On 30 January 2020, the World Health Organisation declared the Coronavirus outbreak a Public Health Emergency of International Concern. We sympathise with everyone who has been impacted by the virus and Honan Insurance Group have implemented additional resources and contingency planning to ensure that we remain able to provide advice, insurance and support to our clients as the situation develops.
As the impact of COVID-19 on local and international economies continues to evolve, we highlight to all clients the need for management to consider financial, strategic and business risks to operations. In this article, we examine the key areas we have received the most queries about: Property and Business Interruption, Business Contingency and Workplace Risk.
Industrial Special Risks* (Property and Business Interruption) Insurance & COVID-19
(Potential Policy Response under ISR Mark IV Policy)
It is expected that many businesses will suffer disruption as a result of the spread of the Coronavirus (COVID-19). With the situation changing rapidly and restrictions on the movement and gathering of people (both at local level and internationally), there is no doubt many companies will suffer from loss of revenue and/or additional expense.
Generally, property policies (including office risks) cover physical loss, destruction or damage to insured property resulting from a covered peril (all risks). In the case of the Coronavirus, the ISR (Mark IV) policy exclusion 4(a) excludes physical loss destruction or damage occasioned by or happening through disease. Office-related risks also have very similar exclusions. The ISR policy can include a myriad of endorsements with some coverage writebacks for costs to clean-up a site (where required by order of a public authority), however, this would need to be reviewed on a case by case basis.
An ISR insurance policy extends to include under Section 2 coverage for business interruption. This cover traditionally applies only to interruption caused by an insured material damage event such as fire, storm, impact or accidental damage.
In addition, cover is extended to include closure of the business by public authority for several risks including human infectious or contagious diseases. This coverage was designed to cover events such as an outbreak of Legionnaires disease or measles which could affect one or two buildings and a small number of businesses. Some ISR policies can extend to provide coverage for outbreaks in a 20-50km radius from the insured location.
Specifically, in relation to the COVID-19 outbreak, the ISR policy contains a specific exclusion for loss resulting from interruption of or interference directly or indirectly arising from or in connection with Highly Pathogenic Avian Influenza in Humans or any other diseases declared to be quarantinable diseases under the Quarantine Act 1908 and subsequent amendments.
Following the H5N1 virus (avian influenza) outbreak in 2006 and the H1N1 virus (swine influenza) outbreak in 2009, insurers adopted this exclusion as a market standard position in Australia.
The Australian Quarantine Act 1908 was replaced by the Biosecurity (Consequential Amendments and Transitional Provisions) Act in 2015. COVID-19 was added to the Act as a listed (quarantinable) human disease on 21 January 2020, under Biosecurity (Listed Human Diseases) Amendment Determination 2020 (Cth) F2020L00037.
Listed Human Diseases under the Act are thus now:
- Human influenza with pandemic potential
- Severe acute respiratory syndrome (SARS)
- Middle East respiratory syndrome
- Viral haemorrhagic fevers
- Yellow Fever
- Human Coronavirus with pandemic potential
As a result of the above, the business interruption section of your insurance will not provide cover for COVID-19 disruptions. As with any other threat it is important to consider what risk management measures you can introduce to mitigate the risk to your staff, customers and business.
Risk Management Tips: How to avoid infection
Here is a short list of ways to minimise the spread of Coronavirus
- Practice good personal hygiene.
- Avoid contact with anyone with or suspected of having Coronavirus.
- Boost your immune system by eating well, exercising, having enough sleep, and keeping your stress levels under control.
- Cancel or delay any travel until the crisis is over.
Recommended Actions for your organisation:
- Implement a home quarantine regime for anyone that has travelled to an infected country or is likely to have been in contact with someone infected with Coronavirus.
- Review and update if necessary human resource (‘HR’) policies on fitness for work including possible quarantining of employees and formalising the requirement for employees to remain off work if affected.
- Consider or extending flexible working arrangements to reduce the likelihood of the spread of the virus in the workplace or the community.
- Update travel rules and arrangements limiting non-essential business travel.
- If not already in place, provide sanitized hand washing stations for use by staff and visitors.
- Review arrangements for workplace hygiene and cleaning protocols including “cough and sneeze” etiquette.
- Protect the mental wellbeing of employees concerned about the Coronavirus.
- Ensure clear and honest communication to employees on their welfare.
Everyone should remain alert for updates and advice from the relevant authorities on additional steps to manage the spread of the disease. The health department in each state is providing excellent resources and advice and regular updates. Before travelling, check for and take the advice of any travel warnings on smartraveller.gov.au.
Business Continuity Management Planning
A pandemic is just one risk facing modern organisations. Having a fully documented and exercised business continuity management plan is important for every business. Honan has resources to assist you in developing a business continuity plan and please speak to your Client Manager for further information.
The Coronavirus may impact revenue for businesses through:
- Production slowdown & disruption to workforce (sick or quarantined employees)
- Disruption to Supply chains and supplier services
- Decrease (or increase) in demand for stock
- Large scale closures of consumer markets and public spaces due to quarantine
- Delays in customers paying outstanding invoices within normal trading terms
- Economic slowdown on global and local scale
Whilst there is coverage available under Corporate and Business Travel insurance policies in certain circumstances, there is limited cover available under most standard General Insurance policies for loss of trade and interruption to business operations.
As a general rule, it is not viable for most insurance markets and products to cover “global pandemics” as an insurable event. This is because the financial impacts of a pandemic are not quantifiable, meaning risk cannot be priced accurately or sustainably by insurers. If you do suffer a loss, please contact our team to discuss the specific circumstances and how your policy may respond.
Whilst insurance cover availability may be limited, businesses can prepare. We would strongly recommend formation of a working committee to evaluate the impact to business as conditions continue to evolve, with accountability to the board or executive team.
Considerations for a COVID-19 working group should include:
- Review of policies, procedures and protocols in place to protect the safety and wellbeing of employees and prevent further risk of spread of COVID-19 within the workforce and community.
- Assess venerability of IT Infrastructure (including stress-testing) for an organisation’s ‘Work from Home’ capabilities in the event of premises closure/staff quarantine
- Consider the impact on supplier and customer contracts to meet delivery/service obligations from both parties (how Contractual Penalties & Force Majeure clauses may be applied)
- Evaluation of possible supply chain disruptions and how these can be mitigated or bypassed through appropriate work arounds and contingency planning
- Evaluation and stress testing of stock levels and planning for inventory shortage as supply from China recommences operations
- Review ability to support alternative revenue streams that are not as severely impacted by COVID-19
- Review communications with key customers and other stakeholders to maintain relationships and manage challenges in a sensible, commercial & collaborative manner
- Review credit and debt facilities to ensure that cash is available in the short term to manage financial impacts and support increased business restart
- Communicate with creditors if a reduction in revenue has the potential to impact on cash flow and financial obligations.
Workplace Risk: Workers’ Compensation and Coronavirus (COVID-19)
There has been much discussion around the exposure and potential liability under Workers’ Compensation should an employee or contractor contract Coronavirus.
As outlined by Safe Work Australia (2020), Workers’ Compensation arrangements differ across schemes, however there are common threshold requirements that would apply in the case of COVID-19:
- that the worker is covered by the scheme, either as an employee or a deemed worker
- that they have an injury, illness or disease of a kind covered by the scheme, and
- that their injury, illness or disease arose out of, or in the course of, their employment.
Compared to work-related injuries, it is difficult to prove that a disease was contracted in, or caused by particular employment. In the case of a virus such as COVID-19, establishing the time and place of contraction may become increasingly hard. We have sought clarity from our legal partners and obtained publications from the governing state regulators. Their view is it will be challenging to prove workplace exposure to Coronavirus as questions will arise as to the exact time and place of contraction.
For coverage to exist, a determining authority would need to be satisfied that the employment significantly contributed to the employee contracting the virus. For viruses, it can be difficult to accurately determine the exact time and place of transmission. As a result, it may be difficult to determine that employment significantly contributed to the virus.
However, where an employee’s employment puts them at greater risk of contracting the virus the significant contribution test may be easier to meet. For example, if the employment involves:
- travel to an area with a known viral outbreak
- activities that include engagement or interaction with people who have contracted the virus
- activities that contravene Department of Health recommendations.
Each workplace illness would need to be considered on its individual merits, having regard to the individual circumstances and evidence in relation to the claim. More information is available here: Comcare Australia.
Deeming an illness or disease as work related and unique to the workplace may require court intervention to distinguish medical opinion from legal facts. There is no liability determination available to declare an illness or disease compensable or non-compensable; each case is determined on its own merits and circumstances.
Although you may not be able to eliminate the potential risk of employees contracting Coronavirus while carrying out work, you must do what is reasonably practicable to minimise the risk of employees contracting Coronavirus.
Coverage while travelling overseas for work
Any liability or workplace contribution applies to both employees working overseas and those working within Australia. Each case will be determined on its own merits and circumstances.
Note: For international employees engaged locally, state or country specific legislative conditions will apply. Queries should be directed to Honan. Depending on the state of urgency, travel restrictions and periods of self-isolation may need to be considered and communicated to all employees and contractors.
It is important that employers refer to internal policies and procedures to ensure measures for employee safety are in place. Honan has resources to actively advise on Workplace Risk exposure, as well as Legal and Work Health and Safety partners who can assist with ongoing management of this changing environment.
All companies will need to keep up to date in what is evolving environment. Please see below some resources to do so:
Australian Government Department of Health
Safe Work Australia
McKinsey & Company have released a briefing paper (9th March 2020) which provides some insight into possible global economic impact as well as some common steps that can/need to be taken in preparation for businesses being affected and the formation of a working group: link here.
For any additional queries or concerns, please contact your Honan client manager.
The advice in this paper is general in nature. While the utmost care has been taken in the preparation of this preliminary advice or opinion, you use it at your own risk.
If you have difficulty reading and/or understanding the cover provided in the policy(ies) that you have please contact your Client Manager.