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Coronavirus image via the Centers for Disease Control

published on May 7, 2020 - 12:56 PM
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Editor’s note: This story was published in the print edition of The Business Journal on May 1. On Wednesday, Gov. Gavin Newsom issued the executive order discussed in this article.

While federal and state legislation designed to help small businesses has down its job, other proposals are raising concerns for employers.

According to talk in the California business community, and leaked media reports, Gov. Gavin Newsom is considering an executive order that would presume that essential employees who contract COVID-19 have done so while on the job — automatically qualifying them for workers’ compensation benefits. Employers would not be able to appeal a designation.

Though only some details about the order have been leaked so far, industry groups — such as the Fresno County Farm Bureau — are rallying to kill it.

Claim jumper

Tom Powell, CEO of Fresno’s Cal-Valley Insurance Services and president of the PacWest Alliance Insurance Services Inc., a cluster of insurance groups in California, said that the insurance industry, especially those that focus on workers’ comp, are asking that the governor not go through with the executive order.

Powell said he and others in the insurance industry are not opposed to health care workers treating COVID-19 patients receive worker’s compensation should they contract the disease, but that it shouldn’t be assumed that any essential worker who gets sick got it on the job.

“The industry itself is very well prepared, very capable, of trying to take the best possible opportunity to help employees that may contract COVID-19 and incur medical expenses associated with it — let the industry do that,” Powell said. “Workers’ comp in California is a ‘no-fault’ benefit, so it would take an extreme situation where the industry would not handle a claim like this prudently.”

Powell said that the executive order might look good politically, but is unnecessary.

Along with creating the conclusive presumption, the order would expand the definition of an injury to “exposure” to COVID-19 even without symptoms or actual illness — prompting payouts from businesses for workers without an injury.

The bill would bring additional cost to employers to temporarily house workers recommended for quarantine whether they are sick or not.

Workers’ comp expenses related to the virus in California are estimated in the tens of billions of dollars. Those losses would hit insurance companies, ultimately increasing

workers’ comp rates for all employers in California, Powell said.

With the chance to take some paid time off of work, Powell said it is likely an employee would take advantage of the chance.

“The industry has not contemplated this kind of impact on their rate structure, and somewhere, they’re going to have to go back and make corrections,” Powell said. “They may not be able to because the costs associated with trying to manage through this, the claims and all they’re going to have to pay, may be so enormous, there is just not enough money in the coffers to handle it.”

In a panic

Michael Der Manouel Jr., president and CEO of Fresno’s DerManouel Insurance Group, a division of insurance brokerage HUB International, said that the governor’s proposed executive order has most industry groups in a panic.

Der Manouel Jr. said that aside from certain incidents, such as local meatpacking plants where workers contracted COVID-19, it is difficult to prove that infections are happening in the workplace.

“To presume that somebody has contracted this at work — a lot of industries and a lot of insurance companies are looking at this as a retroactive application of a standard that was not agreed to when rates were being set and charged for this insurance,” Der Manouel Jr. said.

Der Manouel Jr. illustrates the situation as if it was adding earthquake protection to an insurance plan after the earthquake has already happened, and that “you don’t get to charge for that, but you have to pay all the claims.”

Though the insurance industry facilitates the payments of claims when there are losses, they can charge to get back to levels of profitability, meaning that they will get the money back with premiums.

With such measures as the governor’s considered executive order, Der Manouel Jr. said this could have insurance companies rethinking if they want to stay in California.

“Who wants to do business in a state in the middle of the game,” Der Manouel Jr. said. “This is the problem with using insurance as a piggy bank to take the heat off of other forms of payments. There is nothing rational or fair about this.”

Unsure if insured

Matt DeFendis, president of DiBuduo & DeFendis Insurance in Fresno, said that he was thankful that insurance companies were deemed essential so they could continue to operate, but the company quickly recognized that many of their clients were having to temporarily close down, or if they were able to stay open, they had to scale back their operations dramatically.

“Our focus immediately turned to our clients to try to do what we could to help them stay in business and do everything we could to reduce their pricing on the insurance side so they could go forward at least in some capacity,” DeFendis said.

DeFendis said that the company stopped its focus on sales, and worked to service their clients in a dire time of need.

While it is not usually easy to change insurance contract terms, insurance companies quickly began to make accommodations for payments of premium, withheld from cancelling policies and allowed reduction of payments. They made it easier to make those changes and more because of the unusual circumstances.

Should the governor pass the executive order, both large and small insurance companies will be affected, DeFendis said, and that explosion of costs will ultimately be passed down to clients who are not in a position to pay more.

Because the coronavirus pandemic was so unexpected and caught many off-guard, he forecasts companies will be thoughtful of their insurance services after it is over.

“I think you will see more consideration along the lines of safety in the workplace,” DeFendis said. “Businesses will do everything they can to keep their employees healthy and safe. We don’t know what will happen next, but the only thing an employer can do is everything they can to prevent any particular loss from occurring.”

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