As the COVID-19 pandemic continues to evolve, Conn Cavanaugh has some tips and strategies for businesses that have already taken a hit and looking for some resources to recover.
Business owners should consult their property insurance policies to determine if any business losses are recoverable through business interruption coverage. Business interruption (BI) insurance is designed to reimburse business owners for lost revenue in the event a business has to stop operations unexpectedly. Relatedly, another type of coverage called contingent business interruption (CBI) can cover losses resulting from damage to the property of a customer or supplier on which the business depends for its business.
Unfortunately, both BI and CBI insurance are typically triggered by “direct physical loss or damage” to property, such as a fire, hurricane, or earthquake. Although the Coronavirus is undoubtedly interrupting businesses across the spectrum, the impact is not physical in nature.
However, certain policies extend coverage to losses caused by “communicable or infectious diseases,” which do not require physical damage to property. Moreover, not all insurance policies are created equally. While many policies contain similar language to one another, policy wording varies by insurer. In legal cases involving the interpretation of insurance policies, the availability of coverage has famously turned on details such as the definition of a single word, or the placement of a comma. The COVID-19 pandemic will very likely trigger litigation between businesses facing large losses and their insurance companies. Over the coming months and years, we will likely see more decisions from courts nationwide about the scope of business interruption coverage in various property policies. Any judicial decisions arising out of such litigation could impact other policyholders with similar policy language.
In sum, business owners should consult their policies now. Business owners can contact their insurance brokers or legal counsel for guidance, or can simply move forward with putting the insurer on notice of a claim. Once the insurer is put on notice, it is the insurer’s obligation to review the claim and determine whether coverage exists.
Certain liability insurance products may include affirmative cleanup, disinfection and decontamination coverage as a result of, among other things, a discharge, dispersal, release or escape of bacteria and viruses. Business owners who are required to invest in a deep cleaning of their restaurant or retail establishment because of an exposure to COVID-19 should document those costs, and review their property and liability policies for this potential coverage.
Event Cancellation Insurance
An insurance product called “Event Cancellation Insurance” exists in the marketplace, and is designed to cover unexpected circumstances that necessitates the cancellation or postponement of an event that may be caused by something other than physical property damage. Businesses that already operate in the events space (e.g., event management companies, show promoters, athletic conferences/leagues, nonprofit trade and professional associations) may have this coverage.
On March 15, the Federal Reserve dropped interest rates to zero in an effort to free up cash so that banks can keep lending at a time when businesses are relying on their lines of credit. Therefore, businesses that may need a loan to help pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of impact of COVID-19 may see more flexibility from private lenders.
The “Coronavirus Preparedness and Response Supplemental Appropriations Act” (CPRSAA) was signed into law March 6 by the President. The bill provides $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak. $20 million of the funds was designated for the Small Business Administration (SBA) disaster loans program to support SBA’s administration of loan subsidies that are purportedly to be made available to entities financially impacted as a result of the coronavirus.
Even pre-dating the CPRSAA, the SBA operated an “Economic Injury Disaster Loan” program, which was designed to provides loans to small businesses in a “declared disaster area” which have suffered “substantial economic injuries.” As of the date of this writing, though, the federal government has not designated any states or metropolitan areas as a “declared disaster area” as a result of the coronavirus. The most recently “declared disaster area” was named on March 3 for areas of Tennessee, due to “severe storms, tornadoes, straight-line winds, and flooding.” Nevertheless, the CPRSAA suggests that there is an intention on the part of the federal government to extend “disaster areas” beyond weather-related disasters. Therefore, prudent business owners looking for relief in the wake of the COVID-19 pandemic should monitor the SBA’s Web site for updates.
Separate from insurance relief, private lending, and the SBA loan programs, other forms of financial relief from federal and state governments may be made available to businesses over the course of the coming months and years in the forms of bailouts or tax relief, for example.
Document, document, document!
Whether you are preparing to make an insurance claim, file a loan application, or prepare documentation to support a claim for some other forthcoming form of government relief, business owners should diligently document any period of business disruption now. Reviewing the options now will help businesses to properly document and claim any covered disruptions.
This information required to support these claims can be extensive. It can include, for example, balance sheets, profit and loss statements, financial statements, production reports, inventory reports, cost accounting reports, invoices and purchase orders, sales records, and annual budgets. Over the coming weeks and months, businesses should rely on their insurance brokers, attorneys, accountants, and any other key business advisors to guide them in documenting and preparing their claims.
Layoffs And Unemployment
As of the date of this submission, the Executive Office of Labor and Workforce Development (EOLWD) and the Department of Unemployment Assistance (DUA), are filing emergency regulations that will allow employees impacted by COVID-19 to collect unemployment in the following circumstances:
- The workplace is shut down and expects to reopen in four or fewer weeks. Workers must remain in contact with their employer and be available for any work their employer may have for them that they are able to do, but do not otherwise need to be looking for work.
- An employer may extend the period of the shut-down to eight weeks, and the employees will remain eligible for the longer period under the same conditions described above.
- If necessary, DUA may extend these time periods.
Employers who are impacted by COVID-19 may request up to a 60-day grace period to file quarterly reports and pay contributions. Pending federal legislation proposes further relief including additional money for unemployment benefits, and relief to employers for charges related to unemployment benefits paid due to COVID-19.
Alternatives To Layoffs
Massachusetts businesses should explore the WorkShare program, which is operated through the DUA. It is designed as an alternative for employers faced with a reduction in workforce by allowing employers to divide available work between affected employees instead of laying off workers. In turn, employees can receive a portion of unemployment insurance benefits while working reduced hours. A link to the program is here: https://www.mass.gov/service-details/workshare-information-for-employers.
Remote Work, Best Practices
Businesses that are fortunate enough to have a workforce that can effectively work from home can still face challenges in management. In work-from-home environments, employees cannot simply pop into each other’s offices to ask a question or chat about lunch plans. For workplaces that are suddenly thrust into a work-from-home environment, employees can feel a sense of disconnection and isolation, especially in the already stressful environment of this COVID-19 pandemic.
To ease this transition, management should utilize videoconferencing tools. Seeing co-workers face-to-face is less isolating than limiting communications to e-mails and text messages. Along these lines, managers may want to organize regular meetings, either on a weekly or daily basis, to check in with their staff on both logistical and substantive work matters. Regular check-ins also reinforce a sense of rhythm and routine that may feel absent when a workforce shifts to work-from home.
As a general strategy, maintaining an atmosphere of transparency and urging open lines of communication between management and employees are useful tools in maintaining employee morale. Communication could be centered around continuing education and training employees in proper hand hygiene, cough etiquette, and social distancing techniques. For employees working in public-facing jobs (e.g., healthcare, grocery stores, pharmacies), management should encourage open lines of communication with their employees, so that employees can feel free to express both concerns and suggestions about how to maintain a safe and healthy work environment.
If employees are still fearful of coming to work because of interactions with the public, it is appropriate for businesses to require those employees to use their personal or vacation time to take time away from work. If employees refuse to come to work for an extended period after exhausting their personal and vacation time, that absence is not job-protected.
Specifically, employees are only entitled to refuse to work if they believe they are in imminent danger. Section 13(a) of the Occupational Safety and Health Act defines “imminent danger” to include “any conditions or practices in any place of employment which are such that a danger exists which can reasonably be expected to cause death or serious physical harm immediately or before the imminence of such danger can be eliminated through the enforcement procedures otherwise provided by this Act.” OSHA discusses imminent danger as where there is “threat of death or serious physical harm,” or “a reasonable expectation that toxic substances or other health hazards are present, and exposure to them will shorten life or cause substantial reduction in physical or mental efficiency.”
The threat must be immediate or imminent, which means that an employee must believe that death or serious physical harm could occur within a short time, for example, before OSHA could investigate the problem. Requiring travel to Italy, or forcing a nurse to work with patients in a medical setting without personal protective equipment at this time may rise to this threshold. However, working as a cashier at a grocery store would likely not meet the elements required for an employee to refuse to work.
Weathering The Storm
The COVID-19 pandemic is causing unprecedented disruption to businesses and individuals, and will undoubtedly trigger economic chaos and hardship for some time.
Notwithstanding the sense of anxiety and confusion that has permeated our national psyche over the past week or so, we are also witnessing extraordinary mobilization efforts from our federal, state, and local governments, the private sector, and our individual neighborhoods and communities. Governments, businesses and individuals must continue to lean on each other and work together to weather this historic crisis. In the end, our collective experience will make us smarter, stronger and more prepared for crises in the future.
Kathleen R. O’Toole, Esq., is a Centerville native, Dorchester resident, and attorney at the Boston law firm of Conn, Kavanaugh, Rosenthal, Peisch & Ford LLP. Feel free to send questions to email@example.com.
This column, which may be considered advertising under the ethical rules of certain jurisdictions, is intended as a general discussion of the topics covered, and does not constitute the rendering of legal advice or other professional advice by Conn, Kavanaugh, Rosenthal, Peisch & Ford LLP or its attorneys.
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