Changing Risks Require RM Vigilance One eveninglast week, the anchorperson on a local news station opened with astory on how the world has changed: people are now concerned withSARS, West Nile virus and even monkey pox.

Elaborating on the need for personal risk management, theanchorperson mentioned that a later report would feature medicalexperts discussing how individuals could manage their own risks inthe changing landscape of global dangers.

This seemed contradictory to other newscasts that featuredstories about injured parties who allege that everyone else isresponsible for the troubles they caused themselves. There arestories, for example, about suits against the fast-food industryalleging complicity in making so many people fat. We also hearreports about rising health care costs that are, at leastpartially, caused by unhealthy lifestyles, and reports about thenumber of highway deathsdeaths that might have been averted ifdriver and passengers had been wearing seatbelts.

Its ironic that one announcer is talking about “personal riskmanagement” while others are offering examples of individualsfailing to take personal responsibility for just about anythingthey doand seeming to expect corporate America or the insuranceindustry to pick up the pieces.

Today, businesses must be increasingly vigilant about how theiractions impact others and how they are viewed from the perspectiveof their shareholders, employees, business partners and customersaswell as by the general public. This is true even when the injury iscaused by natural disasters or disease.

Take, for example, a situation in which a company sends anemployee on a business trip outside the United States and theworker contracts a contagious disease. What if she subsequentlyinfects other members of her family, business clients and evenmembers of the public when she returns home?

If the company is sued for the pyramiding losses, will itsvarious insurance policies respond?

One line of financial defense could be the corporationsdirectors and officers liability insurance, which is designed torespond to allegations such as error, omission or breach ofduty.

Most D&O policies, however, contain exclusions for bodilyinjury on the premise. Such injuries should be insured throughgeneral liability insurance. The wording of this exclusion differsfrom policy to policy, with some providing limited coverage andothers, no coverage at all.

For example, what if an epidemic happens, and the spreadinginfection causes the company to lose business and, ultimately,value?

Or what if a food-service company is quarantined because offears that the disease could spread even further because of acontaminated employee?

Shareholders of a public company, or financial partners of aprivate company, could file an action based on failure to avert thespread of the disease, which led to the loss of business andsubsequent loss of value.

Those with a financial interest in the company could allege thatmanagement should have taken precautions to avert the damage, suchas canceling all foreign business trips once the disease becameknown.

One type of D&O bodily injury exclusion precludes coveragefor all losses in connection with claims “alleging, arising out of,based upon, attributable to, or in any way involving, directly orindirectly,” bodily injury. Another policy may state more simplythat losses connected with claims “for” bodily injury areexcluded.

Although each is considered a bodily injury exclusion, the firstprobably precludes coverage for even a derivative action based onloss of value if the loss arises from bodily injury.

The second exclusion most likely would void coverage only forthe individual claims of illness, but not necessarily for thederivative action alleging loss of financial value.

Both policies have bodily injury “exclusions,” but each couldlead to a different financial impact. The difference is critical tothe grant of coverage.

From the publics standpoint, the spread of infection could fallwithin the coverage of a corporations general liability policy,which is written to specifically address loss arising from bodilyinjury and property damage.

Absent an intentional desire to spread the disease, a businessand its insured employees probably would be covered by the CGLpolicy for negligently spreading the illness to the public.

One possible limitation is the pollution exclusion, whichapplies to the migration, dispersal, escape or release ofpollutants. The typical CGL policy defines pollutants as a solid,gaseous, liquid or thermal irritant or contaminant, categories thatbacteria or virus possibly could fall within.

Many courts, however, have confined this exclusion toenvironmental damages, not to the spread of bacteria or virus. Atthe least, the corporation should have defense coverage under a CGLpolicy for such a lawsuit.

Although concern for the public is critical, the risk to theemployee is, of course, the most obvious. CGL policies excludecoverage for bodily injury to employees, as well as to familymembers of employees who are consequentially injured. They alsoexclude injuries that fall within the realm of workers'compensation laws.

Workers' comp insurance typically addresses employee injurieswhether caused by accident or disease.

In general, employees who are subjected to an infectious diseasein the course of employment should be entitled to workers'comp benefits. But what if the employee caught the disease whiletraveling outside the United States?

Employees who are hired in the United States usually are coveredby the workers' comp laws of their state of hireeven if they traveltemporarily outside this country. Thats because part one of thetypical workers' comp policy (as drafted by the National Council onCompensation Insurance) does not have a defined coverage territorysuch as is contained in other insurance policies.

However, the NCCI policy does state that it applies to injuryarising from the locations listed on the policy as well asworkplaces that are not listed but are within the states designatedfor coverage.

So in order for coverage to apply to exposures outside thosestates, the employee generally must have been hired in one of thelisted states and be assigned to a worksite that is insured. Thereis no prohibition of coverage for exposures that arise fromemployees who travel temporarily outside those locations.

Theres more to it, however.

The employers' liability section of the workers' comp policyaddresses consequential injury to the employees family members.

This section restricts coverage to injury occurring within theUnited States, its territories or possessions, and Canada. Theresan exception, which provides coverage for temporary foreignexposures.

The policy does not define the term “temporary,” so itsimportant for the underwriter handling the policy to understand theextent of foreign assignments.

In many cases, additional insurance will be necessary toadequately cover situations in which employees are assigned outsidethe United States for longer durations. Its necessary for riskmanagers to check with the carrier when any foreign travel isplanned.

And thats about all that a corporate risk manager or insurancebuyer can do. The world and its risks are rapidly changingaspointed out by that newscaster. All we can do is continually try toimpress on senior management that they may increasingly be facedwith having to take corporate responsibility for public healthissueseven when individuals do what they can to minimize their ownrisks.

Diana Reitz is the editor of the National UnderwriterCompany publication, The Tools & Techniques of Risk Management& Insurance, as well as the Risk Funding & Self-InsuranceBulletins, both available at www.nationalunderwriter.com/nucatalog

Reproduced from National Underwriter Edition, July 7, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.