Our collective coronavirus crisis has upended lives and businesses
in an unprecedented manner. It has abruptly and rudely shoved
millions of people into the ranks of the unemployed. It has also
shut off many businesses' cash flow just as abruptly and rudely. But
once we get past these initial existential threats (assuming we do,
of course) there are likely going to be unexpected ramifications to
threaten those workers and businesses that survive the immediate
The most immediate insurance related issue that involves the
pandemic is Business Interruption insurance.
beat in the insurance world is Workers Compensation
insurance. But we sometimes consult on other lines of commercial
property and casualty insurance, and so today we want to talk about
a line of commercial property insurance that's in the news a lot
lately--business interruption coverage.
Business interruption coverage insures a
business from business income losses due to covered events--usually,
things like a fire or a tornado, that can cause a business to be
shut down for some time.
But the current coronavirus pandemic has led
to a number of businesses seeking coverage under their business
interruption coverage for loss of business income due to their
being shut down during the current COVID-19 epidemic.
These businesses essentially are saying,
"Hey--our business is damn well interrupted. Don't we have insurance
But the consistent answer from the insurance
industry, so far, has been "Nope, not for
this kind of interruption, you don't."
And so policyholders are increasingly hiring
attorneys to pursue their B.I. claims in the courts.
And in a further development, some states
are enacting statutory requirements that business interruption
coverage insure interruptions due to this COVID-19 pandemic.
All of these things are recent developments,
of course, so the situation is fluid and changing day by day. But at
the moment, it’s not at all clear how soon, if ever, businesses
might expect to see any business interruption claims paid over the
At the moment, courts and insurance
regulators haven't even begun to provide answers on this dispute.
The only clear thing we have to report is
that insurance companies appear to be consistently denying these
claims, and likely will continue to do so until someone in authority
makes them do otherwise.
If you are a business that's been shut down
because of the pandemic and you want to make a business interruption
claim, we recommend filing that claim,
even if your insurance agent tells you not to bother.
insurers have been instructing agents to discourage policyholders
from filing claims, but file those
Even though it appears that insurers are not
honoring such claims, you will need to document that you made the
claim, in order to pursue appeals or legal action.
I've often served as an expert witness in
insurance-related litigation, for Workers Compensation insurance,
for other lines of property and casualty insurance, and even for
Business Interruption coverage, all across the country.
So if you are
considering legal action over business interruption
insurance, I may well be able to
refer you to an attorney in
your area who has experience litigating insurance related
matters on behalf of policyholders.
Not all attorneys have experience fighting
insurance companies. And some are conflicted out of representing
policyholders against certain insurance companies, because they
regularly do work for those insurers.
So it can be vital to find an attorney in
your area with experience and who is able to represent you against
your particular insurance company.
We're glad to be of assistance in this
regard, to whatever extent possible. And as this situation continues
to develop and change, we'll keep you updated here.
Workers Compensation Insurance and Our Virus Crisis
Going back to our usual insurance beat, there are important issues
relating to Workers Compensation insurance as well.
One question being asked is whether COVID-19 infections could be the
basis for Workers
Compensation claims by workers who feel they
likely contracted the virus through work. At the moment, the best
answer appears to be that's unlikely for many workers,
possible for some, and subject to change depending on
future actions by state authorities
(which has just happened in Ilinois).
Workers Compensation is primarily a state matter, and the
particulars of Workers Compensation statutes can vary significantly
from one state to another. Many states exclude "ordinary diseases of
life" from the occupational diseases covered by Workers
Compensation. But there are occupational exposures where that could
be a different matter--healthcare workers, for example, and
so-called "first responders".
On April 13, Illinois Governor J.B.
Pritzker announced an
emergency amendment to the Illinois Workers Compensation Act
which significantly expanded WC coverage
in Illinois for COVID-19 infections.
Under this amendment, a whole slew of workers in non-medical
occupations have been granted a rebuttable presumption that a
COVID-19 infection is causally connected to their employment.
This list of occupations is: Stores that sell groceries and
medicine; “Food, beverage, and cannabis production and agriculture;
“Organizations that provide charitable and social services”; “Gas
stations and businesses needed for transportation”; “Financial
institutions”; “Hardware and supplies stores”; “Critical trades”;
“Mail, post, shipping, logistics, delivery, and pick-up services”;
“Educational institutions”; “Laundry services”; “Restaurants for
consumption off-premises”; “Supplies to work from home”; “Supplies
for Essential Businesses and Operations”; “Transportation”;
“Home-based care and services”; “Residential facilities and
shelters”; “Professional services”; “Day care centers for employees
exempted by [Executive Order 2020-10]”; “Manufacture, distribution,
and supply chain for critical products and industries”; “Critical
labor union functions”; “Hotels and motels”; and “Funeral services”.
Iin most states, Workers Compensation coverage is provided
by private insurance companies (although mandated by state laws and
subject to the specific benefits established by the varying states)
initial decisions about coverage for COVID-19 will be made by
insurance company claims people, subject to review and determination
by state adjudicators, when a worker disagrees with a decision by an
Another potential complication: health insurance routinely
excludes coverage for injuries and illness covered by Workers
Compensation. And employers commonly use different insurers for
health insurance and Workers Comp insurance.
It is conceivable workers could be caught between different
insurance companies, each claiming the other should be responsible
for paying for COVID-19 medical costs. And while those insurers try
to pass the buck between themselves, the healthcare providers may
well come after the worker for the unpaid bills.
Some state legislatures have already voiced interest in addressing
these issues, so it may be likely that at least some states will
address COVID-19 coverage issues in the near future. But given the
patchwork nature of the Workers Compensation system in America,
these decisions will also likely be a patchwork of differing rules.
For businesses that survive these initial
disruptions, there may well be later significant financial threats
to them, thanks to Covid-19 and Workers Compensation. And that has
to do with the fact that in most states, businesses obtain their
Workers Compensation coverage from insurance companies. And those
insurance companies base premium charges, in large part, on payroll.
On March 26, 2020, the National Council on Compensation Insurance
(NCCI) issued a FAQ on
the subject of COVID-19 and Workers Compensation insurance. NCCI is
the insurance industry trade organization that writes the manual
rules that govern Workers Compensation insurance premiums in most
states. And in that FAQ, NCCI revealed the likely causes of this
coming financial threat to employers.
For one, NCCI spells out that, in cases where employers
continued to pay people even when they
were not working, insurance companies will count
that payroll when they compute
premium charges for Workers Compensation
insurance. So if employers pay out significant remuneration to
workers who are not actually working, no
good deed will go unpunished when it comes
time to compute Workers Compensation insurance premiums. Insurance
companies, according to NCCI, will
count that remuneration when they compute premiums.
NCCI also made it clear that employers will need to clearly
document when certain workers shifted
their duties in response to the crisis in such
a way as to potentially become eligible for a less
expensive rate for Workers Compensation
such documentation, the NCCI's arcane rules
will deny any adjustment in rate by insurance companies.
Worse yet, NCCI is telling insurance companies that the payroll for
these workers should go into whatever classification
the workers were assigned to back when they were, you know,
actually doing work.
So if your company has carpenters who are now just at home
watching Netflix, NCCI and your insurance company are saying any
payroll you provide gets counted for
still gets classified
as carpenter work.
4/15/2020--NCCI has now announced that payroll paid to
workers who are not, in fact, working, will not be counted for
Workers Compensation insurance premiums.
Now, if somehow your workers are doing actual work from
home, but the nature of that at home work is different from what
they used to do, pre-pandemic, you need
to document that change carefully, in terms of when it occured and
the nature of the change.
Because Workers Compensation insurance premiums are based on
payroll, and use obscure rules to determine the rates assigned to
those payrolls, there can be very
significant additional premium charges that
are billed to employers after
a policy ends. This is a routine and fairly
well understood aspect of Workers Compensation insurance, although
newer businesses can often be unpleasantly surprised by it.
Insurance companies audit
the payrolls and operations of insured
policies end, and sometimes those audits produce
unexpectedly large bills for additional premiums. Given the
complexity of the rules involved, it is not
uncommon for insurance companies to make
errors in computing these additional premium
charges, even in normal times. These
times are not normal.
Insurance companies are not currently conducting in-person audits
for Workers Compensation insurance, and it is unclear at this
writing when they may resume that practice. They will still adjust
premiums after policies end, of course, but now they will rely on
information provided by phone or online. And since employers
typically don't understand the complicated rules about these things
(Does overtime pay get counted? Whose pay goes into the cheap
clerical class? What about vacation pay? Sick pay? COVID-19 time-off
pay?) the odds of errors and overcharges likely will increase.
So just when surviving businesses may be trying to get back on their
feet, the bills for additional Workers Comp insurance premiums may
be coming in. And insurance
companies historically have not been overly patient with
policyholders when they think those policyholders owe them money.
Now, to be fair, a number of insurance companies are announcing
temporary measures offering respite from billings during this
immediate phase of the crisis. And it's always possible that state
insurance regulators could require further lenient policies that
would apply in their particular states. A
number of states have now mandated premium refunds for multiple
lines of insurance, including Workers Compensation insurance.
Given these economic stresses imposed on insurers by this crisis, I think it would be
unrealistic for employers to expect that, at some point, insurance
companies will not seek to be paid the additional premium they
believe are owed them.
Worse yet, recent
changes to the rules allow for punitive premium increases if
an insurer feels a policyholder has not cooperated with a premium
audit. So business owners who have already been stressed to the
breaking point may find they unexpectedly are dealing
with an insurance company demanding money they
cannot afford to pay, based
on payrolls that happened in the past, before we were all
living in a disaster movie.
Insurance companies historically have not been hesitant to file
suit over additional premiums they feel are
owed them, even when those additional premiums have been erroneously
calculated. And insurers
have another powerful hammer to hold over
employers: they can get current
Workers Comp coverage cancelled over unpaid
bills for past policies.
Workers Compensation insurance is subject
to the oversight and regulation of the various state
insurance regulatory agencies. And those
agencies have been far
from vigilant in limiting errors and abuses by
insurers over Workers Comp insurance premiums. State insurance
regulators have, in recent decades, largely abandoned rigorous
oversight of Workers Compensation insurance premiums, adopting an
attitude that price competition will serve to prevent overcharges.
That laissez-faire approach
has left insurers
free to overcharge with abandon, in my
experience, even in normal times.
This crisis, however, seems to have awakened some sense of genuine
oversight by insurance regulators in a number of states. The
situation remains fluid, however, and it appears that insurance
companies are going to be financially stressed to a significant
degree by this crisis.
To my mind, a federal reinsurance program becomes more likely with
each passing day, to prevent the insurance industry from being
rendered insolvent by this crisis.
Of course, for the moment, workers and employers have far more
immediate concerns. But once this storm runs out of rain, we will be
mopping up for quite a while.