Baker Marquart Client Resource Center: COVID-19 Client Advisories

We hope you are safe during these rapidly evolving times.

We all have watched as the coronavirus (COVID-19) has spread across the globe, causing unprecedented disruption to almost every aspect of our daily lives. Anticipating these unfortunate events, our firm transitioned to “work from home” three weeks ago and has been fully operational – including filing motions, conducting discovery, and appearing telephonically in court – and serving clients without interruption the entire time. Reliable information is critical during times of uncertainty like these. The goal of this update is to provide some insight into a few critical legal issues that will undoubtedly rise in the aftermath of the coronavirus pandemic. We are prepared to assist you during these difficult times.

Contracts, employment, torts, and insurance are among the areas of law most likely to see an immediate increase in activity as a result of coronavirus. This update offers a quick update on these discrete and timely legal issues, along with some best practice recommendations. We know everyone is being inundated with information, and your time is more precious than ever, so we will keep this brief.

We are ready and available to consult with you about those or other legal issues you are confronting without charge – we view our relationship with you as a partnership and value it tremendously. We know these are difficult times, and we want to do what we can to help you navigate them.

Contract Issues

Many of our clients are reevaluating their business plans and prior contractual commitments, and disputes with third parties are very likely on the horizon. Widespread business closures, disruptions to the supply chain, and “shut down” orders are interfering with the ability to operate and perform under their existing contracts. We can help evaluate your business’s legal rights and obligations under your contracts and can provide guidance on steps that you should be taking now to build your best case now, as well as assist with things like preparing and responding to demand letters.

Many contracts contain “force majeure” or “materially adverse change” clauses, which places the risk of loss is placed on a particular party where certain conditions are met. These clauses usually are triggered by certain specified risks and sometimes expressly refer to epidemics or pandemics, and certain governmental orders. Even in the absence of such an express contractual clause, common-law doctrines such as impossibility and impracticability may provide a party with a valid legal excuse to get out of its contractual obligations under certain circumstances.

At this time, we are seeing that many businesses are attempting to work together to resolve these contractual issues. There typically are significant hurdles to overcome to trigger these clauses or legal doctrines, and a negotiated resolution is often preferable to litigation. If litigation does ensue, it is important that a party be able to demonstrate that it acted in good faith and took all reasonable steps to resolve the situation and that it ultimately was unable to perform.

Employment and Tort Issues

As companies struggle with how to safely and profitably stay in business during this uncertain time, they face a range of unanticipated challenges. From a legal perspective, those challenges include how to safely operate without posing an unreasonable risk of transmitting COVID-19 to employees or consumers. Simultaneously, as employers consider the need for layoffs or reductions in force, disgruntled employees may bring wrongful termination, discrimination, retaliation and other claims.

Although an at-will employee generally can be terminated for any reason, employers should be careful in how they handle terminations to ensure compliance with existing rules and regulations and to reduce the risks of lawsuits. Some jurisdictions like California are currently considering bills that would protect workers from retaliation when they are unable to work during public health emergencies such as the COVID-19 outbreak.

As experienced litigators, we can help you with these issues. We are particularly experienced in handling claims of wrongful termination, discrimination, trade secret misappropriation, breach of non-competition agreements, and breach of fiduciary duty. The firm’s criminal and regulatory defense practices, which are helmed by a number of former federal prosecutors, are helpful to clients when allegations also concern potential criminal conduct.

With our litigator’s perspective, we can advise clients on severance agreements and packages connected to major corporate mergers, restructurings, and workforce reductions. In doing so, we provide counsel on numerous matters related to the rights and duties of departing employees, including senior executives.

Insurance Issues

Many of our clients are examining their insurance portfolio to determine if they may have insurance for losses or damages relating to the COVID-19 pandemic.

It is important to review the language of your specific policy, the factual circumstances for which you may or do want to invoke it, and the applicable state law to determine your rights. Some policyholders may have coverage under an infectious diseases extension to their policy, whereas other policies may contain exclusions arising out of communicable or contagious diseases. Additionally, some policyholders may have coverage for event cancellations or supply chain losses. As with any insurance claim, it is important to give notice of any potential claims to your insurance provider as soon as possible to preserve those claims, but you should do so in consultation with legal counsel.

Often, insurance coverage for business interruption losses requires that the business interruption losses arise from “direct physical loss” to the insured’s property by a covered loss, such as a fire. But some courts have construed the definition of “physical loss” broadly to include damages arising from bacteria or contamination under certain circumstances, such as where the property is rendered uninhabitable or unusable for its intended purpose. Some policyholders may have a “civil authority” coverage, which may provide coverage for business interruption losses where a civil order (such as a governmental shut down order) prohibits access to your business. Depending on the particular policy language and state law, it may still be necessary to demonstrate “physical loss” or damage to the property; other policies do not include such a limitation. During this time, your D&O insurance coverage may also be an important resource to defend and protect a company’s directors and officers against claims arising from the COVID-19 pandemic.

In our experience, some insurance disputes can be resolved early through effective advocacy before litigation commences. Where litigation is necessary, our attorneys are experienced in handling lawsuits against insurance companies for breach of contract and bad faith.

Practical Action Items – “An ounce of prevention is worth a pound of cure”

Below is a list of concrete steps you might consider in an effort to protect and preserve rights:

· Continue keeping good written records while remote working. Ask all employees to copy other team members on all third-party communications. Although consistency
is always important, in times where staff are largely remotely working, additional steps should be taken to ensure all team members understand and maintain consistent positions.

· Track all potential damages. If damages are a potential issue, keep contemporaneous records of any and all losses or other damages. You might consider asking your accounting department to track certain items that may be characterized as a loss.

· Create a virtual war-room. If you anticipate a potential legal issue, start aggregating materials in a single place. The creation of a file or workspace where team members can save information will help if and when a claim is asserted.

· Maintain good internal communications. Team leaders should regularly interact with other team members. You may also want your human resources department to routinely reach out to employees to offer consultation and provide answers to any questions. In addition to boosting morale, this type of policy is meant to hinder the development of a “constructive” employment claim.

· Double-check insurance policies and important contracts. Review any and all potentially impacted insurance policies and contracts for language that may provide further guidance on important steps to take. Based on specific contract language, preemptive communications may be warranted.

· Consult. Discuss any of these concerns with outside legal counsel, whether at our firm or another.

Again, all of us at Baker Marquart hope you, your loved ones, and colleagues are staying safe and doing well. Please contact us to discuss any of the issues raised in this update or to discuss any other legal matter. We are ready to help.

***

This communication is for general information purposes only, is not a full analysis of the matters discussed, and should not be relied upon as legal advice