By George Leposky, editor, TimeSharing Today
When the COVID-19 pandemic struck, disrupting the operations of vacation timeshare resorts, managers and board members wanted to know whether insurance would cover the resulting costs. The answer: It depends – on the costs incurred, and the nature and scope of a resort’s coverage.
In a recent Timeshare Board Members Association webinar, the possibilities were explored by insurance executives Chad Dorsey, vice president, vacation resorts specialty division of Brown and Brown Insurance in West Palm Beach, FL, and Scott McGinness, vice president property and casualty with Gregory and Appel Insurance in Indianapolis, IN.
“Historically, workers comp has not covered ordinary diseases of life,” Dorsey said, but first responders have been covered and some states have begun to broaden the definition of who is an essential worker.
If an employee comes and says, “I contracted the virus while working,” Dorsey advised the resort to file the claim. “Is it going to be covered? At this point more than likely, no,” he conceded, “but things are changing quickly as a result of this pandemic.” To track these changes on a state-by-state basis, visit the web sites of the National Conference of State Legislators at www.ncsl.org and the National Council of Compensation Insurance at NCCI.org.
Dorsey also noted that filing a claim won’t have a negative impact on a resort’s experience rating and workers’ compensation premium.
If a resort shut down as a result of COVID and continued to pay employees while they weren’t working, he said, “the associated payroll can be removed from the premium computation. Then work with your insurance agent or the auditor at the end of the policy period, and they will not charge you for that premium.”
Further, he said, “you don’t have to overpay for insurance and wait for a refund at the end of the policy period.” Resorts with a premium based on a projected gross annual payroll figure can make mid-term changes if they reduce that estimate due to a shutdown.
Directors’ and officers’ liability
A directors’ and officers’ liability insurance (D&O) policy “is intended to cover for economic loss from a qualified wrongful act,” Dorsey said, but such policies typically don’t include bodily injury. In the future, he predicted, D&O negligence claims will involve the closure and later reopening of the resort. “We’ll see some claims centered around allegations that the Board was negligent in not following CDC (Centers for Disease Control and Prevention) recommended guidelines for disinfecting the property, and as a result, we don’t feel safe using our time and we might even have a diminution of the value of the resort because it’s perceived to not be a clean vacation spot.”
Such claims, he said, will “go straight to the directors’ and officers’ liability, and that policy will provide defense to the board, to the resort, and to resort-management companies.” Thus, on-site managers and third-party management companies should be listed on the policy as registered agents.
Although resorts interrupted their business to shut down for COVID-19, claims they filed against their business-interruption (BI) insurance were uniformly rejected. BI is designed to cover losses from hurricanes, floods, and other events that cause physical damage to the insured property. The pandemic did not damage the resorts. Moreover, most BI policies exclude coverage for losses from communicable diseases, so a virus on the premises wouldn’t qualify.
Nonetheless, Dorsey and McGinness both advised resorts to file BI claims for COVID-19 losses, even though more than 700 such claims have already been filed and rejected. “It’s a good idea to document your claim and file it with the insurance carrier, so at least you’re in line just in case something does emerge that might help cover these claims that have already occurred,” McGinness said.
Environmental/pollution liability insurance covers bodily injury to owners and guests onsite, and cleanup and disposal costs for spillage of sewage or a chemical pollutant. “A lot of resorts purchase this policy simply for Legionella related claims, contracting Legionnaires Disease from a dirty water system while staying at the property,” Dorsey said.
While it’s not relevant to COVID-19 due to an exclusion of “any exposure to infected humans,” Legionella bacteria thrive in stagnant water. If a resort has been shut down for an extended time, its water system should be thoroughly flushed and checked before normal usage resumes.
A resort’s general liability insurance protects against bodily injury or property damage. Will it include COVID-19 claims? Maybe, McGinness said. Some policies exclude fungi or bacteria, but COVID-19 is caused by a virus. If the policy excludes all communicable diseases, COVID-19 won’t be covered.
“It’s going to be difficult for claimants to make a successful claim against your general liability policy. They can’t show with certainty that they were exposed at the resort because they’ve been so many other places. It’s hard to nail that down with certainty. So that is a good line of defense.”
Defense cost is also part of a general liability policy. “The insurance carrier has a duty to defend the insured when they are sued,” McGinness said. “The only time you see that duty taken away is if a coverage is clearly and specifically excluded in the policy, so if you had a general liability policy with a clear COVID exclusion on there, you cannot expect the insurance company to defend you. In that case, you will have to hire your own attorneys.”
To avoid giving claimants ammunition for a successful lawsuit, McGinness advised resorts to follow and enforce the CDC guidelines and procedures, train employees, and document what is being done. This will protect a resort if guests refuse to sign required waivers or informed consent forms, submit a claim despite having signed such forms, refuse to practice social distancing, or show symptoms and refuse to quarantine or isolate.
Waivers and informed consent forms “do provide some level of defense, but they don’t necessarily stand up in court,” McGinness warned. He advised resorts to consult with their attorneys about whether to use them and, if so, what they should say.
McGinness noted that resorts and other vacation-industry enterprises carrying cyber insurance have increased their exposure by sending employees to work from home. Their networks and devices may be less secure, with more frequent disruptions of service, and more risk of unleashing malware or ransomware, while at the same time the volume of network traffic has increased.
Legislation and other changes
Legislation is pending in eight states to force insurance companies to pay BI claims related to COVID-19, McGinness reported. “That would really be devastating for the insurance industry,” he said, “because they really had no intention to pay those claims. They didn’t price for it.”
Over time, Dorsey said, the solution probably will be some form of shared responsibility between the insurance carriers and the federal government, similar to TRIA (the Terrorism Risk Insurance Act) and NFIP (the National Flood Insurance Program).
McGinness noted that several versions of pandemic insurance coverage are being developed. They will be very expensive at the outset, but ultimately will become very affordable – similar to the history of cyber coverage – as more companies compete for this business.
Meanwhile, both speakers advised resorts to look carefully for policy changes at renewal time: more restrictive underwriting with new coverage exclusions, and higher prices for property insurance, liability insurance, and umbrellas (excess coverage).
“The policy forms are very important, because what one section gives you, another section takes away,” McGinness explained. “So it is important to read your policy — especially now, when it’s likely to change as it renews. Keep an eye on that, and ask your agent to do so as well.
“Also, take reasonable care in protecting guests because that’s really the key phrase. The failure to do that can really expose yourself to lawsuits and successful claims against the resort.”