The Pandemic & Insurance – My Thoughts As of Now

We are all trying to figure this thing out.

First, we are going to get through this. We always do. The virus has hit my family hard. I’m not convinced, as a nation, we are halfway through this. Thousands and thousands more will be sick and die. Still, I know that sometime in the next six to twelve months, we will see the end. Two years from then, we will be stronger as a nation. Our communities will rebound. They always do. Our economy will rebound. It always does.

It will not be without pain. Our nation has been through severe events before. We always come back stronger.

Now to bank insurance.

Coronavirus presents three insurance issues for financial institutions:

  1. Workers’ Compensation Claims
  2. Lawsuits
  3. Reimbursement for Increased Expenses

Workers’ Compensation laws are quite broad and relatively simple. Work-related injuries and illnesses are compensable. The issue is proving an employee got sick at work. Fortunately, your workers’ compensation insurer will handle the claim and pay if there is sufficient evidence that the employee was infected at work. Frankly, I expect few direct-infection workers’ compensation claims in banks.

There is some discussion in my industry about at-home workers using computer setups that are not up to ergonomic standards. We will see.

I believe most banks have broad coverage for lawsuits coming from the pandemic. Here are some possible avenues of claims:

  • Regulators saying you inadequately served the public (D&O).
  • Stockholders unhappy with investment returns (D&O).
  • Employee’s saying you exposed them to the virus (After Workers’ Compensation, perhaps Employment Practices Liability).
  • Loan customers saying you called a loan improperly (Lender Liability).
  • Customer alleging you exposed them to the virus (General Liability).

In general, I have little concern for most of my bank clients here. Few saw this coming. Standards for safety have been pretty well discussed. Following the CDC guidelines should put you in a pretty good defensive position.

Coverage for your increased expenses is the unknown. Actually, it is not unknown. There is no coverage intended in 99% of bank property insurance for claims for reimbursement of expenses incurred in the management of a pandemic. There is no coverage by design. Most insurers have excluded viruses as a cause of loss for damage to buildings. Further, extra expense coverage is triggered by physical damage to your building. You get extra expense coverage when you have a fire, wind, lightning, or other cause of loss. As the pandemic has not caused damage to your building (cleaning on the thought there might be virus is not damage), there is no coverage for expenses incurred responding.

All that said, there is no limit to lawyers’ ingenuity. There will be thousands of lawsuits. I am aware of several law firms putting on teleseminars trying to convince businesses that there is coverage. Also, several states have introduced regulations and legislation that will require insurers to offer extra expense coverage. The President even suggested insurers should pay.

It is with the idea that there is a chance insurers will be forced to provide coverage that I am suggesting that financial institutions file a property insurance claim in the near future. I think your insurer will issue a denial of coverage. However, having that in our pocket might protect you should legislative or court directions force coverage. Making a claim now removes a future denial based on failure to make “timely notice.”

Your email to your agent can be as simple as, “Please submit to our property insurance company a notice of claim for extra expenses incurred in response to the pandemic and governmental orders.” The insurer will come back to you with questions and requests for documentation. They will issue a denial. Then, you wait.

The above may be completely unnecessary.

There may be no successful legal challenges to insurers not paying business income / extra expense costs. It’s possible there will be no legislative action compelling insurers to pay claims.

If there are legal remedies or legislative mandates, it’s possible that insurers will not challenge claims for failure to provide timely notice. I don’t want my clients to chance it, though.

Comments and questions are welcome. I have talked with almost 100 insurance people on this issue over the past few weeks. Not all agree with me. I’m open to other ideas and approaches. Glad to discuss this. Email me at Scott@ScottSimmonds.com.