The CDC reports that, as of the end of last week, the coronavirus disease had spread through China and to 31 other countries and territories, including the United States, which has now seen its first two related deaths. The public health response in the United States has been swift and includes travel advisories, heightened airport screening, and repatriation and quarantine of potentially infected individuals. Outside the United States, countries like China, Italy, and South Korea have implemented more severe measures to combat the disease. From smart phones to automobiles, coronavirus has major short- and long-term implications for public and private companies facing potentially significant supply chain disruptions, store and office closures, and other logistical issues. These business losses, however, may be covered by insurance. Below are several key insurance considerations for policyholders to contemplate when evaluating the availability of insurance coverage for coronavirus-driven losses.
Directors’ and officers’ policies may respond to securities lawsuits arising out of coronavirus-related disclosure obligations. With global stock markets now in “correction” territory, investors will be asking whether steps could have been taken to avoid substantial losses in value. Federal regulators, such as the U.S. Securities and Exchange Commission, impose various disclosure obligations on public companies in annual reports, securities offerings, and other filings. As a result, business must contend not only with recouping direct losses from diminished business operations, but also with potential securities lawsuits related to the alleged failure to disclose actual or potential coronavirus concerns.
In addition, the recent market volatility and economic disruptions, coronavirus may also have a significant impact on pending mergers, acquisitions, IPOs, and other business transactions. These fluctuations can lead to both increased (where potential buyers may take advantage of decreased stock prices) and decreased (such as postponing or scuttling deals involving impacted companies) financial transactions, all of which can lead to more claim activity from shareholders, buyers, and other potentially impacted parties.
As with other recent adverse events, these coronavirus scenarios can lead to so-called “event-driven” litigation triggering coverage under D&O or similar professional or management liability policies. Heightened government involvement in minimizing the public impact of coronavirus and increasing risk of unscrupulous individuals taking advantage of the public health emergency may also lead to an uptick in government investigations and regulatory scrutiny in the wake of coronavirus.
The large-scale economic, political, and social impact of coronavirus across the globe highlights numerous cross-border insurance concerns. For example, coronavirus losses may originate abroad or may result in claims against policyholders in foreign jurisdictions. For companies with international reach, does it matter where their loss occurred?
Even if insurance policies provide worldwide coverage, government authority, political activity, and other regulatory environments related to coronavirus may vary greatly across jurisdictions and can complicate insurance coverage issues more so than other domestic public health emergencies. Companies may also have insurance policies affording repatriation or medical evacuation coverages for executives abroad who may be impacted by coronavirus.
Supply and Demand
Finally, businesses should look to property and other first-party policies to determine whether they provide business interruption coverage for any coronavirus-related disruptions to supply chains or other business operations. Traditional business interruption coverage under those policies may cover not only lost income, fixed costs, and extra expense, but also losses due to forced closures because of government-mandated curfews, street closures, or quarantines or costs incurred in temporarily relocating operations to a new location.
Insurance known as “contingent business interruption” coverage (which we have reported on previously in the wake of coronavirus and other public emergencies) may also pay for loss of income due to coronavirus-driven disruptions to suppliers, customers, vendors, transporters, or other entities upon which a policyholder relies to operate its business.
Adopting strategies to address coronavirus-related exposures that include evaluating insurance considerations can help mitigate risk and maximize recovery in the event of a business loss or claim.