By: Chris Boggs, IIABA Executive Director of Risk Management and Education

February 2020 seems like a lifetime ago. The then new Coronavirus was only a brief mention on the nightly news, few paid much attention to it. We had heard about pandemics before.

Move forward one month to March 2020 and our whole world changed. Cities, counties and even entire states introduced various measures in immoderate attempts to curtail the spread of the virus. The now infamous if not misquoted phrase or promise, “15 days to flatten the curve,” has dragged into its 11th month.

American business owners and the insurance industry saw something that neither EVER anticipated, the wholesale closure of businesses considered “non-essential.” No one in the business world or insurance business would have ever considered the idea that any government in the US would prevent a legal business from operating, especially for several months at a time.

Prior to COVID, few if any “main street” agents would have anticipated the need to ask about much less search out coverage for governmental actions such as these experienced in the last year. One problem is that few markets existed for such coverage; another issue is that very few agents or brokers even knew these markets existed; and lastly, the cost for such coverage was high (maybe prohibitively high).

From the perspective of the “reasonable man” (or “reasonable agent”) test, it would be unreasonable to hold the agent responsible for something that had never happened on such a large scale in anyone’s lifetime. This was not a risk that could or should have reasonably been anticipated.

Although agents may likely see an uptick in errors and omissions (E&O) claims in the coming months, the anticipation is that few cases will be lost because of the “reasonable man” test. But now COVID has happened, and what may have been an “unreasonable” expectation before is no longer “unreasonable.”

COVID has happened, now what?

Agents are practicing in a new world of probabilities if not possibilities. Previously there was little or no need to address the question of mass government closures of business in the absence of property damage or natural catastrophe because nothing like it had occurred before. Now it has and agents must address the exposure.

A few recommendations for this timid new agency world are:

•Undertake a reasonable search of the agency’s

   available markets and those with which the

   agency has a relationship to ascertain whether

   the necessary coverage is available or not. This

   is not an exhaustive search of the entire

   marketplace as theoretically coverage is

   available for any risk of loss. Rather this is a

   survey of the agency’s standard markets and

   the brokers with which the agency has an

   on-going  relationship and maybe two or three

   additional brokers. If a market is found, learn

   about the market, coverages offered and the

   pricing scheme. If no market is found, state so

   on all proposals and program deliverables.

• During the prospecting and renewal process,

   specifically address the exposure with the

   insured. If the agency has an available market,

   ask the insured if a quote is desired. If the

   agency does not have a market, state that the

   agency was not able to locate a market. (Never

   state that no market exists, only that the agency

   was not able to find a market.)

• Like with any other exposure, make sure that

   the prospect/client signs or initials that the

   exposure has been discussed and what options

   are available from the agency.

• In the proposal, the exposure should be

   addressed again along with the agency’s

   available options (i.e., “The agency does not

   have an available market;” “The agency has a

   market, but could not get a quote because of

   ‘X,’ ‘Y’ or ‘Z’” (whatever the reason); “The

   agency was able to obtain a quote,” then

   provide the coverage specifics)).

• Resist the temptation to create a narrow

   disclaimer focused solely on COVID or a

   COVID-type exposure. Disclaimers should

   be general in nature.

Now that COVID has occurred, anticipating such losses is no longer unreasonable. Agents must now address this loss possibility with prospects and clients. The “one bite” allowance previously available from the “reasonable man” test may no longer be available. Businesses have been bit, now agents must address the exposure.