We’re continuing the conversation about claims concerns during the coronavirus (COVID-19) outbreak with our professional liability and healthcare risk management team members. Read part one here: Are you prepared? Healthcare and liability concerns during the coronavirus outbreak. In this second part of the discussion, we take a closer look at ways organizations can focus on preparedness for potential healthcare, product liability and life sciences claim-related challenges during the pandemic.
- Batch/related claims – is it one “occurrence?”
- Types of insurance coverage involving the coronavirus: Workers’ compensation, general liability and D&O
- Implications of COVID-19 on D&O Insurance Policies
Batch/related claims – is it one “occurrence?”
When considering the impact the coronavirus would have on a healthcare facility’s potential liability exposure and coverage, one question comes to mind: How will insurance coverage respond and determine whether an outbreak is considered a batch claim? A batch claim is an insurance term used to describe multiple claimants/injuries that arise out of a related event. Proactive risk management is always a top priority; however, the potential for liability exposure due to a coronavirus-related event is a very real possibility.
Many healthcare facilities retain their liability exposure through a self-insured retention. Beyond that retention, the facility’s risk can be transferred to their excess carriers. The importance of determining whether these claims would be considered arising out of one occurrence cannot be ignored.
Consider a healthcare facility that has a $250,000 self-insured per occurrence limit. With a batch claim, the facility’s exposure is limited to that amount, no matter how many claimants are involved. If it does not fall under the provision of a batch claim, then the $250,000 limit would apply to each claimant, which can add up to a significant amount. Keep in mind that not all insurance contracts are the same – that goes for batch wording as well. Because of the significant amount at risk, understanding whether an outbreak falls under a batch event should be considered carefully.
Types of insurance coverage involving the coronavirus: Workers’ compensation, general liability and D&O
Something else for healthcare facilities to consider is the other types of insurance coverage potentially triggered as a result of the coronavirus. Healthcare workers face many risks taking care of patients, including the transmission of illnesses. With the number of confirmed cases in the United States increasing every day, more healthcare workers will be exposed to – and are at a greater risk of contracting – the virus.
Workers’ compensation insurance covers injuries and illnesses to an employee within the course of their employment. However, ordinary diseases of life can be excluded from some insurance programs, unless a direct causal connection to the workplace can be proven. Therefore, healthcare facilities workers’ compensation insurance can be involved.
General liability insurance protects against claims involving bodily injury, property damage and personal injury that can arise from business operations. Healthcare facilities may face bodily injury claims that allege improper decontamination of the premises, improper disposal of medical waste and failure to isolate infected patients, thereby allowing the virus to spread. Some liability policies may have exclusions for claims arising from a pandemic, viral or bacterial. In addition, some policies also have broadly worded pollution exclusions that could limit or preclude coverage.
Directors and officers (D&O) coverage insures an organization's directors and officers in the event of a loss arising from wrongful acts while representing their organization. Healthcare officers also oversee and direct issues unique to healthcare facilities, such as peer review committees, quality of care and staff privileges. Healthcare directors and officers may face lawsuits from shareholders alleging that their actions, or inaction, in response to the COVID-19 pandemic caused the organization economic loss. Allegations may include management’s failure to heed protocols recommended by governmental authorities, enact adequate contingency plans or disclose the risks of the coronavirus to the organization.
The scope of coverage under each type of insurance will ultimately depend upon the specific language of each insurance policy. It would be prudent to evaluate the coverage provided under existing insurance policies in order to properly manage any COVID-19 exposure. For a broader look at policy coverage related to coronavirus exposures and business interruption, read our blog entry, “Coronavirus outbreak: What businesses should know regarding coverage.”
Implications of the coronavirus on D&O Insurance Policies
Directors and officers have duty of care (also called duty of diligence) when performing corporate functions. They are considered to have met their duty of care if they meet the following standards:
- Act in good faith and in a manner they reasonably believe to be in the corporation’s best interests
- Discharge their responsibilities with informed judgment and a degree of care that a person in a similar position would believe to be reasonable under similar circumstances
Generally speaking, courts will not hold directors and officers as guarantors of an enterprise’s profitability – provided their decisions involving business judgment were informed decisions acted upon in good faith.
A D&O policy will generally have limitations on coverages for illnesses and bodily injury. However, these limitations may be broadly worded so that each policy needs to be reviewed individually. D&O litigation has become a hot topic so this outbreak can cause particular concern. The most likely contention could be that there was a lack of preparedness for the potential effect on corporate operations and earnings.
Was it foreseeable that this type of outbreak could have occurred? If so, did the corporation have policies in place that would deal with the effects of such an outbreak? Were policies followed to protect employees so that they were able to stay productive (e.g., where many employees work in an office environment, was there a plan to allow them to work from home, thereby protecting them and keeping them productive)? Were there policies in place to protect supply chains? If directors and officers feel that this may affect their earnings, they will disclose it in their quarterly SEC filings.
The developing coronavirus-related disclosure responsibilities pose a number of risks for reporting companies. First and foremost, the coronavirus pandemic has developed and evolved quickly. This makes it challenging for companies to assess the current and potential future operating impact from the health crisis. The second is that governmental responses (such as stay-at-home or quarantine orders) are quickly altering the situation in different countries and regions. The third is the uncertainty about how broadly the virus will spread and for how long the virus will continue to impact operations. A related issue is the question of how often companies will need to update their disclosures.
All of these challenges are magnified in the context of the recently roiled financial markets. Market volatility means that disclosures or revelations could have an outsized impact on company share prices. In these circumstances, what a company says or fails to say could significantly affect the price of its shares. This combination of circumstances could create conditions from which litigation might well emerge, as claimants allege that a company’s disclosure was missing, inadequate or not appropriately updated.
By the same token, in the weeks and months ahead, prospective claimants armed with the benefit of hindsight may claim that companies’ earlier disclosures did not adequately apprise investors of the risks that the company faced as a result of the COVID-19 outbreak, or that the company failed to update prior disclosures as circumstances evolved.
In addition to potential disclosure-related claims, prospective future claimants may attempt to assert mismanagement claims. This could be based on allegations that company management failed to respond sufficiently or appropriately to dramatic changes in operating conditions, or that they failed to ensure that the company’s supply chain allowed for alternative supply arrangements.
The disrupted operating conditions also create potentially fertile grounds for claims between and among customers, vendors, suppliers and competitors – and some of these claims could well involve business tort-type claims or other potential D&O claims.
The extent to which the current COVID-19 outbreak might result in D&O claims remains to be seen. But the potential impact will likely depend upon the company’s operations, how extensively they are involved in hard-hit countries, and the company’s own coronavirus-related exposures.
Look for additional insights from Sedgwick on concerns related to COVID-19. Visit our coronavirus news feed for the latest information.
- Mike Brendel, AVP, Specialty Operations, Professional Liability, Sedgwick
- Chris Grant, AVP, Specialty Operations, Professional Liability, Sedgwick
- Sandy Liles, RN, Director, Professional Liability Nurse Consultant, Sedgwick
- John Walsh, AVP, Specialty Operations, Professional Liability, Sedgwick