Triggering Coverage
Triggering Coverage

Policies might have vague clauses that can be helpful

The novel coronavirus pandemic now spreading across the globe is forcing organizations worldwide to cancel events and conferences, ranging from the NCAA pulling the plug on its March Madness basketball tournament to charities and houses of worship curtailing fundraising dinners and benefits. With important revenue sources suddenly turned off for both nonprofits and for-profit companies alike, and for an unknown length of time, can they count on their insurance carriers to cover their losses and provide some much-needed cash flow?

It largely depends on the insurance policy they have arranged.

“Only if you purchase it, and only if you had that language specifically embedded in the products,” said David Dias, vice president of InterWest Insurance. “In most cases, it’s not going to be covered. At its basic level, an insurance policy is a contract and a promise to pay, based upon the provisional language in that contract.”

There’s going to be coverage in the contract, and there are going to be exclusions in a contract. Those are the two things that people need to pay attention to most, according to Dias.

“What am I protecting and what is the insurance company excluding in the contract? Most people always focus on what the coverage aspect is, but they don’t necessarily fully grasp or ake the time to learn what the exclusions re in the contract, nd those can be even more important sometimes than the coverage itself,” said Dias.

Brian Johnson, chief underwriting officer at the Nonprofits Insurance Alliance, said he has been fielding calls from brokers and customers asking about coverage. There are primarily two questions. “The first one is, ‘I have an event coming up and if I cancel the event, what does my insurance cover, and what coverage do I have?’ That’s going to depend on what the event cancellation policy says.”

David Dias

“At its basic level, an insurance policy is a contract and a promise to pay, based upon the provisional language in that contract.” — David Dias, InterWest Insurance

There are many policies out there with different terms and different provisions. What a nonprofit manager should do is, if they actually purchased event coverage and cancellation coverage for a particular event, is work with their brokers, and understand what the policy covers and what it doesn’t cover, said Johnson.

The second question Johnson is answering is: “If I don’t cancel the event and I have someone who accuses us of getting the coronavirus at the event, what kind of coverage do I have?” His organization doesn’t offer event cancellation coverage, but he noted that some carriers’ policies specifically exclude problems such as viruses and bacteria.

Insurance coverage for nonprofits can be complicated, and policies can cover a variety of areas. Event cancellation might not be one of them. “It’s going to depend on what line of coverage you’re talking about because there are so many lines of coverage that are affected,” said Dias. “For any nonprofit entity, you’ve got property exposure, which is a big issue. Then you’ve got general liability exposure. In addition to that, there’s directors and officers exposure. There’s also errors and omissions exposure, especially for healthcare providers. That’s of particular concern. You’ve got workers compensation. That is another line.”

The novel coronavirus, or COVID-19, is having a far-reaching impact around the globe, and many nonprofit managers and their insurers are struggling to assess the implications when there are so many unknowns. It isn’t likely they would all be spelled out in an insurance policy. A spokesperson for Philadelphia Insurance declined to respond to questions about event cancellation coverage. The spokesperson for another major insurer, Gallagher, which offers insurance to nonprofits and for-profits, pointed to a report on its website with general information on responding to the coronavirus. “While specific policies for business loss due to a pandemic are uncommon, you should check with your insurance broker immediately to confirm what key coverages will be provided in a specific event,” said the report.

A major concern for nonprofits will be what happens to their cash flow if they have to cancel or postpone an important event, such as an annual fundraiser. This is generally referred to as “business interruption” coverage.

“The issue that has to be ferreted out is what is the coverage trigger,” said Dias. “What exactly is within the policy? How and why will the policy respond?”

Courts frequently try cases involving property loss and business interruption, and those can be contentious areas. “The responsibility is going to be on the part of the policyholder to prove damages were caused and triggered by the coronavirus,” said Dias. “It can be very difficult to prove.”

The language needs to be already embedded in the policy and not exclude some kind of epidemic or pandemic coverage, he suggested.

Some nonprofits might need to hire temporary staff if their permanent employees are too sick to work on an event or can’t work remotely. Certain insurance policies cover the hiring of temporary staff in the event of disease or epidemic, but those kinds of provisions are probably rare.

“The coverage for loss of business income and extra expense would be under the property policy unless it’s excluded by the policy,” said Johnson. “It depends on the covered cause of loss and exclusions in the policy. But I don’t know off the top of my head of a policy specifically covering loss of income from the virus.”

“It’s called business interruption and extra expense coverage,” said Dias. “What it is intended to do is you would still have to say, ‘What was the causation of the claim?’ And unless the language is built in ahead of time into the form, there isn’t going to be a triggering event that will cause that ability to be covered.”

The same goes for telecommuting expenses for employees who need to work outside the office, as many health experts are urging organizations to allow to provide “social distancing.” Such expenses, if they are covered, would probably also go under the extra expense portion of the policy. But few insurance policies specifically cover such expenses, and the coverage will depend on what triggered the need for telecommuting.

“The basic forms that are out there, what are called the ISO [Insurance Services Office] forms, don’t really cover that,” said Dias. “It’s very limited coverage unless it was specifically addressed at the outset and put into the language.”

Two other areas where nonprofits should examine their coverage are the errors and omissions (E&O) and directors and officers (D&O) liability insurance in case an employee is exposed to coronavirus in the nonprofit’s offices or medical facilities or while out in the field working on an event.

“Let’s take the directors and officers here for a minute,” said Dias. “What if there’s a claim for misconduct and basically the claim is against the board for inactions on their part? The D&O area can be an exposure for a lawsuit. Someone could say, ‘Hey, you were the leaders. You did not protect our workforce.’”

Brian Johnson

“The coverage for loss of business income and extra expense would be under the property policy unless it’s excluded by the policy.” — Brian Johnson, Nonprofits Insurance Alliance

Nonprofits should also look at the particular language of the conduct exclusions in their policies, he advised. “Then the other area is E&O, especially for healthcare providers that are doing nonprofit work,” said Dias.

The nonprofit might be required to pay for workers compensation if an employee gets sick with coronavirus while on the job. “There’s a spillover on the workers comp space because there are going to be claims,” said Dias. “People are going to say, ‘Hey, I got sick at work. I got this virus, and you put me into unsafe working conditions where I was exposed.’ Now instead of somebody using their health insurance for coverage, they’re going to look toward the workers comp coverage as well.”

Johnson advises nonprofit managers and their insurance brokers to work with their insurance company, to figure out if the coronavirus could be attributable to a work injury.

With airlines cutting back on flights in the midst of the pandemic, and the U.S. banning travelers from Europe, the U.K., Ireland, China and other places, travel has become more of an issue, especially as people are encouraged to stay home and avoid contact on airplanes and within large meetings. If an employee from the nonprofit needs to cancel a business trip on their own because of the coronavirus, the coverage can vary as much as the travel cancellation insurance that individuals purchase for their own vacations. Coverage for an event cancellation for a nonprofit can also differ.

Nonprofit managers can work with their insurance brokers to help them understand their policies and the implications for the coronavirus. “In general, this event really is a reminder that when nonprofits buy these policies, they pay a premium so that they really work with their broker to understand what’s actually being covered in the policy, and what’s not being covered in the policy,” said Johnson. “If they find things not covered in the policy that they think are risks to their operations, they should work with the broker to say, ‘Hey, it’s not covered in these specific policies, but if there’s coverage in the market available, do I want to pay that premium to cover that risk?’ Ask questions. That’s my recommendation.”

Dias recommended that nonprofit managers re-examine their policies in the wake of coronavirus. “I think what people are going to want to really examine is they‘re going to want to get the best counsel they can on what their current policy language will cover,” he said. “On a go-forward basis they’re going to have to develop a comprehensive strategy on how to potentially deal with these sort of pandemics, which may arise again.”

Michael Cohn is a freelance finance and business writer, based in New York City.