While Innovation and adaptability are vital in supporting business and community resilience, it’s important that policyholders discuss any changes to manufacturing, service offerings, or workforce requirements with their existing carriers in order to avoid the pitfalls of repurposing and ensure relevant insurance coverage is in force.¹

WHAT DOES REPURPOSING LOOK LIKE

Repurposing is taking place across a variety of industries nationwide. Many companies are adjusting manufacturing or R&D capabilities to join the fight against COVID-19.³ Luxury hotels are functioning as quarantine centers. Event companies are providing tents to house federal medical stations being set up to aid COVID-19 patients.² Factories that normally produce vehicles are preparing to produce desperately-needed ventilators. Distilleries that crank out whiskey and rum are instead turning out disinfectants and hand sanitizer, and electronics manufacturers that build display screens have pivoted to produce surgical masks.^1,3 Other companies are repurposing facilities to make the personal protective equipment (PPE) that medical professionals need or supplies used in the process of discovering treatment options for the virus. Smaller local companies are also pitching in to help by making components for manufacturers.⁵

QUESTIONS ARISE AS BUSINESSES SHIFT GEARS

Not only does repurposing enable businesses to serve the greater good, it helps companies keep production lines running in times of lower demand. It also generates vital operating revenue while positively impacting a company’s reputation.³ However, making a new product, engaging workers in different roles, or using public and private spaces for new purposes can change a policyholder’s risk profile and raise questions of liability. When it comes to repurposing manufacturing or production lines, making new products may test Quality Control measures in new or unexpected ways. If restrictions are in place allowing only essential employees to work, employers will also be asking fewer employees to do more, creating fertile ground for quality issues to grow as employees stretch to do things outside their normal roles.

In addition, restaurants that are closed to dine-in customers are venturing into new territory by offering meal delivery services. Others are creating new freezable products and packaged foods for sale to consumers, expanding exposures around product recall or contamination.⁸ Municipalities are repurposing public spaces by setting up temporary medical stations to treat COVID-19 patients, creating questions around who is responsible for providing medical services and accompanying malpractice insurance.⁶ New York, Chicago, and Los Angeles hotels are working to provide hotel rooms for quarantine use, generating issues and therefore questions, around who is responsible for training hotel employees in safely interacting with quarantined individuals, how to disinfect rooms, and deliver meals.⁷

THE PITFALLS OF REPURPOSING

The sense of urgency created by a faltering economy and widespread business interruption can drive businesses to make rapid changes without thinking through all the potential liabilities and risks involved. The insurance programs put in place over the last several years would have had no way to anticipate the historic event we’re currently living through. A company insured for making a non-medical product that transitions to manufacturing PPE cannot suddenly submit claims related to manufacturing wholly new products. For example, some companies are beginning to manufacture COVID-19 tests under federal government contracts. In return, the government is granting those companies immunity from tort liability. However, others who are repurposing or finding new ways to do business outside government contracts will be reliant on the protection provided by their own insurance coverage. Even essential businesses that continue making the same products or providing services with fewer staff in place, face increased risk for quality assurance or health and safety issues.

If COVID-19 has altered a customer’s business needs from what was originally represented to their carriers, it’s vital that policyholders discuss those changes with their agent to determine if coverage adjustments are needed. For some the changes may be minor, but others may find themselves moving into a field that the carriers cannot cover, affecting their ability to repurpose. Customers that were originally able to find coverage in a standard market, may now be moving into the E&S market based on how the standard market responds to COVID-19. So far, the response from carriers has varied widely. Many insurance companies are boldly stepping up to help, while others are retreating from the potential exposures presented by COVID-19. Because businesses are adjusting on the fly to meet unique or specific community needs, carriers across the board are advising that each situation must be evaluated on a case-by-case basis.

BOTTOM LINE

When talking with agents and brokers about business repurposing needs, policyholders should be prepared to discuss the employee safety measures and crisis management plans in place. Calling sooner rather than later is also important because review processes are moving more slowly as carriers transition to working from home. In addition, because individual states Departments of Insurance may mandate what carriers can and cannot do in response to the current situation, the coverage landscape has the potential to change significantly and rapidly.

CRC is a trusted, knowledgeable wholesaler – home to a broad spectrum of specialists who currently place business in any class a customer may need. Our wide network of insurance professionals across various practice groups, enables us to more quickly help policyholders confidently repurpose operations in support of community resilience and business continuity plans. Agents with any questions should contact their CRC Group producer to discuss how we can help clients prepare for and protect against the exposures of business repurposing.

Contributors

• Cushman Andrews is a Senior Vice President and Casualty Broker with CRC Group’s Chicago, Illinois office.
• Bob Greenebaum is an Executive Vice President, Central Region Director, and Casualty Practice Leader with CRC Group’s Chicago, Illinois office.

ENDNOTES

1. Factories Pivot to Fight Coronavirus but Challenges Abound, New York Times, March 21, 2020. https://www.nytimes.com/aponline/2020/03/21/business/bc-us-virus-outbreak-repurposing-factories.html
2. Valley Party Rental Business Repurposing Tents for Coronavirus Medical Sites, March 25, 2020. https://kesq.com/ news/2020/03/25/valley-party-rental-business-repurposing-tents-for-coronavirus-medical-sites/
3. From Perfume to Hand Sanitiser, TVs to Face Masks: How Companies are Changing Track to Fight COVID-19, World Economic Forum, March 24, 2020. https://www.weforum.org/agenda/2020/03/from-perfume-to-hand-sanitiser-tvs- to-face-masks-how-companies-are-changing-track-to-fight-covid-19/
4. Hockey Equipment Company Making Face Shields for Medical Professionals, The Hill, March 25, 2020. https://thehill. com/blogs/blog-briefing-room/news/489502-hockey-equipment-company-making-face-shields-for-medical
5. With Medical Supplies Swindling in COVID-19 Pandemic, Wisconsin Businesses Shift Gears, Wisconsin State Journal, March 30, 2020. https://madison.com/wsj/business/with-medical-supplies-dwindling-in-covid--pandemic-wisconsin- businesses/article_faa84ab5-cc5b-56bc-a5ae-8a047dd64a20.html
6. Riverside County Responds to Coronavirus Spike with Temporary Hospitals, Los Angeles Times, March 26, 2020. https://www.latimes.com/california/story/2020-03-26/riverside-county-officials-respond-to-spike-in-covid-19-cases- with-temporary-hospitals
7. Quarantine the Sick in New York’s Hotels, The New York Times, March 30, 2020. https://www.nytimes. com/2020/03/30/opinion/coronavirus-new-york-quarantine.html
8. Closures, Takeout, and Relief Efforts: How Food Businesses Nationwide Are Handling Coronavirus, Bon Apetit, March 30, 2020. https://www.bonappetit.com/story/food-businesses-covid-19