The First Ruling on Issue Finds No Insurance Coverage for Business Interruption Due to COVID-19

The First Ruling on Issue Finds No Insurance Coverage for Business Interruption Due to COVID-19

This article is a follow-up to my article of May 4, 2020, which addressed litigation and claims involving business losses as a result of COVID-19. Hundreds of lawsuits have been filed throughout the country by business owners who have been forced to close their doors or restrict their operations due to mandated governmental orders and closures due to the spread of the COVID-19 virus.

On July 2, 2020, the first court to make a substantive ruling on these insurance coverage issues held in favor of the insurance company and denied coverage under the business owner’s insurance policy under the “business interruption” coverage provision. In Gavrilides Management Company, et al. v. Michigan Insurance Company, the owner of the Soup Spoon Café and The Bistro in Lansing, Michigan filed a $650,000.00 claim with its insurance company for damages it incurred as a result of the government mandated closure of the inside dining in its restaurants due to COVID-19.

The restaurant owner argued that the government order restricted the operations of the restaurant and this amounted to a “direct physical loss” under the terms of the policy because the order blocked public entry to the property. The restaurant owner also argued that the “virus exclusion” in the policy did not apply because the loss of access was caused by the government order, not the virus. The Michigan court rejected both arguments and held that there has to be something that physically alters the integrity of the property and there has to be some tangible, physical damage to the property in order for it to be a “direct physical loss” which could provide coverage. The court further held that the virus exclusion in the policy excluded coverage caused by the impact of COVID-19.

While this case is not binding precedent on Wisconsin courts, because it is the first court to address the substantive provisions of business interruption insurance coverage in light of the COVID-19 virus, this case will likely be cited by insurance companies in all of the other pending cases throughout the country. Only time will tell if other jurisdictions will follow the reasoning of the Michigan court, or if it will take an alternative approach. It should be noted that each insurance policy must be evaluated based upon its particular language that is in effect, as well as the particular facts of the business owner’s circumstances. Therefore, simply because one court ruled in favor of the insurance company does not mean that this will be the same result in every other claim brought by a business owner who suffered losses as a result of the mandated government closures during the COVID-19 pandemic.

 

Is My Contract Enforceable During an Emergency?

Is My Contract Enforceable During an Emergency?

As a result of forced closures and disruptions to supply chains connected with the Covid-19 pandemic, many businesses are facing the reality that they will not be able to complete obligations agreed to in contracts entered into prior to the crisis. This has brought new attention to an often-overlooked portion of contract law: force majeure clauses.

Sometimes referred to as “Act of God” clauses, force majeure provisions lay out the rules for how contract obligations will be affected if defined events outside of the parties’ control hinder their ability to comply with the contract. Typically, when a party fails to comply with the terms of a contract, they are in “breach,” and the non-breaching party may sue them for the damages caused by the breach or other damages laid out in the contract itself. Force majeure literally translates to “superior force” and fittingly is intended to protect a party who cannot complete the terms of the contract because of intervening forces outside of their control. To be effective for this purpose, the clause must be (1) enforceable, (2) successfully triggered, and (3) provide an adequate remedy or alternative.

States vary in the enforceability requirements for force majeure clauses. Some states require certain formalities to be made and vary in how they interpret terms like “unforeseeable.” It is important to make sure you understand how your state interprets any contracts you enter into and which state law will be used when settling disputes related to the contract. Another aspect of enforceability is whether the procedure for using the provision was properly followed. Some contracts require notices be delivered of the intent to rely on the force majeure clause. Failing to follow the procedure outlined in the contract may result in forfeiting the benefits of the force majeure clause.

To trigger the protections afforded by force majeure provisions, an event described in the clause must occur. Courts tend to use strict contractual analysis when interpreting the clauses, meaning that the exact phrasing in the contract will usually control and courts will be reluctant to read in provisions not explicitly included in the text. Common trigger events include natural disasters like floods, hurricanes and earthquakes, acts of terrorism, war, riots, and publicly declared states of emergency. When the term “Act of God” is used, the commonly accepted definition is any event which may be attributed entirely to nature without human interference. Economic hardship or shifts in the markets are unlikely to trigger a force majeure clause, as these risks are present in every contract and courts typically assume the parties have factored them in when entering into the agreement.

Many of these clauses are already written to expressly include epidemics and pandemics. Even without explicit reference to epidemics or pandemics, it is possible such events may fall under references. For example, a force majeure clause including terms for governmental action or restrictions may allow the clause to trigger not because of the pandemic itself, but because of state and federal actions taken to combat it. It is likely that in years to come, more clauses will be written to explicitly include these triggers to avoid any room for doubt over whether they qualify.

When successfully triggered, a force majeure clause usually will allow for the obligations of the contract to be terminated outright, altered in some way, or delayed. These remedies need to be considered carefully when drafting the clause to ensure the protection provided is a good fit for the subject matter and facts related to the contract. For example, a clause allowing either party to unilaterally terminate the contract when triggered may not be in your best interest if the transaction in the contract is beneficial to you, but you just need more time to complete it. What happens to money paid in advance and how partial performance will be treated are also things to consider when drafting the remedy section of the clause.

In the absence of an enforceable force majeure clause, there may be other options which allow a breaching party to escape liability for breaking the contract. The common law doctrines of impossibility and frustration of purpose may also provide relief from a contract’s terms in times of unforeseen emergency. While beyond the scope of this article, in short, these defenses to a breach of contract cover situations where an unforeseen event, not reasonably anticipated by the parties, either makes compliance impossible, or results in the original purpose of the contract to be so undermined that the actual objective sought to be gained by the contract actions is no longer possible. Even with the potential availability of these common law doctrines, it is preferable to rely on clear contractual language rather than asserting common law defenses.

If you have questions about how the force majeure clause in your contract will be applied, you should speak with an attorney. You may also want to review your insurance policies for provisions limiting their liability for damages caused by such force majeure events. These limitations are common but may deny you coverage at the time you need it the most. Current events may also serve as a prompt for you to be proactive in preparing for whatever the next disaster may be. If your company contracts do not already contain a force majeure clause, or if you believe it is time the existing language be reviewed with greater attention, an attorney will be able to help your business be better prepared to weather future disruptions.

 

Three Considerations for Estate Planning During a Pandemic

Three Considerations for Estate Planning During a Pandemic

The possibility of prolonged sickness or even death from COVID-19 has caused many individuals to feel more urgency to prepare advanced directives and undertake other estate planning.  In addition, the unknown final impact of the economic crisis may raise questions about how things might need to change in current plans that transfer wealth to children, charities or other beneficiaries upon death. With these factors present, there are three options to consider for estate planning.

 

  1. Advanced Directives. While planning for a health care emergency may be easier to complete before a crisis, it is not too late to get your advanced directives in place. Advanced directives are documents that express your wishes and authorize someone else (an agent) to make medical and financial decisions for you in the event you become so ill that you are unable to make your own decisions.  Typically, this involves creating both a Health Care Power of Attorney and a Durable General (Financial) Power of Attorney.  In addition to creating these documents, it is important to speak with your proposed agents about your intentions so that if they do have to make decisions, you know that they will carry out your wishes.  If you already have these documents, review them to ensure they accurately reflect your current wishes and choice of agent(s).  What do your current documents state regarding advanced life support (e.g. ventilators), and are there any changes you would like to make regarding end of life decisions?

 

  1. Make a Will or Trust. As the reality of the pandemic sinks in, people are reaching out to execute Wills or Trusts that they have put off finalizing, or to start estate plans that perhaps should have been put in place long ago. Estate planning is very easy to delay in the best of times, particularly when it involves finalizing some difficult decisions.  Or maybe it is simply a matter of not wanting to face your own mortality.  As the current health crisis reminds us, however, we never know exactly when our estate plans will be needed.  Even if you already have your documents in place, make sure you know where the originals are located, and review them to be sure they still accurately reflect your wishes.  For example, are the named executors in your Will and trustees in your trusts, as well as any successors, still suitable and willing to serve?  Consider whether there have been any major life changes with your beneficiaries or changes in your assets since you completed your plan that would necessitate updating your documents.  Focus on what makes sense to change right now and remember, you can always update your documents in the future.  Finally, make sure that your beneficiary designations on life insurance, retirement accounts and other assets are up to date.

 

  1. Ask Your Attorney for Help. Most legal offices are open, and attorneys are being creative in order to help you complete your estate planning.  We can assist you with getting your estate planning and advanced directives completed. Even if we do not meet in person, we can schedule consultations via telephone or video conference.  Documents are then emailed or mailed to you for your review.  Following your review, it is typical to have another video or phone conference to discuss any revisions or questions, and to discuss the logistics of getting your documents signed.  Wills, trusts and advanced directives all have very specific execution requirements in order to be legal.  Therefore, it is important to work with us to determine which documents in your plan can be signed remotely and which require in person witnessing and notarization.

 

We understand that completing your estate planning during a health crisis can be emotionally taxing; however, now may be the best time to take advantage of addressing your planning while these issues are on your mind.  Our estate planning attorneys are happy to guide you through the process.

 

Five Key Takeaways Following the Wisconsin Supreme Court’s Invalidation of the Safer at Home Order

Five Key Takeaways Following the Wisconsin Supreme Court’s Invalidation of the Safer at Home Order

The Wisconsin Supreme Court, by a 4-3 vote, invalidated Wisconsin’s Safer-at-Home Order, also known as Order #28.  It issued that decision on May 13, 2020. Here are five key takeaways to consider in the wake of that decision:

1.)  As of this writing, Order #28 is no longer enforceable. People in Wisconsin are not required by that Order to stay at home.  Non-essential businesses are not required to remain closed.  There is one exception to the Supreme Court’s decision, however:  The portion of Order #28 that requires closure of public and private K-12 schools remains in effect for the remainder of the 2019-2020 school year.

2.)  The Supreme Court’s decision does not affect any other federal or state legislation concerning the COVID-19 pandemic, such as the so-called Families First legislation, the CARES Act, Wisconsin Act 185, or any similar legislation. Those laws remain in effect.

3.)  Wisconsin businesses must continue to be aware of the Wisconsin Safe Place law. That law requires that an employer, or owner of a place that is open to the public must provide a safe place of employment for both employees and visitors and to undertake that which is reasonably necessary to life, health, safety and general welfare of employees and visitors.  OSHA’s general duty clause also remains in effect.  It holds that each employer shall furnish to each employee a place of employment that is free from recognized hazards that are causing or are likely to cause death or serious physical harm to employees.

4.)  People and businesses may continue to use the concepts found within Order #28 to guide their conduct. However, such guidance is voluntary; it is not mandatory.  Businesses should continue to review the CDC or the Wisconsin DHS website for suggested practices in addressing health concerns relating to COVID-19.

5.)  It is possible that local health authorities may issue rules or orders that affect people or businesses following the invalidation of Order #28. In addition, Governor Tony Evers and the Wisconsin Legislature may collaborate on new rules or legislation to replace Order #28.

Stay apprised of new legal developments in the weeks and months ahead.  Seek legal counsel as necessary.  In the meantime, the attorneys at Anderson O’Brien will continue to monitor the legal developments with you.

 

U.S. Department of Labor and IRS Extend COBRA Deadlines

U.S. Department of Labor and IRS Extend COBRA Deadlines

Amid the COVID-19 pandemic, Wisconsinites, along with the rest of the nation, have endured sudden and severe job loss.  As of May 14, 2020, the University of Wisconsin Center for Research on the Wisconsin Economy estimated the Wisconsin unemployment rate to be 21.9%.  In addition to the significant financial losses that attend such massive changes in employment status, job loss often results in the loss of health coverage.  Recent data indicates that roughly 57% of Wisconsin’s non-elderly population (i.e., non-Medicare) obtain their health insurance through an employer.

As many are familiar, one of the health insurance options available to those who lose their employment and employer provided health insurance is to apply for COBRA, which allows an employee and his or her dependents to maintain coverage at their own expense by paying the full cost of the premium.  Of course, there are certain deadlines that apply to seeking COBRA coverage.  Normally, a person has 60 days from the date of receipt of the COBRA notice to elect COBRA (election period), and then 45 days after the date of COBRA election to make the initial premium payment (premium payment period).

However, with the sudden and massive job losses due to the COVID-19 pandemic, on May 4, 2020, the U.S. Department of Labor and the IRS extended these standard COBRA deadlines.  Under the new rule, many COBRA deadlines are extended beyond the “Outbreak Period,” which is defined as March 1, 2020, to 60 days after the end of the National Emergency declaration.  The relief specifically directs all group health plans subject to ERISA or the IRS Code to disregard the period from March 1, 2020, through 60 days after the announced end of the national emergency when determining certain periods and dates, including the election period for COBRA continuation coverage and the date for making COBRA initial premium payments.

These changes are a welcome acknowledgment by these entities that the huge societal upheaval caused by the pandemic has made meeting standard deadlines increasingly difficult.  Feel free to contact one of our employment attorneys with any questions or concerns.  Be well and stay safe.

 

The First Ruling on Issue Finds No Insurance Coverage for Business Interruption Due to COVID-19

Is Your Business Protected from Business Interruption During the COVID-19 Pandemic?

With the COVID-19 pandemic occurring, many states, including Wisconsin, have ordered all nonessential businesses, including restaurants and bars, to close their doors.  Unfortunately, there will be a substantial amount of revenue lost by these businesses for as long as their businesses are required to remain closed.  A significant question is whether these businesses will have any recourse under any of their business insurance policies to recoup lost revenue based upon the coronavirus and/or whether there is coverage triggered by government-mandated closures.  The answers to these questions require a detailed analysis of each individual insurance policy, as well as the circumstances surrounding the losses of each business.

Coverage for business interruption is typically an endorsement to the insured’s property insurance policy and designed to protect the insured for losses of business income it sustains as a result of the direct loss, damage, or destruction to insured property by a covered peril.  A typical clause in an insurance policy reads as follows (although there are variations to this depending on the insurance company):

“We will pay for the actual loss of business income you sustain due to the necessary suspension of your operations during the period of restoration.  The suspension must be caused by the direct physical loss, damage, or destruction to property.  The loss or damage must be caused by or result from a covered cause of loss.”

Usually, in order to recover under this policy provision, a business owner will need to demonstrate that (1) the business sustained physical damage to the insured property; (2) this damage was caused by a peril covered under the policy; (3) which resulted in quantifiable losses because of the business interruption, and (4) that these losses occurred during the time period needed to restore property that was damaged.

There are presently many lawsuits pending throughout this country in which businesses are attempting to enforce business interruption coverage under business insurance policies and to seek a determination by the courts of whether the coronavirus can be deemed to cause physical damage by infecting surfaces in the business, similar to gaseous fumes which have been found in some cases to constitute a physical loss.

In addition to determining whether the coronavirus may be deemed to be a physical loss under the business interruption policy, each insurance policy must be analyzed to determine whether any language provides coverage for business interruption due to civil authority – such as mandated closures by local, state, or the federal governments.

Each policy’s specific language and endorsements must be individually analyzed.   These provisions must also be evaluated in light of any exclusions in the policy and within the specific context of each business owner’s circumstances. Business owners financially impacted by this unprecedented pandemic should timely consult with an experienced attorney to determine whether or not there may be a valid claim under their insurance policy to pursue significant losses of revenue.  The attorneys at Anderson O’Brien are here to assist you with an insurance coverage analysis or other legal issues that may arise out of any business losses you sustain during these difficult times.

 

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