In their commentary, Reed Smith LLP on the Limits of Insurance Coverage to compensate Victims of a Swine Flu Pandemic, James P. Davis, Richard P. Lewis and Noel C. Paul explain why insurance cannot be relied upon to meet the needs of many victims of a Swine Flu pandemic, or protect large numbers of parties affected from such a pandemic from liability or loss. They note that presently authorities and leaders around the world are attempting to prevent the spread of the Swine Flu virus. The lesson of past catastrophes, however, is that these same leaders must simultaneously plan for the aftermath of a possible pandemic. Many political and business leaders – and individuals – will depend on the insurance industry to provide a backstop to what could be massive human losses and financial disruption. Many will return without assistance. Each type of insurance likely to be relied upon – workers compensation, health and life, professional liability, general liability, and first-party property – presents significant obstacles for policyholders.

Employees sent home under quarantine may not receive workers compensation coverage if they are not actually infected. Even employees that are infected may struggle receiving coverage if they cannot show that their infection “arose out of” and was contracted “in the course of” their employment. Moreover, as workers compensation coverage is determined under varying individual state laws, whether a claim stemming from Swine Flu is covered would depend on whether the specific state restricts the range of occupational diseases that are covered.

Given the poor financial condition of many insurers resulting from the recession, claims for coverage for a Swine Flu pandemic could tip health and life insurers over the breaking point. In this circumstance, these insurers are likely to deny many claims for coverage, or at least delay payment for many months or years.

In terms of professional liability coverage, the backdrop is that employers facing a pandemic may have to decide whether to compel employees to either come to work or stay home, and are tasked with providing a safe working environment. A claim rooted in an employer’s discrimination against a certain type of employee, such as a non-essential employee, may be excluded from coverage. Insurance companies also likely would argue that an employer’s decision with respect to its management of employees was “expected or intended”, and that related damages are excluded from coverage.

Insurers likely would argue that bodily injury resulting, for example, from ineffective anti-viral drugs was “expected or intended”, because all of these parties knew that the drugs were not entirely effective or without adverse side-effects.

Claims brought against individuals for failing to take necessary precautions to prevent the spread of the flu, despite awareness of their own symptoms, might arise as well. A common provision in homeowners’ coverage, however, excludes coverage for liability for transmission of a communicable disease by the policyholder.

Many businesses likely would try to recover under a first-party policy for costs to remediate a building infused with the Swine Flu virus. Whether a policyholder can bring a successful claim would depend upon whether the presence – or suspected presence – of Swine Flu virus in a building constitutes physical loss or damage to the building.
The commentary discusses these and other practical and legal obstacles to obtaining compensation for losses attributable to a Swine Flu pandemic. “Thus,” in the event of a costly pandemic, the authors conclude, “leaders and policymakers should begin now to consider alternative means of compensating victims and providing a measure of legal protection to liable parties, many of whom likely will be at the front lines in attempting to prevent the spread of the virus.”

Additional information may be obtained from the LexisNexis® Insurance Law Center Podcast featuring James Davis of Reed Smith on a possible flu pandemic and insurance. Readers may access a FREE DOWNLOAD of this podcast directly from the Podcast Module which is located on the main page of the Insurance Law Center.

Subscribers can access the complete commentary on lexis.com. Additional fees may be incurred. (approx. 8 pages)