Managing risk as businesses reopen after COVID-19

Should the assumption of risk and liability be a concern for reopening businesses?

You are given the COVID-19 protocol ‘okay’ to open your doors for business, staff are directed to report for work, and customers begin a gradual reintroduction to your products, services and facilities. Thank goodness, we’re past the disruption and uncertainty of the coronavirus shutdown.

Then the unfortunate news comes: Some of your employees are diagnosed with symptoms of COVID-19, and it’s reported that they contracted the virus at their workplace. To complicate matters, some customers are hinting that they may also be affected. The employees report the matters to your workers’ compensation carrier for the handling of the medical billing and potentially lost wages. The customers send letters suggesting your firm is liable for their expenses and suffering. Worse yet, an employee is hospitalized with severe coronavirus symptoms.

You advise your commercial insurance carrier of the occurrences; you wonder about the potential insurance and legal ramifications of the employees’ and customers’ allegations of the cause of their illnesses, and you wonder if you’ll be sued.

The carrier considers the notice and sends you that always friendly document: a Reservation of Rights, indicating and reminding you of the liability provision in the insurance policy that advises:

“…We will pay damages which an insured party becomes legally obligated to pay for bodily injury or property damage arising from an occurrence to which this policy applies, and is covered … and if the insured party is sued for these damages, we will provide a defense at our expense…”

* * * * *

“We do not cover any … intentional or criminal acts or omissions of an insured party.”

Risk management process

The call from the carrier’s adjuster starts like this (after the proper empathy and support wording):

“Let me know the processes you have in place to ensure all of those entering your facility are aware of requirements in the COVID-19 environment, that employees are being monitored for COVID-19 symptoms, that your firm is taking reasonable actions to ensure the safety of the public, and your records of same we can include in the claim file. Are you following CDC, OSHA, or state department of labor advice, or all three? Can you send me the monitoring records by email?”

What do you say? “Everyone knows to be safe and distant, and employees certainly wouldn’t come in if they were sick. I wouldn’t want to pay them if they weren’t able to be productive. That’s why I have you, carrier, to investigate these things.”

Then the carrier does investigate the claims and finds no prior steps were taken by the firm to ensure reasonable practices were in place in the new COVID-19 business environment. The carrier also finds that the firm’s management simply did not take reasonable actions to ensure public safety or monitoring. The carrier denies coverage for the liability claims based on the insured failing to employ reasonable safety measures dictated by an accepted authority to inhibit COVID-19 transmission. In the absence of any prior action by the insured to ensure the safety, the carrier is suggesting gross negligence by the firm precludes coverage for the claimed injuries.

In essence, the insured assumed a risk the policy would not cover; that is, it did not fulfill its duty to inform and protect.

What is ‘reasonable’?

Did the insured understand and act to serve the duty owed to employees and the public? What is the reasonable knowledge the firm should have regarding the COVID-19 operating environment, and when should that knowledge have been gained and applied? Did the firm open prematurely based on government directives? Did employees feel compelled to report for work based on direct or indirect financial ramifications the employer set for staff? Do standards of gross negligence appear breached by the insured’s actions or omissions?

With 25 million small and midsize enterprises in the U.S., it’s easy to imagine the wide variety of circumstances that will be occurring as businesses begin to re-engage, and the probability of lawsuits being filed against employers and businesses triggered by persons contracting COVID-19 and alleging personal injury or financial damage as a result.

Will the assumption of risk be a concern for an insured party or a claim action taken by a carrier? That is to be considered as time goes along.

Here are some steps the parties can take to help strengthen the application of policy provisions and conditions and minimize the unknown:

Insured businesses

Follow government dictates regarding approval to reopen the business.
Know and share with staff current safe operating guidelines established by the Centers for Disease Control and Prevention, Occupational Safety and Health Administration, your state department of labor or local authorities. These standards are commonly available.
Establish uniform screening standards for employees arriving for work or during work hours as warranted. Temperature, symptom screening and asking the employee of any health symptoms is a minimum.
Maintain uniform, easily accessible records of screening and any employee health incidents, the more detailed, the better. Having the records in digital format is ideal.
Communicate standards as they change either from government or organization sources. Ensure uniform communication and keep records of those communications.
Communicate any suspected cases to the local health department, log any guidance received, and confirm communication to the subject.
Keep public notices of required customer and vendor behaviors up to date. Gently communicate to customers and vendors who may not be in compliance and record exception cases.
Consider having a third-party expert assist with crafting a screening, communication and recordkeeping program.

Carriers

Maintain periodic written communication with your insureds: helpful tips, technical advice and sincere empathy.
Provide specific advice regarding following the directions civil authorities provide and keep a chronology of when advice changes.
Remind insureds about compliance with shutdown parameters, the need for uniform screening, and the need for detailed recordkeeping.
Do not pre-judge claim scenarios (hypotheticals), but do provide reminders of coverage.
Recommend insureds engage third-party help in establishing a screening and communication and recordkeeping program.

These are not exhaustive lists but are a good place to start. Up-front efforts will be much easier to handle than a denial of coverage will be. Stay safe and well, and install common-sense measures.

Specific Technologies Driving Insurtech Investment in 2024

Understanding the Funding Decline The decrease in funding does not necessarily spell trouble for the insurance sector but instead highlights a strategic shift, the report suggests. “The insurance industry, like many sectors, is focusing on the most promising ventures with substantial insurance potential,” the report explains. “Insurers are directing their investments toward key areas and current trends such as embedded insurance, employee benefits, and cyber risk management. This strategic investment approach signals a forward-looking mindset within the industry.” Three Key Insurtech Trends for 2024 The report identifies three major trends shaping insurtech investments in 2024: Public Insurtech Companies: Financial and Growth Strategies The report also notes that public insurtech companies are prioritizing revenue growth as their main goal. These firms are restructuring their financial strategies to boost cash flow and capitalize on rising revenue streams. Their growth prospects are supported by expanding asset portfolios and strong market demand. “Public insurtech companies are focusing on revenue growth and optimizing their financial frameworks to increase cash flow,” the report states. “The growth potential for these companies is driven by increasing revenue opportunities, broadening asset bases, and a robust market for their services.” In summary, while global insurtech funding saw a decline in 2023, the industry’s focus on GenAI, digital process management, and connected insurance technologies is setting the stage for a dynamic and forward-looking 2024.

Business

Insurer Secures Unanimous Supreme Court Victory in New York Choice of Law Dispute

In the world of sports, a clean sweep, a shutout, or a perfect game is the ultimate achievement. In the legal arena, a unanimous decision from the U.S. Supreme Court is equally rare and significant. In a notable legal triumph, Great Lakes Insurance SE achieved a unanimous 9-0 victory in the Supreme Court on February 21, 2024. This victory follows a protracted legal battle that began in the District Court of Pennsylvania, advanced to the U.S. Court of Appeals for the Third Circuit, and culminated in the Supreme Court’s decisive ruling. Background of the Case: Great Lakes Insurance SE v. Raiders Retreat Realty Company The heart of the dispute was the insurance contract’s clause selecting New York law to govern any future legal conflicts. Although the financial implications of this case were relatively minor compared to the broader marine insurance industry, the insurer’s determination to uphold a crucial maritime legal principle has significant long-term implications for marine insurance. Faced with the insured’s counterclaims—including allegations of breach of fiduciary duty, insurance bad faith, and violations of Pennsylvania’s Unfair Trade Practices Law—the insurer was confronted with serious risks. Such claims could lead to the shifting of attorney’s fees, treble damages, and more, which might normally encourage insurers to settle rather than risk pursuing justice. However, Great Lakes Insurance, supported by The Goldman Maritime Law Group, opted to challenge the Third Circuit’s decision and seek clarity from the Supreme Court. Supreme Court Ruling: A Landmark Decision In a landmark ruling, Justice Brett Kavanaugh affirmed that choice of law provisions in maritime contracts should be upheld by default. This ruling is a major victory for establishing a consistent federal standard in maritime law and avoiding a patchwork of state laws that could complicate marine insurance disputes. The Supreme Court’s decision overturned the Third Circuit’s earlier judgment, which had questioned whether Pennsylvania’s public policy concerns might override the insurance contract’s choice of New York law. By upholding the New York choice of law clause, the Supreme Court eliminated the extra-contractual bad faith claims under Pennsylvania law, thereby ensuring that the dispute could be resolved based on the merits of the insurance claim itself. Significance of the Supreme Court’s Decision This ruling represents a significant advancement in maritime law, affirming that choice of law clauses in maritime contracts are generally enforceable. The decision establishes a clear, uniform legal framework for resolving maritime contract disputes, which will streamline the process and ensure fair adjudication of future insurance claims. Justice Clarence Thomas’s concurring opinion was particularly notable for its criticism of the 1955 Wilburn Boat v. Fireman’s Fund Insurance decision, which had previously influenced maritime insurance law. Thomas argued that Wilburn Boat was incorrectly decided and stressed that a uniform and enforceable set of rules is essential for the development of maritime law. Impact on the Marine Insurance Industry The Supreme Court’s decision sets a “bright-line” rule affirming that choice of law clauses are valid unless there is a strong argument against the selected jurisdiction. By endorsing New York’s insurance laws as a reasonable choice, the ruling supports a more consistent and predictable legal environment for marine insurers. This decision represents a major step forward in maritime law, helping insurers better assess risks, determine premiums, and ensure fair and efficient resolution of maritime insurance disputes.

Managing risk as businesses reopen after COVID-19