Editor: Nina, why should companies prepare for a pandemic?
Stillman: The World Health Organization recognizes six phases in the development of a pandemic. We are currently in Phase 3 with respect to the avian flu, i.e., human infections have been recorded, but human-to-human spread has not occurred or is rare. The concern is that, if the virus mutates to human-to-human transmission, we could rather quickly find ourselves in Pandemic Phase 6 with waves of the pandemic recurring for three years before it could be controlled through the development and dissemination of vaccines.
If this happens, employee absentee rates are estimated to reach 40 percent during peak outbreaks, with the possibility of an additional 10 to 20 percent of the workforce out because of school closures, disruptions to transportation, the need to be a family member's caregiver and mandatory quarantines. Most business continuity plans do not contemplate the absence of half of the workforce at one time as well as the disruption of supply and customer support.
Editor: What are the human resources issues?
Stillman: Avian flu human resources preparedness plans should address a variety of issues: employee communications, insurance reviews, travel policies, evacuations, attendance and pay policies, office closures, flexible work arrangements, employee counseling and absence tracking.
Employee communication is critical. We recommend that the company host a website or links to a trustworthy site such as the U.S. government's avian flu pandemic site, the World Health Organization or CDC sites to provide employees with current and accurate information. Having a health care professional talk to employees can help allay employee's fear and misconceptions. Communications need to be linguistically and culturally appropriate, making sure the right message is conveyed in each country.
Travel policies should be revisited with higher levels of approval for travel or suspension of travel entirely being considered. Employers need to consider how they will handle employee refusals to travel because of flu outbreaks, as well as unreasonable fears. If an employee is returning from an "outbreak zone," a medical exam and absence from the workplace for a 10-day incubation period are advised.
Editor: What policies should be in place with regard to office closures?
Stillman: Most severance policies are not designed to address temporary office closures. However, employers should review their policies to avoid finding themselves obligated to pay severance if temporary office closures become necessary.
Business continuity plans should address who is going to authorize work from home, determining in advance the adequacy of equipment and IT infrastructure. Alternative hours might be considered so that employees' work schedules can be staggered, although supervision and office access issues need to be considered.
Editor: What other issues, such as counseling, should be considered?
Stillman: Some employers may tell employees to stop shaking hands or use a hand sanitizer for wiping equipment or even supply masks. When giving instructions for good hygiene techniques, it needs to be made clear that medical advice is not being given.
An employer should keep track of who is absent and why.
Editor: Tom, what insurance issues need to be addressed?
Marrinson: The key is going to be addressing insurance issues before the pandemic arises and being proactive by either seeking policy modifications, if possible, or at least recognizing situations where there may be coverage gaps and resulting financial impact.
Almost all health insurance provides in-network and out-of-network options, but what happens when the in-network physicians become overwhelmed by the pandemic and care can only be obtained outside the network? Policyholders should be seeking up-front commitments from their insurers that they are prepared to be flexible on issues like out-of-network care, pre-certification requirements and experimental treatment restrictions in the event of a serious pandemic.
Companies that are self-insured or have experience-rated programs need to plan for financial impact due to increases in claim severity and frequency. Companies with stop-loss coverage that kicks in at a certain dollar amount will need to comply with notice and reporting requirements that they may not have paid much attention to in the past. Companies also need to be aware that insurers may face solvency issues or, at the very least, payment delays caused by their being overwhelmed by claims.
Editor: What are some of the issues with regard to first party property insurance?
Marrinson: The most hotly debated issue is going to be whether the presence of avian flu virus constitutes direct physical loss or damage. For example, when the virus is detected on a computer keyboard, is that direct physical loss? Insurers will also raise their contamination or pollution exclusions to bar coverage. Courts differ as to whether such exclusions only apply to industrial pollution or also extend to indoor events. Many policies provide coverage for lost business income for the period of cessation or interruption of operations. Again, however, such coverage may only be available where the cessation of operations arises from actual damage to property.
Editor: What coverage is afforded by Workers' Compensation and Employer Liability Policies?
Marrinson: Most U.S. jurisdictions require that the injury arise during the course of employment for it to be compensable under the workers' compensation laws, a tough requirement for claimants to meet unless they can show that the nature of the work they did exposed them to a higher risk of transmission of avian flu. Companies with multi-state operations should review the varying state definitions of occupational disease in light of their particular circumstances. Because many employers self-insure for workers' compensation or have experience-rated programs, the impact of a potential rise in claim severity and frequency should be carefully studied. For companies with international operations, foreign standards for compensation are something to look at, as well.
Editor: Are there issues that smaller companies should be looking into?
Marrinson: Small companies that have not already done so may wish to consider "key man" life insurance. Today, it remains available without specific exclusions relating to avian flu or contagious disease, which may not be the case in a pandemic. In addition, at least one underwriter has been exploring the market for a specific policy designed to insure against business interruption losses caused by pandemic, which it plans to sell to smaller-sized risks. This may be worth looking into.
Editor: Barbara, what are suppliers and outsourcers doing to prepare for a pandemic?
Melby: Customers should look at the business continuity plans (BCPs) that their suppliers and outsourcers have in place to determine whether they would be effective in the event of a pandemic and, if not, cause such suppliers and outsourcers to amend their plans. When evaluating the BCPs, questions to raise include: Does the supplier have an accessible backup site with infrastructure that would allow the work (and data) to transfer to the backup site in the event of a pandemic? Does the backup site have the same levels of data, system and physical security as required at the primary site? Do licenses need to be reviewed for any restrictions or consent requirements on offsite uses? Who will be working at the backup site? If it is not the same group of people that regularly provide the services, are there any knowledge transfer or training requirements? Should the supplier consider the remote provision of services as an alternative solution? Testing of the BCPs should be worked out with your service providers to see if they are realistic and practical for implementation in connection with a pandemic situation.
Editor: What should be in the provider's business continuity plan?
Melby: Typically, a plan identifies the alternate infrastructure, personnel and business requirements necessary for the continuation of services in the event of a business disruption, together with triggering events, timeline commitments for restoring or resuming services from an alternate site or sites and the time frames for which the secondary site or sites will be sustained. Customers should also consider whether their suppliers have performed similar due diligences with respect to downstream suppliers to ensure that the supply chain is seamless and linked together from a continuity perspective.
Editor: What are the concerns with an offshore backup site?
Melby: If you have an offshore provider (e.g., located in India or the Philippines), it is important to consider whether it is practicable to require that provider to relocate to an unaffected location or whether it makes more sense for the offshore provider to implement a BCP which involves a remote solution or alternative provider. Questions to consider include: Is it possible to move people from one site to another without triggering immigration or transportation issues that cannot be overcome in the event of a pandemic? If language is the key reason for going to a particular offshore location, can these needs be met from the proposed alternate location? Does the offshore jurisdiction provide the same intellectual property, data safeguards and privacy protections as the U.S. or the original offshore location? Other considerations to take into account include the potential tax and inspection/audit implications of moving from one site to the other. For example, how possible will it be to audit or inspect services provided remotely (e.g., from the homes of the provider personnel)?
Editor: What if the business continuity plan does not work?
Melby: We would typically recommend for contracts that include BCP requirements that the contracts have courses of action and remedies that are available in the event that a BCP cannot or is not implemented. Such rights may include: (a) step-in rights that enable a management team to come onto the vendor's site to run the operations or to take over the management of the operations remotely (this may not be a real solution in the event of a pandemic since travel is likely a fundamental issue); (b) "joint" management where some provider people are accessible to work with your people so you have a "joint" operation; (c) the use of alternate providers (if alternate providers are a viable solution, there is typically a premium that needs to be paid to such providers; the contract should allocate responsibility for any fee differentials); (d) providing the work internally or bringing some or all of the work in-house; and (e) finally a termination right for failure to provide the BCP services. One thing to check is that force majeure does not override any BCP obligations or rights.
Editor: How can force majeure and BCP plans be amended to take into account a pandemic?
Melby: Companies should review the applicable force majeure provisions to determine whether a pandemic would be considered cause for relief under the contract and, if so, should consider amending the force majeure clause. With respect to BCP plans, companies should assess whether a pandemic would trigger the supplier's obligation to implement the BCP. Adding notification requirements (subject to applicable privacy laws) increases visibility into the risk at-hand, including a notification requirement if there is a health or service risk that would put your company or the services at risk; a notification requirement if there is a health risk with respect to supplier personnel having access to a company facility or, similarly, company employees having access to supplier facilities. If there are additional costs in connection with setting up alternative solutions (such as at home or remote provision of services), the contract should allocate who pays those costs. Also, the contract should identify who is responsible for getting any licensor or other third-party consents required in connection with the alternative solutions.
Editor: Walter, what is occurring in Europe?
Ahrens: To prevent and control the avian flu in poultry and wild birds, the EU is taking such preventive measures as killing infected poultry, defining risk areas around poultry farms hit by avian flu, conducting surveillance and vaccination programs, and providing information sheets to farm workers. Last year, the EU issued a generic preparedness plan for public health emergencies, which would cover terrorist attacks as well as a plan on pandemic influenza preparedness and response. On that basis the member states have developed their national plans around this framework.
One step businesses are encouraged to take is to establish a crisis management group. At first that would be a working group that would have to make business continuity plans by first identifying essential employees and functions. If the number of key employees is limited and you do not have substitutes, you should consider training employees for these functions. You should also have drafted backup plans for supply disruption.
You should inform employees about their rights to sick pay and under your absence policy and review the need to stockpile antiviral drugs.
Published July 1, 2006.
