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Gradually, across the world, countries are beginning to relax the restrictive lockdown measures implemented as a result of coronavirus. In the UK, following Boris Johnson’s announcement on 10 May 2020, the first steps are being taken in industries such as food production, construction, manufacturing and logistics, to get businesses up and running again. Furthermore, for people who cannot work from home the advice is to go back into work, which will obviously affect a full range of industries, including certain office environments.
However, that does not mean that the risk of coronavirus has disappeared. Without a vaccine or treatment, the potential for a second outbreak, and the consequential impact on your business, remains a very real concern.
Before your business re-opens, we advise reviewing all relevant insurance policies in place, in order that you understand the potential cover available to you. In particular, with employees being allowed back into the workplace, we recommend reviewing any employers’ liability insurance (a compulsory insurance for most businesses) and directors’ & officers’ liability insurance policies you have in place. You should consider what protection you have if an employee returns to work, catches coronavirus as a consequence, and subsequently brings a claim against the company or a director or officer of the company. These policies will take on increased importance as, if policy terms permit and where used correctly, they can provide an employer with a level of protection from a coronavirus-related claim.
Employers’ liability insurance is put in place to protect a business from claims for compensation made by an employee in the event of a work-related injury or illness. A business is responsible for the health and safety of employees while they are at work, and if an employee contracts a disease (such as coronavirus) while at work, the business may be held liable.
For most businesses in the UK, employers’ liability insurance in respect of ‘bodily injury or disease’ is a legal requirement under the Employers’ Liability (Compulsory Insurance) Act 1969 (EL(CI)A 1969) and associated regulations. You must have employers’ liability insurance as soon as you become an employer and your policy must cover you for at least £5m and come from an authorised insurer. You can be fined up to £2,500 for every day you do not have appropriate insurance.
‘Disease’ is not defined within the EL(CI)A 1969, but we anticipate it is likely to include the risk of an employee contracting coronavirus. While having this type of insurance cover in place will not prevent instances of coronavirus in the workplace, in the event that an employee does contract coronavirus at work and make a claim against the employer, an employers’ liability policy will likely cover the legal and compensation costs arising from the claim.
The cover under an employers’ liability policy will generally indemnify the insured party for:
(a) sums which they become legally liable to pay as compensation, in respect of a claim brought by an employee, and
(b) related defence costs
Defence costs will usually include the cost of investigating an event, legal defence costs (such as those associated with legal counsel and expert witnesses), as well as any settlement and pre-judgment or judgment interest costs.
We would expect to see a policy limit per claim brought by an employee. However, the definition of ‘claim’ should be checked, in order to be confident that there is no single limit for all claims arising out of the same cause, whereby all claims in respect of coronavirus (brought by different employees) might be grouped together. Both compensation and defence costs will usually form part of any policy limit.
The trigger for a claim being brought by an employee will be some form of injury or disease, often referred to together as ‘bodily injury’. An employers’ liability policy will only be triggered in respect of injury or illness suffered in the course of employment. This is likely to be a contentious point when discussing a disease such as coronavirus, as it is very difficult in the current circumstances to evidence where an individual might have contracted coronavirus. However, as the number of cases reduces, and attempts to track and trace individuals’ contacts improve, this may be easier to prove.
The definition of ‘employee’ will be different under each policy, and should be reviewed carefully. As well as employees under employment service contracts, the definition may also include those carrying out apprenticeships or training. Most policies will specifically define which staff are categorised as employees for the purpose of cover.
Typically, employers’ liability policies have few or no exclusions in the UK, on the basis that this is cover which a business is legally obliged to maintain. However, they may exclude cover for bodily injury sustained by an employee when travelling in (or getting into or out of) a vehicle, as it is a legal requirement for such risks to be provided for under an individual’s personal motor insurance policy. For example, if employees are using their private cars in order to travel between meetings or offices as part of their employment, in light of restrictions on use of public transport, they may not be covered during that commuting time. This is an example of where the interpretation of the phrase ‘in the course of employment’ will become somewhat more complicated under the shadow of coronavirus.
An insurer will require that you keep them informed of any material changes during the policy period in respect of the insured business or the risks insured, especially where cover may be sought in relation to such a change. In respect of coronavirus, where there may be an increased risk of an employee contracting the virus at their workplace, it is important that you keep insurers informed as to how you will manage that risk. It may be necessary to obtain a confirmation in writing from the insurer that the cover available would extend to claims in respect of coronavirus contracted in the workplace. An insurer is more likely to provide such confirmation if you can produce evidence that the business is putting in place appropriate safeguards for employees, and acting in accordance with all government advice.
Your employers’ liability policy might include an extension. Extensions relevant to claims brought by employees could include a contractual liability extension or cover for statutory defence costs.
Contractual liability extension
This extension is relevant where an employer has entered into a contract whereby the business assumes liability to employees. In those circumstances, the business may require a specific contract liability indemnification. It is worth keeping a log of any indemnities the business has provided and disclosing that list to insurers for information.
Statutory defence costs extension
The insured may also have added an extension to provide indemnification in respect of costs reasonably incurred in defending alleged breaches of statutory duty. In particular, this may include prosecutions brought under the Health & Safety at Work etc. Act 1974 (HSWA 1974), or even allegations of manslaughter, corporate manslaughter or corporate homicide.
As with general employers’ liability cover, the offence being prosecuted will need to have been committed during the policy period, in the course of the employee’s employment and limited to events resulting in bodily injury to employees, including health, safety and welfare.
Extensions for statutory defence costs will likely be subject to a lower sub-limit per prosecution. Such a sub-limit may apply to any claim, or series of claims, arising out of the same prosecution. For example, if a number of employees were to bring claims in respect of a breach of statutory duty which resulted in them contracting coronavirus, these might all be grouped together under the policy.
D&O policies provide cover for key individuals within a business to protect them from claims which may arise from the decisions and actions they take as a part of their role in the business. D&O coverage includes financial protection for directors and officers against the consequences of actual or alleged ‘wrongful acts’. Policies cover the personal liability of directors and also often cover the reimbursement of the insured company in case it has paid the claim of a third party on behalf of its directors and officers.
Businesses should be aware of who falls within the definition of ‘insured’ for the purpose of their D&O policy. Such a definition will most likely be limited to natural persons. However, it will almost certainly be broader than simply those with ‘director’ or ‘officer’ in their title. Some definitions can include general counsel, risk managers and general employees in management roles. The definition of ‘director’ or ‘officer’ might also include members of boards, non-executive or shadow directors and similar.
The basic level of cover under a D&O policy will be cover for ‘loss’ of the insured person (ie director or officer) arising from any claim made against them in relation to actions they have taken in their role in the business. Loss means the amount which that person incurs or becomes legally obligated to pay as a result of a claim. Generally this will include defence costs, as well as settlement and judgment interest costs (subject to the indemnity limits and other terms).
Bodily injury exclusion
Some policies may set out specific exclusions for ‘bodily injury’, which is generally defined to include sickness and disease. Any such exclusion should be reviewed carefully for the following:
a) some policies will exclude the loss arising out of any claim made in respect of bodily injury (ie the damages or compensation), but will not exclude the defence costs incurred in respect of such a claim
b) some policies may include a provision for the insurer to claw back defence costs in respect of a claim for bodily injury, where such a claim is successful and the director/officer is found liable.
Employment-related wrongful act exclusion
Some policies may specifically exclude loss arising out of a wrongful act or employment practice violation. Where the claim being brought by the employee relates to an act or omission with respect to the individual’s employment or prospective employment, some policies will exclude any or all cover. This is usually on the basis that employers’ liability insurance will cover claims brought by employees.
Some policies incorporate extensions for other types of costs such as:
The policy may provide for costs incurred by a director or officer in responding to a crisis. The definition of ‘crisis’ should be considered carefully. For example, if there was an outbreak of coronavirus within the business which became public knowledge and subsequently affected the value of the business or the company’s share price, costs incurred in dealing with that ‘crisis’ might be covered.
Some policies may provide that the insurer will pay for costs incurred in mitigation in respect of circumstances which the insured director or officer becomes aware of, and reasonably believes may give rise to a claim. This may include costs incurred in investigating any such event, or settling or compromising any potential claim.
As a general rule, most D&O policies will require that the insured obtains prior consent from the insurer before incurring costs to be covered by the policy. However, there may be an extension for ‘emergency costs’, meaning those costs which were incurred before it was reasonably practicable to inform the insurer. It is not advisable to plan on relying on such a clause, especially in the current circumstances where businesses are expected to be alive to potential dangers in re-opening while coronavirus is still a present threat. Keeping the insurers informed and seeking consent wherever necessary is likely to allow for a more significantly cooperative relationship. Indeed, with all of the extensions referred to above, we recommend that you seek insurers’ consent before incurring costs.
In light of the above, we recommend that businesses proactively update insurers on employers’ liability and D&O policies and liaise closely with their insurance broker(s). Insurers should be updated in respect of everything the business is doing in order to re-open, including all steps being taken to safeguard the workforce. Where there are relevant government guidelines, it should be made clear to the insurers which guidelines these are, and how they are being followed.
Undoubtedly businesses will be proceeding cautiously with any re-opening, given that these are unchartered waters. Scenarios which would previously have been the norm, may now contain an element of risk. For example, if an employee who has been working from home is now required to come into the office, and contracts coronavirus on public transport while commuting, a claim might allege that the commute fell within the ‘course of employment’. We would recommend that businesses avoid issuing any such direct instructions to employees, especially where the risk potentially encountered is a novel consequence of the coronavirus pandemic, without first discussing their approach with insurers.
As a matter of best practice, we would recommend that businesses alert insurers that they are considering re-opening after a coronavirus enforced closure, and request the insurers’ input and loss-control recommendations. If a business follows its insurers’ recommendations, or is able to work together with insurers in re-opening, then this may help avoid disagreement down the line. In any event, whether the insurers make any recommendations, or simply respond to say that the business can take whatever steps it sees fit, a record of any such exchange may prove useful in the event of any future dispute.
We also advise businesses to keep comprehensive records of actions taken and costs incurred since coronavirus first interrupted the usual way of working. This is even more critical in respect of the re-opening of a business. Everything should be documented in reports and meeting minutes, in anticipation that actions and decisions may need to be justified to insurers at a later date. Any advice received from government advisers, lawyers or industry experts, should be filed and recorded.
Businesses should ensure that they act in accordance with all existing terms and conditions set out in their insurance policies. Insurers will be interested in any changes to a business’s risk profile in light of coronavirus, as this may affect an insurer’s pricing of the risk. Businesses may want to think about providing insurers with a general business update regarding the operation of the business during the coronavirus pandemic. For example, you could update insurers in respect of any employees who have been furloughed, any further furlough or redundancy plans, any plans to re-open the workplace, or any changes to management structure and the way in which senior individuals are taking critical decisions (ie outside of the usual governance parameters).
The disruption already caused, and continuing to be caused, by coronavirus is not restricted to the lockdown period that has been in place in the UK and in many places across Europe.
As countries begin to emerge from lockdown, focus will move to how best to re-open and implement new health and safety measures, such as social distancing, while maintaining a profitable business. If you are considering re-opening in the next few days or weeks, reviewing your suite of insurance policies (including your employers’ liability and any D&O insurance) and keeping insurers informed as to next steps is a key. In these uncertain times, insurance should be used as a tool to help a business mitigate the risks associated with our ‘new normal’.
This content is based on an article first published by Reed Smith’s Insurance Recovery Team, which includes Mark Pring and Laura-May Scott, and is published with permission.
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