Attorneys

Client Alert: Coronavirus (COVID-19) and Business Interruption Claims

Numerous companies are facing dramatic and unprecedented circumstances as a result of the COVID-19 pandemic. To stay afloat, businesses are being forced to reduce their staffing at varying levels, decrease employee hours and salaries, and unfortunately, in many instances, eliminate staff altogether. In fact, in many states, including New Jersey, businesses deemed “non-essential” have been shut down, inevitably resulting in loss of income to affected businesses. This has led to businesses exploring all avenues to recover losses, including business interruption insurance coverage under their commercial insurance policies.

What is Business Interruption Insurance?

Business interruption insurance, also referred to as business income insurance, is a type of insurance that assists in covering lost income due to the disruption of business operations. Common disruptions covered by business interruption coverage include events such as fire, hurricanes, broken water pipes, wind, lightning and earthquakes. Under certain circumstances, business interruption insurance may provide coverage for suspended operations of a business based on an order of or determination by a civil authority resulting in access to the insurance holder’s premises. Lost income is generally defined as the income a business would have realized through its normal operations but for the business being disrupted, including operating expenses and payroll.

Does Business Interruption Insurance Provide Coverage Due to Loss of Business Income Due to COVID-19?

Business Interruption Insurance coverage is based on the language contained in commercial insurance policies, which can vary from one policy to the next, as well as the law governing the interpretation of the applicable policy provisions. Those perils specifically enumerated in the policy for which coverage is afforded will provide the basis for any such determination. In order to determine whether business interruption coverage is available under the employer’s policy for COVID-19, particular attention should be paid to such issues as whether the business voluntarily imposed restrictions resulting in income loss, whether the business was closed due to local, state or federal order or whether the business was permitted to remain in operation on a limited basis subject to restrictions. The policy might also contain a virus exclusion provision, so it is important to review the policy for any such provision to determine how it might affect coverage determinations.

What Steps Should Employers Take to Determine Whether They Have Coverage for Business Interruption?

Since coverage will be guided by the company’s commercial insurance policy, it is essential to carefully review the policy, and it is highly recommended that the companies consult with legal counsel in order to determine whether filing a claim for business interruption is an option.

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The information provided in this alert was up-to-date at the time of publication, is provided for general purposes only and does not constitute legal advice, and the transmission and receipt of this information does not create or constitute an attorney-client relationship.

Client Alert: The Applicability Of Force Majeure Clauses In A Pandemic

Many leases contain a force majeure clause which, traditionally, excused performance by the tenant due to extraordinary circumstances or an Act of God. Perhaps not surprisingly, the law is ambiguous as to the effect of a force majeure clause in the face of the current pandemic: in sum, does the pandemic permit invocation of the clause to excuse performance?

Below is a syllabus of the law from New York, New Jersey, and Pennsylvania. It is important to note, however, that not all force majeure causes are the same and the particular language of the clause will inform its viability.

New York

New York law defines force majeure as a “clause excusing nonperformance due to circumstances beyond the control of the parties.” Kel Kim v. Central Mkts., 70 N.Y.2d 900, 902 (1987). The law governing force majeure clauses is based on the common law doctrine of impossibility of performance, which is “applied narrowly, due in part to judicial recognition that the purpose of contract law is to allocate the risks that might affect performance and that performance should be excused only in extreme circumstances.” Kel Kim, 70 N.Y.2d at 902. The Court of Appeals in Kel Kim held that impossibility of performance only occurs “when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible” and “the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.” Id. The Appellate Division in Kolodin found that the impossibility of performance doctrine “is generally limited to the destruction of the means of performance by an act of God, vis major, or by law.” Kolodin v. Valenti, 115 A.D.3d 197, 200 (1^st Dept. 2014).

The Kel Kim holding presents a potential issue in evaluating force majeure clauses, in that the Court of Appeals held that ordinarily a party’s performance only will be excused if the force majeure clause specifically included the event at issue. Kel Kim, 70 N.Y.2d at 902-903. The Appellate Division provided further analysis on this issue in Constellation Energy Services, finding:

Force majeure clauses are to be interpreted in accord with their purpose, which is to limit damages in a case where the reasonable expectation of the parties and the performance of the contract have been frustrated by circumstances beyond the control of the parties. When the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure.

Constellation Energy Servs. of N.Y. v. New Water St., 146 A.D.3d 557, 558 (1^st Dept. 2017). Courts also generally have enforced force majeure clauses when the subject contracts include “epidemic” as a specific example of a contractual force majeure event. See Wyndham Hotel Grp. Int’l, Inc. v. Silver Entm’t LLC, No. 15-CV-7996 (JPO), 2018 WL 1585945 (S.D.N.Y. 2018) (citing a contract that defined a force majeure as “acts of God, strikes, lockouts or other industrial disturbances, war, terrorism, riot, epidemic, fire or other catastrophe…”) (emphasis added).

Indeed, there is a limited scope for exercising force majeure clauses under the laws of New York. Landlords and tenants alike should review their leases to determine whether pandemics are included in the definition of force majeure, to the extent their leases contain a force majeure clause. To the extent pandemics are not included in the definition, tenants may face an uphill battle in attempting to excuse lease performance due to the COVID-19 pandemic.

New Jersey

While New York has a far more developed body of case law on this issue, New Jersey courts also have evaluated the applicability and enforceability of force majeure clauses. In Facto v. Pantagis, the Supreme Court held that a force majeure clause “provides a means by which the parties may anticipate in advance a condition that will make performance impracticable.” 390 N.J. Super. 227, 231 (2007). The Supreme Court appears to have set forth a somewhat more liberal standard than in New York, finding that “performance would be excused if prevented … by an act of God (e.g., flood, power failure, etc.), or other unforeseen events or circumstances.” Id. A strong argument certainly can be made that the COVID-19 pandemic constitutes an unforeseen event or circumstance.

Further, the Appellate Division in 476 Grand, LLC held that New Jersey courts “recognize that performance under a contract may be excused by supervening events that make performance impractical after the contract is made.” 476 Grand, LLC v. Dodge of Englewood, Inc., No. A-2048-10T1, 2012 WL 670020, at *2 (App. Div. 2012). The Appellate Division cited the Restatement (Second) of Contracts §§ 261–72 (1981), in finding that “an obligor may contract for a lesser obligation through clauses limiting it, such as a clause reserving a right to cancel or a force majeure clause.” Id.

If a force majeure clause is included in a contract and an pandemic occurs, an argument can be made under New Jersey law for invoking the clause. Considering the less-developed body of case law on this issue, Landlords are in a position to argue that the law in surrounding states ought to guide the analysis, and that tenants are not excused from performance due to the COVID-19 pandemic. Tenants, likewise, are in a position to argue that the COVID-19 pandemic constitutes an unforeseen event or circumstance, excusing performance under their lease.

Pennsylvania

The definition of an “Act of God” under Pennsylvania law is “a natural force of such inevitability and irresistibleness that man cannot cope with it, either to predict, forestall it or control it when it arrives. It is also defined as an unusual, extraordinary, sudden and unexpected manifestation of the forces of nature which cannot be prevented by human care, skill or foresight.” Woodbine Auto v. Southeastern Pa. Transp. Auth., 8 F. Supp. 2d 475 (E.D. Pa. 1998). Under this definition, there is a very limited scope for exercising force majeure clauses under Pennsylvania law.

Importantly, “economic difficulty” is specifically excluded as a viable force majeure under Pennsylvania law. In Route 6 Outparcels, LLC v. Ruby Tuesday, Inc., 88 A.D.3d 1224 (3d Dep’t 2011) (applying Pennsylvania law), the Court held that “[e]conomic factors are an inherent part of all sophisticated business transactions and, as such, while not predictable, are never completely unforeseeable; indeed, financial hardship is not grounds for avoiding performance under a contract.”

With regard to property leases in Pennsylvania, unless pandemic events are specifically listed in the subject lease, landlords are in a secure position as the law currently stands.

Conclusion

As many courts are closed and this is new territory, we expect the case law may evolve as the courts reopen. Arguments against the consideration of pandemic events as force majeure events may or may not ultimately be successful, depending on new rulings as they are issued. In the event landlords wish to retain tenants facing default after the pandemic emergency passes, it may be worthwhile to consider a deferral or payment plan that allows the tenant to stay afloat while providing the landlord with income to cover expenses. Landlords and tenants alike are advised to consult with an attorney experienced in this area to determine viability of such plans and to protect their interests.

Here to Serve You

To best service our clients in response to the COVID-19 pandemic, Ansell Grimm & Aaron, PC created a Task Force comprised of attorneys from various practice areas to digest new legislation and guide our clients through these difficult times. For more information please contact us at Covid19TaskForce@62q.f7d.myftpupload.com.

About Ansell Grimm & Aaron, PC

Ansell Grimm & Aaron, PC was founded in 1929 and has a long history of delivering for clients who come to us to resolve legal matters that are often urgent, stressful, and of great importance. A general practice law firm, Ansell Grimm & Aaron is powered by experienced attorneys who understand that the best outcome is the one that serves the needs of each client.

The information provided in this alert was up-to-date at the time of publication, is provided for general purposes only and does not constitute legal advice, and the transmission and receipt of this information does not create or constitute an attorney-client relationship.

Client Alert: Changes Made in New Jersey and New York Employment Law in response to Covid-19

In response to the COVID-19 pandemic, lawmakers in New Jersey and New York have amended the labor and employment laws of their respective states to provide greater protections to employees during this unprecedented time.  A brief summary is provided below:

New Jersey

On March 20, 2020, Governor Phil Murphy signed Assembly Bill 3848 (“A3848”) into law, which went into effect immediately.  A3848 prohibits all New Jersey employers for the duration of the Public Health Emergency and State of Emergency (set forth in Executive Order 103 of 2020) from terminating or otherwise penalizing an employee who requests to take or takes time off from work based on the recommendation of a licensed medical professional because the employee has, or is likely to have, an infectious disease.  In addition, an employer may not refuse to reinstate the employee to the position he or she held at the time of taking leave and may not reduce any of the employee’s terms of employment (e.g., seniority, status, benefits, pay, etc.)

A3848 provides that an employee may file a complaint with the Commissioner of the Department of Labor and Workforce Development (“Commissioner”) or initiate a lawsuit in the Superior Court of New Jersey when a violation has occurred.  In the event that the Commissioner or a court finds, by a preponderance of the evidence, that A3848 was violated, the employee must be reinstated to his or her position and the employer will be fined $2,500.

New York

On March 18, 2020, Governor Andrew Cuomo signed Senate Bill 8091 (“S8091”), which also went into effect immediately.  S8091 mandates that most New York employers provide paid sick leave to an employee who is subject to a mandatory or precautionary order of quarantine or isolation issued by the state, the New York Department of Health, a local board of health, or any other governmental entity authorized to issue such an order due to COVID-19.  The amount of paid sick leave required depends on the number of employees (as of January 1, 2020), annual revenue, and type of employer as follows:

• All public employers in the State of New York, including municipal governments and school districts: 14 paid sick days.
• Employees with 100 or more employees: 14 paid sick days.
• Employers with 11 to 99 employees: 5 paid sick days.
• Employers with 10 or fewer employees and over $1 million in net income in 2019: 5 paid sick days.
• Employers with 10 or fewer employees and $1 million or less in net income in 2019: No paid sick days required but employee is entitled to use state paid family leave and disability benefits.

When less than fourteen (14) days are provided, S8091 allows the employee to claim state paid family leave and disability benefits upon the exhaustion of his or her allotted number of paid sick leave days.

S8091 also provides that it shall be unlawful for an employer to discharge, threaten, penalize or in any other manner discriminate or retaliate against any employee who uses leave in accordance with the law.

Here to Serve You

To best service our clients in response to the COVID-19 pandemic, Ansell Grimm & Aaron, PC created a Task Force comprised of attorneys from various practice areas to digest new legislation and guide our clients through these difficult times.  For additional information, please visit 62q.f7d.myftpupload.com.

About Ansell Grimm & Aaron, PC

Ansell Grimm & Aaron, PC was founded in 1929 and has a long history of delivering for clients who come to us to resolve legal matters that are often urgent, stressful, and of great importance. A general practice law firm, Ansell Grimm & Aaron is powered by experienced attorneys who understand that the best outcome is the one that serves the needs of each client.

The information provided in this alert was up-to-date at the time of publication, is provided for general purposes only and does not constitute legal advice, and the transmission and receipt of this information does not create or constitute an attorney-client relationship.