryout orders, they might not meet this requirement.
Perhaps more importantly, the reason this condition exists is because an unattended business is more likely to have small issue become a major loss. Business owners need to continue to make inspections of the property on a regular basis.
Reopening the economy causes other issues that need to be considered. While the President and his administration have commented that they plan to reduce the liability of the business owners they require to remain open, it is unlikely that the Federal government has the ability to make such an edict. Since the liability arises either by state statute or by state common law, the liability is not under Federal jurisdiction.
The Business owner / Property owner are still subject to the common law obligations to warn their customers of dangerous conditions and to provide a safe workplace. When we hear others say, “these are unprecedented times”, what they really mean is no one is clear on how these issues will play out.
The Business owner / Property owner may still be the subject of claims by persons who contract the COVID-19 virus for claims that the Business owner / Property owner did not adequately conduct or provide for the safety of the customer, delivery person, or even a non-customer invitee.
Employees may file Workers’ Compensation claims. The ability to perfect these claims vary by state and how the Workers’ Compensation board views the application of the statute.
Where the Employer knowingly requires the employee to work in unsafe conditions, then it is possible under the right circumstance to enter the realm of intentional tort. This enhances the ability of the employee or class of employees to expand the compensable damages.
The Business owner/ Property owner / employer should strictly follow the available guidance from the CDC to maintain any hope of protection. The statutory guidance for tort liability is the action of a “reasonably prudent person”.
To the extent the virus re-ignites in the workplace and it is not covered by Workers’ Compensation, the medical expense will be borne by the employers’ employee welfare plan. For many small businesses this will ultimately result in increased insurance premiums for larger plans, where the business owner participates in the expense or bears the entire risk the cost will be more immediate and may be very substantial.
In the end, the cost of reopening and the resurgence of the virus will not be borne by the federal government but by the insurance industry and ultimately by the business owner. Neither of which are in a position to bear this expense.
So, as we try to navigate this trip through Oz, the Yellow Brick Road may not be a smooth one. Businesses will have to develop their own game plan moving forward and we recommend you look at all of these issues, among others, when making these decisions. We are certainly here to assist you as you look at options, but as stated earlier few in the industry can predict the end of the story.