Assessing Options for Managing the Risks and Insuring Communicable Diseases

Within weeks, it had all changed.

As a pandemic spread and took root in an unprepared world, many organizations were finding out that their insurance policies would not cover the one event that had brought global business to a standstill – communicable diseases.

It’s not a new exclusion, either. In 2003, insurers, responding to the 2002 SARS outbreak, moved to exclude communicable disease in their coverage language. Today, most commercial insurance policies (property polices and liability policies) exclude claims arising out of communicable diseases.

That exclusion alone has left millions of organizations trying to continue to operate without protection. For organizations that deal with the public, it’s an exposure many cannot afford to carry on their own.

Despite a growing number of lawsuits challenging insurers’ decisions, the pandemic is currently considered an exclusion under a policy’s virus or communicable disease exclusion language.

Because there is effectively no pandemic coverage available in the market, small to mid-sized organizations are trying to conduct business without even basic protections against the exposures that working amid a virus-driven pandemic is causing. How can they keep their doors open and their organizations protected? Particularly in the case of a proven transmission that came from inside your organization, finding mitigation strategies and products is imperative to operational health.

Any recourse within the workers’ compensation industry is uncertain. While some states have made exceptions for workers whose exposure on the job has caused them to develop chronic illness (such as cancer), and some states have taken action to extend workers’ compensation to include first responders and health care workers impacted by COVID-19, most communicable diseases are not covered by workers’ compensation because they cannot be tied to the workplace. However, should an employer not be able to demonstrate adherence to CDC guidelines or state or local regulation, liability could be alleged or proven.

The best protection, of course, is good risk management practices. Companies can avoid a good portion of the risks of communicable disease and the perception of negligence in mitigating the spread of the virus by following the most updated CDC guidelines. Also, companies should be able to demonstrate that they did everything that was required to keep employees and customers safe.

However, no risk management plan eliminates exposure entirely. If an employee or volunteer in an organization contracts COVID and can demonstrate that it was transmitted to them via the organization’s negligence, that’s a claim. Depending on how ill that person becomes or for how long the illness impacts them, the organization is liable for those expenses. Should a number of employees, volunteers or customers become ill, the costs could well grow to beyond what the organization can afford to pay. Even if the employee can’t prove they contracted the disease because of employer negligence, the employer may have to spend money on legal cost to defend itself.

The Risk Retention Solution

Risk retention group can provide a safety net that allows an organization to remain operational. For Nonprofits Insurance Alliance (NIA) members, which are nonprofit organizations, the dilemma they face daily is how to provide much-needed services at a time when communities are more at risk. Remaining open puts such organizations at risk, especially since insurance policies exclude claims caused by viruses and other causes of communicable diseases.

NIA recently developed a Communicable Disease insurance product to offer some protection to these entities. Pooling the member risks together, we were able to come up with an affordable option.

The coverage is adequate, yet limited. We wanted to offer members something they could afford that would protect them well. By keeping limits within a reasonable range ($250,000 of limit per year, including defense and indemnity), we could keep the premiums within reach.

That limit also helps keep members off the radar of plaintiff’s attorneys. In an atmosphere in which people and companies are looking for remediation, keeping limits lower gives members a modest amount of coverage and defense, and avoids opportunism.

Communicable disease coverage includes third party liability damages for bodily injury, property damage or personal and advertising injury stemming from a communicable disease event. It also covers an act, error or omission by or on behalf of the insured for actual or alleged transmission, testing, failure to prevent spread, failure to report the communicable disease to authorities, and employees or new hires who transmit or are alleged to be infected with a communicable disease.

Because NIA covers nonprofit member organizations exclusively, the products we have developed for members were created out of a need the traditional market wouldn’t fill. Over the years, we have had to innovate to protect member organizations with coverages for risks that other markets believe are uninsurable risks, such as sexual abuse.

Finding Mitigation

For organizations looking to cover communicable disease, the search could be difficult. Unfortunately, there are few standalone policies, if any, for communicable disease. Products that do exist are often purchased as riders to special event coverage. However, the cost often outweighs the amount of coverage offered, especially now, as the COVID pandemic continues.

One option for organizations is to look for related associations within their business communities. Associations with existing risk retention groups are often a good choice for organizations looking to cover hard-to-place risks. Associations with strong communities should be able to provide options, or make it easier for members to approach about creating such products.

Organizations considering such products should assess their needs. How large is their exposure? How likely is it that the organization will become a target? How much coverage can the organization afford? What limit is reasonable? What is available in the market?

Protecting Against Loss

For organizations that must remain open during a pandemic, reducing community spread is imperative to the health of both the community and the business itself. The best place for any organization to start is with a review of the business practices with an eye toward what activities could be increasing exposure, and a focus on establishing stronger risk management. Risk management practices, therefore, should align with all federal, state and local guidelines and regulations.

Yet even so, organizations still have risks that could be devastating to the bottom line. That’s when understanding what products – and what alternatives to risk transfer – exist can benefit an organization. When looking for coverage, look to alternative markets. Risk retention groups designed to pool similar organizational risks together are a solid option for their member organizations.

When approaching a risk retention group, organizations must know what their level of risk is, what their needs are, and what they’re able to afford. Pooling together a community’s risks is often a great solution to one of that community’s toughest exposures. By working together, organizations can find affordable solutions that protect business as usual.

Topics Talent