As companies emerge from government-mandated COVID-19 shutdowns and begin re-opening, they will have to balance a desire to resume operations with the risk of a liability exposure from customers or employees who get sick and claim the business was to blame. In tomorrow’s fragile economic recovery, such litigation could mean the end of a business.
Small businesses and retail in particular will need to take reasonable steps to open safely, following recommended measures to minimize the risk of transmission and infection among people before re-opening their doors to a willing public.
Even if a business adopts all prudent measures, there is so much we don’t yet know about the transmission of the COVID-19 virus or its prevalence that there remains a chance of people being exposed and getting ill. And where there’s a chance of exposure, there’s also a chance of businesses facing liability lawsuits alleging their preventive efforts were negligent and to blame for someone’s illness or death.
If businesses choose to open, and not avoid the risk by remaining closed until safety is more assured, they will have few options to transfer their liability risk. One option eventually will be new pandemic liability policies and endorsements, which are sure to be developed by the insurance industry soon. These likely will be quite costly and perhaps unaffordable to small business until the risk is better quantified. Small business associations might eventually develop group captives or risk-sharing mechanisms as an alternative, but those also will take time to set up and price the risk.
A more fundamental option for non-essential businesses to transfer the risk from opening their doors might be to implement some sort of hold harmless agreement. Such an instrument would require people to waive liability for their voluntary patronage of a non-essential business, such as a retail store, restaurant, hairdresser, sporting event and so on. This kind of agreement seems especially applicable when we know so little about the transmission of the COVID-19 virus, and going out into this unknown environment seems risky.
Hold harmless agreements are widely used but often overlooked. Have you ever read the fine print on a parking ticket, or read the waiver you sign when you participate in an athletic event or activity like a zip line ride? With modern technology, there likely are more efficient digital ways to present a waiver of liability before one enters a business, requiring a person to give consent and to record that agreement.
When a business does all the right things, it shouldn’t bear all the liability arising from a pandemic virus. While a customer may have a reasonable expectation of safety entering premises open for business, with coronavirus unknowns the customer is assuming some risk. Asserting one’s freedom to engage in non-essential activities like shopping for garden supplies, getting a haircut, going to a concert or eating at a restaurant four-top also requires the customer to assume some responsibility for the risk of infection.
When someone engages in a high-risk activity like skydiving, the person typically is asked to sign a liability waiver, acknowledging there are risks and expressing a willingness to assume them. This doesn’t eliminate the risk—it shifts it to the consumer. Obviously, if one doesn’t wish to bear the risk of horrible injury, one shouldn’t jump out of a plane and find the parachute doesn’t work as well as the laws of physics.
We know the industry is looking to develop insurance solutions for the business liability risk, but, if individuals are assuming a greater personal risk, might there be an opportunity?
Maybe this unprecedented situation calls for some form of personal accident insurance, or an endorsement to another policy like health insurance, that would cover medical expenses, loss of income or even death benefits if someone is exposed to a pandemic virus after shutdown orders are lifted. This sort of insurance would not only provide financial relief for a loss, but also peace of mind amid the unknown exposure risks of a pandemic.
Airlines, event organizers and so on could even embed such voluntary coverage in the price of a ticket, perhaps for a limited time at risk, such as a two-week period of incubation after an event.
Maybe there’s also a market for a transmission liability risk, protecting an individual from being sued by another party for causing an infection. This could be structured as an endorsement to liability protection in homeowners or umbrella coverages.
Who knows—for the first time the industry could come up with a product that people want to buy, not one they have to buy.
All of the above presumes that businesses and customers act responsibly and take preventive measures to minimize exposing themselves and others, and do not negligently embrace the contagion. What about situations—which sadly are emerging more frequently as shutdowns ease and people balk at stay-at-home restrictions—in which neither party shows a regard for public safety and exposes themselves and others to a risk of infection?
People may have a right to put themselves in harm’s way, but do they have a right to expose others to harm? Throughout all of our communities are those who choose individual freedom and ignore potential adverse consequences to themselves and their community. This raises a significant challenge to both risk managers and legislators and raises a basic question: Who is responsible for managing the risk of coronavirus transmission?
While there’s a lot of uncertainty and misinformation about COVID-19, there’s almost universal agreement that, once infected, people can spread the virus to others. Borrowing from science fiction vernacular, COVID-19 acts like a microscopic alien life form, with humans as non-voluntary and unwitting hosts. This alien life form enters the body, adapts to the host’s DNA, thus converting every host into a potential killer. Even when a host is unaffected by symptoms, and may forever be unaware of having been a host, COVID-19 makes all infected people the contemporary version of a Trojan horse.
For policymakers, carriers, regulators and consumers thinking about ways to provide an incentive people to better manage this risk, consider the following “what if” scenario about introducing potential consequences of not following current mandated guidelines meant to manage the spread of COVID-19.
Let’s assume that, in a rebound of the virus later this year, the capacity of medical resources to care for the infected and ill ranges from scarce to completely overwhelmed. What if our individual access to the full measure of available medical services were to become largely decided by our own choices and risk management attitude?
Person A goes to a hospital to be tested. The attending physician captures the person's contact history over the prior week. On the list is a sports bar and grill, which brings follow-up questions regarding that establishment and whether it followed social distancing and personal protective equipment guidelines. The patient replies, “The place was jammed, they had a band, and you couldn’t find a mask anywhere. It was great—just like old times!” The physician thanks the patient and promises to follow up with the test results. Patient A later receives a call at home. “We got your test back and are sorry to inform you of a positive result. We have already called in a script for a Z-Pak. However, I must also inform you we cannot treat you in the hospital if your condition worsens given that you chose to ignore current safety guidelines. We have limited capacity, and every serious case puts our staff at risk. We hope you feel better soon.”
Patient B also tests positive. This patient’s contact history reflects adherence to established guidelines regarding social distancing and protective gear. This patient gets a phone call that goes something like this: “We got your test back and are sorry to inform you of a positive result. We have gone ahead and called in a script for antivirals. I can assure you that, should your condition deteriorate, we will treat you here in the hospital.”
We believe insurance can offer solutions to help responsible businesses and individuals transfer some of the financial risk arising from a pandemic, but we also caution against a mindset that whenever a loss occurs “insurance can pay for it” without also introducing incentives for businesses and individuals to be smarter about risk management.