Interrupted by Disease

 As of mid-November, the Canadian government was advising against non-essential travel to three African nations where thousands have died from Ebola. In October, the Associated Press reported 14,000-plus cases of Ebola and more than 5,000 deaths have been recorded in Africa.

Most of those cases were in Liberia, Guinea and Sierra Leone, the countries cited by Ottawa in its advisory, which also applies to all travel to the eastern and northeastern areas of the Democratic Republic of the Congo.

Ebola spreads among humans through direct contact with bodily fluids, with materials contaminated with the bodily fluids of people who are infected, or with organs or bodily fluids of infected animals, notes information from the World Health Organization (WHO).

Canada’s travel advisory is in place amidst moves by certain insurance providers to adopt inclusions or exclusions when it comes to Ebola, specifically, or pandemics, generally.

Businesses “tend to overlook” the risks from pandemics, but they do affect supply chain operations, says Susan Delicata, a Toronto-based client executive and producer with the employee-owned commercial brokerage, BFL Canada Risk and Insurance Services Inc.

“Business interruption (BI) is the class most tangibly affected by a pandemic such as Ebola,” adds an e-mail response from Miller Insurance Services LLP, a broker in the United Kingdom.

For Ebola, Delicata advises coverage is available “in a limited form, but (the disease) has to be named” in the policy. Epidemic policies are available from the Lloyd’s market, she reports.

In October, Miller Insurance and William Gallagher Associates Insurance Brokers Inc. jointly announced the availability of Pandemic Disease Business Interruption Insurance, provided by Ark Syndicate Management Ltd., which manages two Lloyd’s syndicates. Ark Syndicate’s new pandemic BI coverage, which is available in Canada, “would respond to loss of income arising directly out of quarantine shutdowns of healthcare facilities, as well as diminished revenues in the aftermath of a quarantine,” notes a statement from Miller Insurance.

A client advisory from Willis North America Inc. notes that if Ebola, for example, causes loss or damage, property insurance policies would not normally provide coverage.

“Property insurance policies require a trigger for coverage, which is physical loss or damage caused by an insured peril, and disease or virus is not considered an insured peril,” the advisory states.

Willis notes there are insurance products covering interruption by communicable disease, interruption by infectious or contagious disease and mandatory closure for pandemic disease.

“Some insurers would actually endorse these various forms of coverage to an existing policy (subject to a separate limit and deductible) or establish a separate insurance product providing this coverage,” notes the advisory. “Absent these forms of coverage endorsed to the policy, it is not the intent of a property insurance policy to provide coverage for the Ebola virus.”

OUTBREAKS HAVE HAPPENED, CAN HAPPEN AGAIN

In the past, property insurance policies “did not respond” to outbreaks of communicable diseases, such as H1N1, avian or bird flu, or severe acute respiratory syndrome (SARS). The SARS outbreak that resulted in the deaths of 44 people and the illness of more than 300 in Toronto a decade ago prompted WHO to issue a travel advisory applying to the city.

“Although no one did foresee and perhaps no one could foresee the unique convergence of factors that made SARS a perfect storm, we know now that new microbial threats like SARS have happened and can happen again,” the Ontario Commission to Investigate the Introduction and Spread of SARS states in its report, Spring of Fear. As many as 20,000 people may have been quarantined.

In a separate report, Learning from SARS: Renewal of Public Health in Canada, the National Advisory Committee on SARS and Public Health notes Toronto Dominion Bank “had estimated the net cost of the outbreak to the national economy at between $1.5 billion and $2.1 billion.”

Commenting on epidemics in general, Miller Insurance cites closure of premises, quarantine of key staff and revenue drop-off following closure as some risks associated with a disease outbreak.

NEED TO BE PREPARED

“Every business should have a pandemic/business continuity plan in place and consider purchasing specific insurance that responds in the wake of a forced closure following pandemic,” notes the information from Miller Insurance.

A technical advisory bulletin from Willis North America emphasizes that business continuity plans should give “special consideration” to infectious disease outbreaks. “Unlike other potentially catastrophic events, the Ebola epidemic may not always be geographically or temporally bound,” the bulletin states.

Willis suggests that a business continuity plan for an epidemic should address, among other issues, the following:

• how long a firm can sustain its operations if a number of its own employees (or the employees of suppliers) are unable to continue operations;
• if companies have “contingency signatory authorizations” for disbursing funds, in the event that an executive with signing authority is sick; and
• whether or not firms could be fined or penalized if they are unable to meet their contractual obligations to deliver goods and services.

Commercial policyholders “have to have a contingency plan,” for a disease outbreak, Delicata says. “They have to actually look at it as an exposure.”

She reports some carriers recently began adding exclusions for Ebola in policies for “hospitals, event organizers and other businesses that are vulnerable,” such as those with staff who travel abroad.

Media reports in October indicated Ebola may be excluded in some general liability policies written by ACE.

During an October conference call with financial markets analysts discussing the company’s 2014 Q3 results, however, Evan Greenberg, chairman and chief executive officer of ACE, said risk exposures of ACE clients “include the types of activities they are engaged in, the locations where they take place and the kind of safety protocols that they employ.” The exclusion is “not being applied in some indiscriminate unilateral or blanket way to address the Ebola risk.”

Delicata expects the cost of policies that specifically include Ebola are “going to be quite expensive,” especially for firms whose employees travel on business.

Business interruption can result in cases where employees become sick or need to be evacuated or quarantined, she points out, adding that a disease outbreak can also create liability risk for companies.

Consider, she notes, that companies could be sued by plaintiffs who allege a business failed to protect “customers or invitees from being exposed to the virus,” while directors and officers could be individually sued by shareholders “in the event that companies are inadequately prepared to handle the pandemic and it hurts the company’s business.”

To the list of concerns is the potential effect on trade credit and event cancellation covers, says Scott Kelly, director of the External Advisory Board for the Cambridge Centre for Risk Studies. In a pandemic, Kelly explains in a statement, underwriting losses could be compounded by an impact on an insurer’s investment portfolio.

The insurance industry needs to educate policyholders on disease outbreaks, Delicata says. “Most people don’t think it can ever hit here… but (a disease) can be here in 10 hours,” she cautions. “The spread of Ebola is the most severe disease outbreak ever,” she says. “There are a lot of other ones – tuberculosis, measles and mumps – people don’t think of those, but those are breaking out too.”

Adds Kelly, “The threat of new diseases in distant populations may seem of little relevance to a global business in an era of medical miracle s, but our interconnectivity and human nature’s fear factor is strong enough to make these outbreaks a genuine risk and potentially cause significant economic disruption.”