Advanced Insurance Management logo

1-800-288-9256   AIM@cutcomp.com 

CO
COVID-19 and Business Insurance
 

 

 




 

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 disasters.

The most immediate insurance related issue that involves the pandemic is Business Interruption insurance.

 

Normally, our 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 for that?"

 

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 current crisis.

 

 

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.

 

 We understand insurers have been instructing agents to discourage policyholders from filing claims, but file those claims anyway.

 

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

updated 04/15/2020

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 insurer.

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 insurance. Without 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 premiums and 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 businesses after 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.

Qualifications BlogWork Comp Guide   Expert Witness Contact

 

Advanced Insurance Management BBB® Accredited Business SealBBB® Accredited A+ Rating

Member of the Better Business Bureau


  Contact

All written material © 2020 Advanced Insurance Management LLC