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Attorney of the Week
Cliff Risman

Cliff Risman is a veteran real estate lawyer who represents companies that develop, own, operate and finance hotels and resorts around the world. As co-chair of the Foley & Lardner’s Hospitality & Leisure Industry Team and a member of the Real Estate Practice, Cliff is described by clients in the Chambers USA Guide as “very practical and always accessible.” Clients choose Cliff over competitors because he speaks the language and fully understands every aspect of their business – from securing capital, structuring deals and negotiating management contracts, to guiding clients through labor, tax, food and beverage, and operational matters and disputes. Cliff represents luxury and boutique hotel and resort brands, operators and management companies, developers, private equity and other investors in their highest profile projects. He understands how to best tackle the various agreements that arise in real estate law, he knows the hospitality industry and its unique business and economic issues, and he has guided clients through many complex matters and dispute resolutions. Cliff ensures that clients are protected, focuses intently on their broader business goals, and knows how, where and when to push to get the deal done as quickly as possible.

Law Firm of the Week
Fisher Phillips

Fisher Phillips is committed to providing the highest level of client service, no matter how complex the matter we handle. This means: You can be confident that we understand your business and industry. We know that context is important. We take the time to learn the business environment in which you operate so that the advice we provide fits your needs. You will receive a solution to your legal problem that meets your business objective. In every matter we handle we seek at the outset to identify your primary business objective and then find and implement a solution to meet that objective. You are the focus of our near-fanatical responsiveness. We recognize that we are in the client service business. We know that many labor and employment problems arise without much prior warning and require an immediate response, so we are highly accessible for you. We return calls and emails quickly, and we are available around the clock if necessary. You can be assured that your time is respected. We know you are busy and must manage many challenges simultaneously, so we do our best to avoid last-minute surprises. We meet deadlines, and we communicate with you efficiently and in plain English.

Company of the Week
Rimkus Consulting Group

Rimkus Consulting Group, Inc. is a US-based international consulting firm that brings more than 500 professionals to bear on your consulting and expert witness needs. Within these pages, you can learn about our company history, explore our wide range of practice areas, and view our recent assignments. Even our long-time clients are often surprised to learn the breadth of our services. You probably will be as well. Since 1983, we have been in the forensics business, offering our clients an array of experts that spans virtually all engineering disciplines, many scientific disciplines, and forensic business analysis. This broad range of expertise together with the years of experience our staff members bring into play, enables us to address virtually any client challenge. In addition to offering our clients the services of an extensive list of seasoned professionals, we augment our full-time and part-time staff with a select group of contractors with unique education or experience to address those more esoteric needs that come up from time to time.

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Insurance Coverage for Losses and Claims Associated with the Coronavirus

I. INTRODUCTION

A. The Impact of the Coronavirus and the Resulting Sickness or Disease

Since the “coronavirus” was first identified in Wuhan, Hubei Province, China, the World Health Organization (“WHO”) has confirmed that more than 110,000 people have been infected with the SARS-CoV-2 virus and more than 3,000 people have died from the resulting COVID-19.(1)

WHO also has reported that 45 countries have adopted health measures that “significantly interfere with international travel.”(2) Additionally, many countries, or provinces or states in countries, have imposed quarantines or travel restrictions.

As SARS-CoV-2 has spread, there have been suspensions and disruptions of factory operations and supply lines, cancellations of conferences, concerts and music festivals, and meetings, closures of motion picture theaters, cancellations of and restrictions on sporting events, a substantial drop in attendance at sporting events, movies, concerts, theater shows, attractions, and restaurants, closings of business and schools, and the widespread adoption of temporary telecommunicating/“work from home” policies. The economic losses are projected to be at least in the hundreds of billions of dollars with disruptions potentially lasting for two years.

Furthermore, lawsuits already have been filed, seeking damages for alleged exposure to SARS-CoV-2—likely the proverbial “tip of the litigation iceberg.”

B. The Virus and the Disease That May Result

Various terms have been used to describe the coronavirus. The virus is not the same as the disease that may result, and the distinction between the two may be extremely important in accessing insurance coverage.

WHO has named the virus and a resulting disease:

Official names have been announced for the virus responsible for COVID-19 (previously known as “2019 novel coronavirus”) and the disease it causes. The official names are:

Disease
coronavirus disease
(COVID-19)

Virus
severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).(3)

WHO also has provided a straight-forward example of the distinction between a virus and a disease:

Viruses, and the diseases they cause, often have different names. For example, HIV is the virus that causes AIDS. People often know the name of a disease, such as measles, but not the name of the virus that causes it (rubeola).

There are different processes, and purposes, for naming viruses and diseases.(4)

Other sources also distinguish between an infection and a disease, recognizing that an infection is not a disease. See, e.g., https://qiuzlet.com/251784537/infection-vs-disease- flash-cards/ (“Does infection and disease have the same meaning? NO”).

The insurance industry long has recognized the distinctions, too. For example, general liability policies have, for decades, typically distinguished between “sickness” and “disease,” usually defining ”bodily injury” to mean “bodily injury, sickness or disease.” Therefore, when an exclusion references “disease,” but not “sickness,” a court may be reluctant to apply the exclusion to something that many would perceive as a sickness or illness, whether it be a cold, the flu, or a SARS-CoV-2 infection. See Safeco Ins. Co. of Am. v. Robert S., 26 Cal. 4th 758, 764 (2001) (“[W]e cannot read into the policy what [the insurer] has omitted. To do so would violate the fundamental principle that in interpreting contracts, including insurance contracts, courts are not to insert what has been omitted.”); Fireman’s Fund Ins. Co. v. Atl. Richfield Co., 94 Cal. App. 4th 842, 852 (2001) (an insurer’s “failure to use available language to exclude certain types of liability gives rise to the inference that the parties intended not to so limit coverage”; if an insurer chooses “not to include limiting language,” then the words it uses will not “support [the insurer’s] position regarding an intent to limit coverage”).

Also, insurance policies generally are to be interpreted as understood by a layperson. Therefore, if the “ordinary” person would consider COVID-19 to be a “sickness” rather than a “disease” (much as people do with a cold or the flu), a technical interpretation to the contrary should not be adopted when it would limit coverage. See AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 821 (1990) (“The ‘clear and explicit’ meaning of [policy] provisions, interpreted in their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ controls judicial interpretation.”). Thus, while the differences between a “virus,” a “sickness,” and a “disease” might not seem important, for insurance purposes, such distinctions may determine the availability and scope of coverage.

C. Possible Insurance Coverage

One question now frequently raised is whether insurance covers any of the losses and actual or possible claims and lawsuits associated with SARS-CoV-2 and COVID-19. The answer is, “It depends—but frequently yes.” That coverage may be found in insurance policies that otherwise might be overlooked because of overly broad interpretations of exclusions applicable, for example, to “communicable diseases,” or because of notions that the presence of a virus does not constitute physical loss of or damage to property. Some insureds also might assume (or insurers might say) that because they do have a particular type of insurance (such as event cancellation), or because some of the insurance they have may have an applicable exclusion, other insurance policies will not apply. However, as explained below, many common types of insurance, such as property, general liability, and workers’ compensation insurance may provide coverage, even in areas far removed from outbreaks. In fact, steps taken to minimize exposure to SARS-CoV-2 or to reduce its spread may trigger insurance coverage under multiple types of insurance policies.

Several types of insurance may provide coverage. They include:

  • Event Cancellation Insurance: Event Cancellation insurance covers losses caused by the cancellation or postponement of events because of insured risks. While many policies include potentially applicable exclusions or limitations, many exclusions will not apply so broadly as insurers may contend. This insurance may provide a valuable financial resource, particularly as cancellations mount.
  • Property Insurance: Property insurance covers damage to or loss of property. Based on court decisions over the years, the presence of SARS-CoV-2 in premises or at a location may be deemed to constitute physical loss of or damage to property covered by property insurance policies. This means that if an insured suffers interruptions, or loss of business, because of the presence of SARS-CoV-2 somewhere else in the world, its property insurance policies may pay. In fact, property insurance policies may provide coverage when there are economic losses because of SARS-CoV-2 or Covid-19 outbreaks, quarantines, government orders interfering with operations, supply chains, or customers, or restrictions that make travel more difficult to events or that interfere with an insured’s ability to continue with planned events or deliver goods or services. Putting it simply, if an insured is suffering losses relating to SARS-CoV-2, Covid-19 or their effects, its property insurance may apply.
  • General Liability Insurance: General liability insurance typically covers claims or suits for bodily injury, property damage, and various instances where the ability to use, occupy, or enjoy property is compromised. In many versions of this insurance, coverage also is afforded for claims of emotional distress. These policies may apply not just when claims are made or lawsuits are filed, but also to steps taken to reduce the possibility of exposure to SARS-CoV-2.
  • Workers Compensation and Employers’ Liability: Workers compensation and employers’ liability typically provides coverage for “bodily injury by accident or bodily injury by disease.” This coverage may be implicated both by SARS-VoC-2 and COVID-19. It also may apply to the costs incurred to reduce employees’ exposure to SARVS-VoC-2.
  • Political Risk Insurance: Political Risk insurance covers losses arising from the activities of foreign governments. One common type of political risk insurance protects against losses when contracts are “frustrated” by the laws, regulations, or orders of foreign governments when those laws, regulations, or orders (no matter how well-intentioned) interfere with contracts. Another provides coverage when a debtor is unable to pay its debt.

We provide below an overview of each of these types of insurance. We also discuss coverage for the costs of reducing losses. And, we highlight some of the timing requirements and other procedural requirements that, if not complied with, may jeopardize coverage.

II. EVENT CANCELLATION INSURANCE

Event cancellation insurance is intended to cover losses caused by the cancellation, abandonment, curtailment, postponement, or relocation of an insured event, but what an insurer will actually pay depends entirely on the policy language. Event cancellation policies will typically cover lost gross revenue, unrecoverable expenses, lost ticket sales, lost gross guarantees, or any combination thereof, as long as the cause of the loss is “beyond the control” of the insured entity and not excluded by an enumerated cause. In the case of a tour, each performance can be insured with an individual limit, or the entire tour can be insured in the aggregate. Individual concerts, music festivals, and other events can also be insured. Additionally, the covered perils in an event cancellation policy can range from death, accident, or illness affecting a named performer or band to adverse weather and/or travel delays. “All risk” policies provide insurance for enumerated perils as well as a catch-all category of non-enumerated risks. All risk policies will therefore cover any cause of a loss due to the cancellation or postponement of an event that is not specifically excluded.

Typical policy language usually requires the loss to be the result of an unexpected cause “beyond the insured’s control,” or that it not be the result of an agent or promoter’s act or omission. The phrase “beyond the control” of the insured has been the subject of debate in the past. For example, what if an artist “elects” not to travel to a show in China because of travel difficulties, the presence of SARS-CoV-2, and the fact that few people may attend? At what point to the impediments to travel and concern about exposure to SARS-CoV-2—for the artist and the attendees—mean the non-appearance is “beyond the control” of the insured?

Some courts have interpreted the phrase “beyond the control.” For example, in Great Southern Wood Preserving, Inc. v. American Home Assurance Co., 292 F. App’x 8 (11th Cir 2008), the insured sought coverage for lumber shipments that it had off-loaded at a port that was then destroyed by a hurricane. It sought coverage for its loss under a policy that covered goods while in transit, arguing that the shipments still were “in transit.” The court disagreed, finding that the insured “exercised dominion and control over the lumber once it was off-loaded” because it made decisions about the storage and destination of the lumber. Id. at *2. This decision, and others like it, suggest that if the insured exercises dominion or decision-making authority, then the cause may not be “beyond” its control.

The determination of when something is “beyond the control” of the insured is likely to depend heavily on the specific circumstances involved. As at least one court has recognized, the application of the phrase “beyond the control” often involves factual questions properly determined by a jury. HDMG Entm’t, LLC v. Certain Underwriters at Lloyd’s of London Subscribing to Policy No. L009082, 355 F. Supp. 3d 373, 382 (D.S.C. 2018). In HDMG, the insured sought coverage for losses incurred from the cancellation of an event caused by a third party’s failure to timely finish installing a communications system that was necessary to produce the event. In denying the insurers’ motion for summary judgment, the court ultimately held that there was “a genuine dispute as to whether the fact that Plaintiff chose a venue without a communications system means that the subsequent loss resulting from the failure to timely install one was expected and within Plaintiff’s control.” Id. at 381.

However, insurance policies are generally subject to a reasonableness standard. Therefore, for example, while an insurer could argue that it was within an insured’s control to schedule, or not schedule, appearances in areas that could be in a location with a potential SARS-CoV-2 outbreak, how is an insured to know in advance, particularly in the face of world-wide efforts to limit the spread of SARS-CoV-2? And, whatever can be said about the scheduling of future events, given that concerts, tours, and promotional appearances typically are booked long in advance of scheduled dates, it certainly is reasonable to conclude that a SARS-CoV-2 outbreak after the insured set dates is “beyond the control” of the insured. The “beyond the control” language should not require the insured to do things outside the norm or that which would be deemed to be commercially unreasonable.

Some event cancellation policies have an exclusion to similar effect as the “beyond the control” language. These exclusions purport to apply when the loss arises out of the act or omission of a promoter, sponsor, organizer. If read broadly and artificially, they could bar coverage for almost any loss. After all, almost every cancelled event could give rise to a claim that there was an act or omission by a promoter involved in the cancellation of a concert. For example, if a venue were in the center of a SARS-CoV-2 outbreak subject to quarantine, presumably a promoter would cancel or advise cancellation of the event. In such a situation, the clear cause of the cancellation is SARS-CoV-2 and the quarantine—not the promoter’s decision not to proceed. Interpreting the exclusion to bar coverage would render the coverage provided by the policy illusory, something that courts will not do. See, e.g. Safeco Ins. Co. of Am. v. Robert S., 26 Cal. 4th 758, 894 (2001) (noting that courts will not interpret provisions so that coverage is rendered illusory and instead will interpret provisions “in a manner that makes them reasonable and capable of being carrier into effect”). Clearly, the exclusion should be reasonably interpreted to apply only when the act of a promoter is the triggering event in the cancellation. See Mount Vernon Fire Ins. Co. v. Belize N.Y., Inc., 277 F.3d 232, 237 (2d Cir. 2002) (“With respect to exclusions from coverage, the same must be set forth clearly and unmistakably, not be subject to any other reasonable interpretation, and fit the particular case.”); Garvey v. State Farm Fire & Cas. Co., 48 Cal. 3d 395, 406 (1989) (“[E]xclusionary clauses are interpreted narrowly, whereas clauses identifying coverage are interpreted broadly.”).

A New York court has addressed the question of whether there is coverage when the initial event is insured, but a subsequent event allegedly causing the loss is excluded. In Throgs Neck Bagels, Inc. v. GA Insurance Co., 671 N.Y.S.2d 66 (1998), a fire damaged three stores located in the building containing a bagel shop. The bagel shop itself was not damaged. However, the Department of Buildings issued a “vacate” order. Thereafter, the landlord canceled the bagel shop’s lease. The bagel shop then sought coverage for its losses under its fire insurance policy. The insurer denied coverage, citing an exclusion for loss caused “directly or indirectly” by the enforcement of any ordinance or law. The court rejected the insurer’s argument. It explained:

In reality, the order served merely as a confirmation of the circumstances regarding the actual cause of the loss, i.e., the fact that the premises had been structurally unsound and unfit for continued use as a result of the fire. It cannot logically be claimed that [the bagel shop] would not have vacated a building rendered structurally unsound but for an order from the Department of Buildings. On the contrary, when the order was served, the need to vacate the premises and all the immediate and consequential losses stemming from the fire and explosion, both direct and indirect, had already been “caused”.

Id. at 69-70 (citations omitted). As the court further explained:

To construe the exclusion in the manner urged by defendant insurer would be to render the underlying coverage nugatory in a host of cases where it should reasonably be expected to apply. The Department of Buildings or other governmental agency could be expected to frequently issue various orders and decrees in response to the consequences of any catastrophic event affecting public safety, and an insurer could avoid coverage by simply claiming that such an order was one of the “causes” of the loss. Indeed, to apply defendant’s interpretation here would mean that even if plaintiff’s store had been one of those that had been completely destroyed by the fire, defendant could have declined coverage on the identical ground that the issuance of the vacate order was a concurrent “cause” of the loss. To hold that the . . . exclusion applies under circumstances such as here present would be an unreasonable construction that would frustrate the underlying purpose of the policy.

Id.

Some, but by no means all, event cancellation policies may have a communicable disease exclusion. Like any exclusion, this one should be interpreted narrowly with any ambiguities interpreted in favor of coverage. See, e.g., Pioneer Tower Owners Ass’n v. State Farm Fire & Cas. Co., 12 N.Y.3d 302, 306 (2009); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1032 (9th Cir. 2008) (“California law requires us to adopt a narrow construction” of an exclusion); MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 648 (2003) (“exclusionary clauses are interpreted narrowly against the insurer).

Insureds should not assume that just because a policy may have a “communicable disease” exclusion that there is no coverage. It will depend on what the exclusion actually says, and whether its limitations are plain and clearly understood. For example, one version of a communicable disease exclusion reads as follows:

This Insurance does not cover any loss directly or indirectly arising out of, contributed to by, or resulting from any loss, expense or liability directly or indirectly arising out of, attributable to or resulting from Severe Acute Respiratory Syndrome (SARS) and/or Atypical Pneumonia and/or Avian Flu and/or Swine Flu and/or any other flu variant recognized as a pandemic, whether phase 1,2,3,4,5 or 6 as determined by the World Health Organization or the threat or fear thereof (whether actual or perceived).

This Exclusion shall not apply if any of the above communicable diseases affect an Insured Person and/or Named Person and such infection of an Insured Person or Named Person is the sole and direct cause of the necessary Cancellation, Abandonment, Postponement or Interruption of the Insured Performance(s) or

Event(s); or

The Venue is closed by or under the order of any government or public or local authority as a sole and direct result of any of the above communicable diseases which originate and manifest within the confines of the Venue.(5)

In order for this exclusion to apply, the insurer would have to prove several things. First, it would have to prove that SARS-CoV-2 is the “SARS” referenced, Atypical Pneumonia, Avian Flu, Swing Flu, or a flu variant. However, this exclusion should not apply to any loss arising, or caused, before any determination by the World Health Organization that SARS-CoV-2 is a “pandemic.”(6) Additionally, the Center for Disease Control has stated: “The recently emerged 2019-nCoV is not the same as the coronavirus that causes Middle East Respiratory Syndrome (MERS) or the coronavirus that causes Severe Acute Respiratory Syndrome (SARS).”(7) Therefore, on a reasonable and narrow reading of this form of the communicable disease exclusion, as required under the tenets of contract interpretation, coverage for cancelled events associated with SARS-CoV-2 may still be available.

Other forms of communicable disease exclusions may be broader. For example, one states:

This insurance excludes any loss directly or indirectly arising out of, contributed to by, or resulting from:

a)any infectious or communicable disease in humans or animals that leads to:

i) the imposition of quarantine or restriction in movement of people or animals by any national or international body or agency; and/or

ii) any travel advisory or warning being issued by a national or international body or agency

(b) Swine Flu A (H1N1) or any mutation or variation thereof;

(c) any threat or fear of any infectious or communicable disease in humans or animals (which for the avoidance of doubt includes Swine Flu A (H1N1) or any mutation or variation thereof), whether actual or perceived.(8)

Even with this type of exclusion, as noted above, SARS-CoV-2 is officially categorized as a virus, not as a disease. Therefore, an exclusion that applies only to a “disease” may not apply to quarantines, travel restrictions, or other losses from SARS-CoV-2.

Furthermore, as also noted above, the interpretation of policy language is done from the perspective of the layperson. Therefore, even if WHO classifies COVID-19 as a “disease,” that does not mean that the term “disease” in a policy exclusion would be interpreted the same way.

Even it can be said that an exclusion would clearly apply to both SARS-CoV-2 and COVID- 19, coverage still may be afforded because the exclusion may not be as broad in application as it might appear on first read. For example, a policy might have an exclusion for losses from microorganisms, but cover losses resulting from an order of a civil authority, such as a quarantine. In that circumstance, to the extent the loss is deemed to be caused by the order, then coverage still may be afforded. See, e.g., Massi’s Greenhouses, Inc. v. Farm Family Mut. Ins. Co., 233 A.D.2d 844, 844 (N.Y. Sup. Ct. App. Div. 1996) (insureds sought coverage for loss business associated with excluded bacterial contamination of geraniums in greenhouses following quarantine order; question of fact whether losses were caused by quarantine or by bacterial contamination).

Given these variations in language, all potentially applicable policies should be carefully reviewed. Because the “devil is in the details,” an insured should not assume that a policy exclusion applies, or that coverage might not be afforded for some other reason. While not all event cancellation policies will provide coverage, some, and perhaps many, will—and that coverage should not be overlooked.

III. PROPERTY INSURANCE

Property insurance typically covers loss or damage to property. A key to accessing property insurance is understanding that coverage may be afforded even if there is no physical damage to property or there is no “loss” of property in the sense of property being destroyed or vanishing. Simply put, the mere presence of SARS-CoV-2 may constitute insured loss of or damage to property, and may trigger coverage for economic losses far away for any SARS-CoV-2 outbreak. This fact may be critical because estimates are that SARS-CoV-2 can last in the air for a short time, but could last for several days on hard and soft surfaces. As a result, the so-called “time element” coverages found in most property insurance policies can be invaluable. These coverages protect the insured against revenue or income loss—not only from physical loss or damage to their own property, but from losses caused by events elsewhere. These extended forms of insurance may provide substantial protection against losses associated with SARS-CoV-2, even if those losses arise from events far across the world.

A. Loss or Damage to Property

Many businesses do not consider the possibility of property insurance for SARS-CoV-2 losses because they do not consider those losses as involving loss of or damage to property.

Instead, they may think of these losses as uninsured economic losses or losses that affect people, not property. However, there is a reasonable argument that SARS-CoV-2 losses may, in fact, be covered by property insurance.

The starting point is the question of whether there is some loss or damage to real or personal property. While a virus that infects people might not, at first impression, involve loss or damage to real or physical property, that is not actually the case. When property, such as surfaces or airspace, is contaminated, including by a virus, it may be deemed to be damaged. In fact, courts have recognized that contamination that renders a property uninhabitable or unusable for its intended purpose may constitute direct property loss or damage.

This possibility was recognized in Motorists Mutual Insurance Co. v. Hardinger, 131 F. App’x 823 (3d Cir. 2005). The insureds sought coverage under their property insurance policy after discovering that the well on their property was contaminated with e-coli bacteria.
The insureds became ill and had to vacate the property. The Third Circuit found that there was a question of fact as to “whether the [insureds’] property was nearly eliminated or destroyed, or whether their property was made useless or uninhabitable” by the contamination, and therefore reversed the trial court’s granting of summary judgment to the insurer. Id. at 826-27.

In Oregon Shakespeare Festival Association v. Great American Insurance Company, 2016 WL 3267247 (D. Ore. June 7, 2016), for example, a festival cancelled performances at a theatre due to air quality and health concerns as a result of smoke infiltration caused by wildfires. Id. at *2. In finding that the festival was entitled to business interruption coverage, the court held, “The smoke that infiltrated the theatre caused direct property loss or damage by causing the property to be uninhabitable and unusable for its intended purpose.” Id. at *9.

In reaching this decision, the Oregon court looked to an “extremely persuasive” federal court decision, Gregory Packaging, Inc. v. Travelers Property Casualty Co. of America, 2014 WL 6675934 (D.N.J. Nov. 25, 2014). In Gregory, the accidental release of ammonia into a packaging facility caused the facility to be shut down while the ammonia dissipated. Id. at
*3. To remedy the problem, the facility had to “air the property” and hire an outside company to clean up the facility. While acknowledging that “structural alteration provides the most obvious sign of physical damage,” the court noted “property can sustain physical loss or damage without experiencing structural alteration.” Id. at *5.

Many courts have recognized that contamination of property by a hazardous substance is property damage. See, e.g., AIG Ins. Co. v. Superior Court, 51 Cal. 3d 807, 842 (1990) (“Contamination of the environment satisfies” the requirement of property damage); Maryland Cas. Co. v. Wausau Chem. Corp., 809 F. Supp. 680, 693 (W.D. Wis. 1992) (“‘[P]roperty damage’ includes contamination to natural resources such as ground water and soil and the cost of subsequent clean-up.”). In fact, this point should not be controversial, given that insurers have acknowledged it in litigation. See, e.g., Aetna Cas. & Sur. Co. v. Pintlar Co., 1948 F.2d 1507, 1514 (9th Cir. 1981) (“The insurers further concede that contamination of the soil and water by hazardous substances constitutes injury to property….And an ordinary person would find that the environmental contamination alleged falls within the plain mean of ‘property damage’ as that term is used in policies.”).

Therefore, the next question is whether the presence of SARS-CoV-2 inside the air of, or on surfaces in, a building, ship, or other structure constitutes damage to property. The answer to that question should be “yes.” Indeed, even the space, including airspace, within a building long has been recognized to be real property. See K. Pasich, G. Warner & L. Smith, “Insurance Coverage For Hazardous Substances In The Airspace of Buildings,” 10 Mealey’s Litig. Rpts: Insurance No. 1, at 21 (Nov. 1, 1995); see also Sentinel Mgt. Co. v. New Hampshire Ins. Co., 563 N.W.2d 296, 300 (Minn. Ct. App. 1997) (“Although asbestos contamination does not result in tangible injury to the physical structure of a building, a building’s function may be seriously impaired or destroyed and the property rendered useless by the presence of contaminants Under these circumstances, we must conclude that contamination by asbestos may constitute a direct, physical loss to property under an all- risk insurance policy.”); Sentinel Mgt. Co. v. Aetna Cas. & Sur. Co., 1999 WL 540466, at *7 (Minn. Ct. App. July 27, 1999) (“If rental property is contaminated by asbestos fibers and presents a health hazard to tenants, its function is seriously impaired”); Centennial Ins. Co. v. NE Pharmaceutical & Chem Co., 811 F.2d 1180, 1186 (1987) (“The policies’ definition of ‘property damage’ as damage to ‘tangible property’ or ‘physical injury’ seems to contemplate damage to tangible property such as land, trees, air, and water.” (emphasis added)), opinion on reh’g en banc, 842 F.2d 977 (8th Cir. 1988); Butler v. Frontier Tele. Co., 186 N.Y. 486, 491 (1906) (“the law regards the empty space as if it were a solid, inseparable from the soil”). In fact, courts have held that even odors in a building can constitute physical loss. See, e.g., Mellin v. N. Sec. Ins. Co., 167 N.H. 544, 550-51 (2015) (property policy insures “physical loss changes to the insured property, but also changes that are perceived by a sense of smell and that exist in the absence of structural damage”).

B. Business Interruption Insurance

“Business Interruption” coverage reimburses the insured for the amount of gross earnings minus normal expenses that the insured would have earned but for the interruption of the insured’s business (that is, its profits).

Business interruption coverage provisions typically apply even when an insured is forced to relocate in order to keep its business going or to minimize its overall loss. See, e.g., American Med. Imaging Corp. v. St. Paul Fire & Marine Ins. Co., 949 F.2d 690, 692-93 (3d Cir. 1991) (insured reopened at an alternate location, but earned less than it otherwise would have; carrier obligated to indemnify insured while business continued at less-than-normal level).

C. Coverage with Excluded Damage, or Damage to Uninsured Property

Even if there has been physical injury to tangible property, insurers still may deny coverage if the physical injury was not covered, or if the property did not belong to the insured. Depending on the policy language involved, they may be wrong. For example, in Burdett Oxygen Co. v. Employers Surplus Lines Insurance Co., 419 F.2d 247 (6th Cir. 1969), the insured’s property was damaged when a machine broke down. The physical injury to the machine was excluded from coverage by a “Mechanical Breakdown” exclusion. However, the Sixth Circuit held that the business interruption and extra expense were covered. The court pointed out that the insurer “could have drawn up a policy unambiguously conditioning recovery for business interruptions solely upon the occurrence of insured property damage.” Id. at 250. But, it did not do so. As a result, the policy did not “unambiguously condition recovery on the presence of insured property damage . . . .” Id. See also AIU, 51 Cal. 3d at 843 (policy insuring losses because of “property damage to which this policy applies” covers business interruptions “because of property damage in general, regardless of by whom it is suffered”).

D. Coverage for “Restoration” or “Extended Period of Indemnity”

When an insured ceases business activities and subsequently resumes operations to the extent possible, business interruption insurance ordinarily extends to cover the resumption period until business returns to normal.

For example, in Lexington Insurance Co. v. Island Recreational Development Corp., 706 S.W.2d 754 (Tex. App. 1986), the insured owned a restaurant that was severely damaged in a storm. Once the restaurant reopened, it did not return to the same volume of business for another nine months. The insured sought to recover not only for the time it was closed, but also for the time it took to return to its prior business volume. The court broadly interpreted the policy to protect the reasonable expectations of the insured. Because the insurance policy did not explicitly exclude the period of recovery after resumption of operation, the court held that the insured was entitled to recover for the loss it suffered during its closure and also during the months that followed until it recovered its lost business volume. Id. at 755-56.

Coverage also should be afforded for the period from when the insured resumes business until its business returns to normal (subject, of course, to any applicable time or monetary limits in the policy). See, e.g., American, 949 F.2d at 692-93. In American, fire damage rendered the insured’s ultrasound headquarters unusable. The insured’s business interruption insurance covered “necessary or potential suspension” of operations. It also required the insured to reduce its loss if possible by “resuming operations.” The insurer was obligated to indemnify the insured until it returned to “normal business operations.” Rather than suffer the extensive losses that a lengthy complete closure of its business would have entailed, and in compliance with the mitigation requirements of the policy, the insured reopened as quickly as possible at an alternate location. As a result, the insured incurred extra expenses and earned less than it otherwise would have. Nonetheless, the district court concluded that, once the insured had reopened for business, recovery for the further period of operation with reduced earnings was precluded. On appeal, the Third Circuit rejected this conclusion. Id. at 692-93. It reasoned that the plain language of the policy requiring the insurer to indemnify the insured until it returned to “normal business operations” necessarily implied that the insurer was obligated to indemnify the insured while business continued, albeit at a less-than-normal level. Id. at 693. Barring recovery of the insured’s loss of earnings and extra expenses, when the insured had done no more than attempt to minimize its losses, would have the undesirable effect of giving the insured no motivation to mitigate. Id. at 692.

E. Civil Authority and Ingress/Egress Insurance

The City of Wuhan, the epicenter of SARS-CoV-2, is home to more than 11,000,000 people. As part of its efforts to prevent the spread of the virus, China isolated Wuhan from the rest of China. As a result, planes and trains were barred from entering or leaving the City, and, within Wuhan, buses, subways, and ferries also were suspended.(9) These travel restrictions spread throughout the country and have caused serious problems for businesses inside and outside of China. And, now, quarantines and travel restrictions have been instituted elsewhere in the world, including as to travel into, out of, or within multiple countries, provinces, and cities.

It long has been recognized that a government or other civil authority has the power to quarantine people that may have been exposed to infectious diseases. See, e.g., Ex Parte Dillion, 44 Cal. App. 239, 244 (1919) (“Where sufficient reasonable cause exists to believe that a person is afflicted with a quarantinable disease, . . . and if quarantining is found to be justifiable, such quarantine measures may be resorted to only as are reasonably necessary to protect the public health, remembering that the persons so affected are to be treated as patients, and not as criminals.”); Hickox v. Christie, 205 F. Supp. 3d 579 (D.N.J. 2016) (nurse’s quarantine after return from Africa where she had been caring for Ebola patients did not violate law regarding quarantine and related health measures).

For those companies with business interests in areas where access or travel has been hindered or prohibited, insurance relief may be available.

Many insurance policies, including the standard ISO Form for Business Income (and Extra Expense) Coverage, provide coverage for “Civil Authority” losses. One iteration of the Form requires the insurer to

pay for the actual loss of Business income [the insured sustains] and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.(10)

This “coverage for Business Income will begin 72 hours after the time of that action and will apply for a period of up to three consecutive weeks after coverage begins.”(11)

The Form also provides that the coverage for Extra Expense will begin immediately after the time of that action and end the later of “(1) 3 consecutive weeks after the time of that action; or (2) When your Business Income coverage ends….”(12)

Some insurer forms also provide separate protection for loss of income when ingress or egress is prevented to or from the insured premises.(13) Although similar to Civil Authority coverage, this coverage can be distinguished from that set forth in the ISO Form because no “action of civil authority” is required to trigger coverage.

Under the ISO Form and other policies, the insured may be required to demonstrate “physical loss of or damage to property.” As discussed above, such loss or damage may exist when property (including airspace) has been contaminated by Covid-19.

Several courts have considered whether business interruption insurance applies to business losses that do not involve actual “physical” damage or destruction. Two of the leading cases are Sloan v. Phoenix of Hartford Insurance Co., 46 Mich. App. 46 (1973), and Allen Park Theatre Co. v. Michigan Millers Mutual Insurance Co., 49 Mich. App. 199 (1973). The insureds in both cases claimed lost revenues because they were forced to close their movie theaters during a dusk-to-dawn curfew imposed by the government after the 1967 Detroit riots. The Sloan court stated:

[A] plain reading of the policy would lead the ordinary person of common understanding to believe that, irrespective of any physical damage to the insured property, coverage was provided and benefits were payable when, as a result of one of perils insured against, access to the insured premises was prohibited by order of civil authority, and we so hold.

46 Mich. App. at 436-37.

The Allen court followed Sloan, simply stating: “If the insurer wanted to be sure that the payment of business interruption benefits had to be accompanied by physical damage it was its burden to say so unequivocally.” 48 Mich. App. at 201. Other courts have reached similar conclusions.

Even if there is no order of a civil authority disrupting business, coverage may be available if ingress or egress to an insured location is hampered. For example, in Fountain Powerboat Industries v. Reliance Insurance Co., 119 F. Supp. 2d 552 (E.D.N.C. 2000), the policy provided coverage when, as a result of a non-excluded peril, ingress to or egress from the insured’s facility was “thereby prevented.” Hurricane-caused flooding prevented ingress and egress to and from the insured’s facility. The sole means of accessing the facility was a road off a highway that was closed for nine days as a result of the storm. The

insurer challenged coverage, arguing that the facility suffered no physical damage. The court held that the insured was entitled to coverage because it had limited access to its facility as a result of the flooding. As it unequivocally held, “Loss sustained due to the inability to access the Fountain facility and resulting from a hurricane is a covered event with no physical damage to the property required.” Id. at 557. The court also concluded, “the policy would provide coverage not only when the property itself was inaccessible, but also when the only route to the Facility caused the property to be inaccessible.” Id.

Insurers may argue that a policy’s reference to “prevention” of ingress or egress means that there is no coverage because it requires a complete stoppage of all ingress and egress. However, the term “prevent” is commonly defined to mean not only “to keep from happening or existing” but also “hinder,” and it is often used to mean “to interpose an obstacle.” Merriam-Webster, “Prevent,” https://www.merriam- webster.com/dictionary/prevent. In National Children’s Exposition Corp. v. Anchor Insurance Co., 279 F.2d 428 (2d Cir. 1960), the court indicated that when “prevent” is used with respect to preventing actions, rather than with respect to preventing the existence of something, “prevent” may mean “hinder.” Id. at 431.

The Fountain court recognized that coverage should be afforded as long as there was an interference with reasonable access to the facility, even if extraordinary means could lead to access. Id. at 557 n.4 (“The efforts of Fountain to pick up employees and drive them to work are extraordinary. The court finds that the ingress/egress provision relates only to reasonable access to the Fountain facility and does not therefore apply to extraordinary efforts by Fountain or its employees to get to work over closed and flooded roads.”). See also Marriott Fin. Servs., Inc. v. Capitol Funds, Inc., 288 N.C. 122, 144 (1975) (pedestrian, rather than vehicular, access not deemed reasonable; “when an insurer contracts to insure against lack of access to property, it must be deemed to have insured against the absence of access which, given the nature and location of the property, is Reasonable access under the circumstances”). Accordingly, the word “prevention” reasonably can be interpreted to require only that ingress to and egress from the premises be hindered, not that it be completely prevented.

In addition to these coverages, there may be other related civil authority and ingress/egress coverages that may aid businesses through these challenging times. During the 2014 Ebola outbreak, ISO developed endorsements to provide coverage for the loss of business income in relation to an Ebola outbreak.(14) Relatedly, some insurers have developed policies that are expressly designed for the purpose of covering pandemic or infectious disease risk.

F. Contingent Business Interruption Insurance

Companies across the globe may also lose earnings because they incur additional costs and/or are unable to conduct business with companies directly impacted by the SARS-CoV- 2 outbreak. Such losses may be covered by contingent business interruption (“CBI”) insurance, a type of insurance against loss caused by damage to the property of suppliers, customers, and other third parties upon which the insured depends.

Indeed, CBI losses account for a significant percentage of overall insured losses following a significant loss event, like the SARS-CoV-2 outbreak. While it is a given that the outbreak will cause significant damage and disruption at the location where it exists, the resulting CBI losses can have an exponential impact across multiple industries and sectors of the global economy.

The potentially broad reach of CBI coverage creates challenges in larger global organizations to identify income losses that are caused by the impact of SARS-CoV-2 on entities several steps removed from the insured. Indeed, notice of damage at a supplier’s distant location may only reach the insured through slightly higher component costs. In the face of increasing costs, supply chain personnel may make arrangements to secure alternative components without informing the risk management department or even ascribing the increased costs to potentially covered damage.

Similarly, businesses should not assume that CBI coverage is limited to suppliers of raw materials because most CBI provisions also cover lost earnings resulting from damage to any supplier of services. For example, if SARS-CoV-2 prevents employees from coming to work and thereby reduces an insured’s earnings, that event could constitute a CBI loss because the employees’ labor is a service provided to the insured. Likewise, if customers or patrons are unable to travel to a concert or other event, there may be coverage for the resulting losses.

One issue that insureds must consider with respect to CBI coverage is how a policy defines the third party that must suffer damage to trigger a claim for coverage. For example, some policies require damage to a “dependent property,” which may include “contributing locations,” “recipient locations,” “manufacturing locations,” and “leader locations.” Other policies require damage to “suppliers,” “customers,” “contract manufacturers,” and “contract service providers.” While some policies may define these terms, many policies do not, resulting in disputes down the road about which third parties upon which the insured relies are included in the insured’s CBI coverage.

This is particularly true given the growing complexity and interdependence of many modern supply chains. For example, in DIRECTV v. Factory Mutual Insurance Co., 2017 WL 2629134 (9th Cir. June 19, 2017), the Ninth Circuit interpreted a CBI provision that insured against business interruptions stemming from certain events at any location “of a direct supplier, contract manufacturer or contract service provider to [DIRECTV].” Id. at *1. The critical question before the Ninth Circuit was whether Western Digital, a manufacturer of hard drives that are used in DIRECTV’s set-top boxes, qualified as a direct supplier. The insurer argued that because Western Digital’s hard drives were sent to third-party set-top box manufactures, Western Digital was not a “direct supplier” to DIRECTV. DIRECTV, however, offered extrinsic evidence showing that in the electronics supply chain industry, Western Digital would reasonably be understood as a “direct supplier” because DIRECTV exerted significant control over and directly managed design, product development, cost, production, and quality control with Western Digital. The Ninth Circuit stated “that ‘[t]he law charges insurance companies with the duty of informing themselves as to the usages of the particular business insured, and a knowledge of such usage on the part of such company will be presumed.’” Id. Accordingly, the court held that “the phrase ‘direct supplier’ is ‘reasonably susceptible’ to the meaning urged by [DIRECTV].” Id.

These issues also were addressed in Archer-Daniels-Midland Co. v. Phoenix Assurance Co., 936 F. Supp. 534 (S.D. Ill. 1996). The insured sought coverage under the CBI provisions of its policy arising from a flood of the Mississippi River and its tributaries and resulting damage to 20,000,000 acres of farmland. The insured processed farm products for domestic and international consumption. A substantial part of the insureds’ raw materials traveled by barge on the Mississippi River and its tributaries. When barge traffic was halted because of the flooding, the insured had to arrange alternate—and more expensive—transportation by rail. It claimed it was covered for a contingent business interruption loss for the increased costs it incurred for transportation and raw materials. It argued farmers and the United States government, through the Army Corps of Engineers (“Corps”), which operated and maintained the Mississippi River system, were suppliers. The insurers disagreed.

The court noted that the phrase “any supplier of goods or services” “denotes an unrestricted group of those who furnish what is needed or desired.” Id. at 541. It concluded that “the Corps is undoubtedly providing a service. As a result, the Corps . . . are ‘suppliers’ of ‘services’ for purposes of” the coverage. Id.

The court also rejected the insurers’ argument that the Corps was not a supplier because the insured did not have a contract with the Corps and that the principal entity that supplied the insured locations was a subsidiary of the insured. The court agreed with the insured that “the policies do not state that coverage is limited to principal suppliers or suppliers with whom ADM has a written contract, rather, they apply to ‘any’ supplier.” Id. at 543.

The court then addressed the question of whether the farmers were “suppliers of goods and services” within the coverage. The insurers argued that the farmers were not suppliers because the insured did not contract for the purchase of grain from individual farmers, but rather did so from licensed grain dealers. The court rejected this argument, too. It noted that “the policy language does not limit coverage to those suppliers in direct contractual privity.” Id. at 544. It stated: “The farmers may be an ‘indirect’ supplier of the grain, but they are a supplier nonetheless. Had either of the parties wanted to limit the coverage to ‘direct’ suppliers, they could easily have added language to that effect.” Id.

Another potential issue is whether the third party must be unrelated to the insured. For example, in Park Electrochemical Corporation. v. Continental Casualty Co., 2011 WL 703945 (E.D.N.Y. Feb. 18, 2011), one company, Neltec, was unable to purchase its supply of a vital component due to an explosion at Nelco’s facility. Both companies were wholly owned subsidiaries of their parent, Park. Park and Neltec were insured under a CBI policy that covered losses “caused by direct physical damage or destruction to . . . any real or personal property of direct suppliers which wholly or partially prevents the delivery of materials to the Insured or to others for the account of the Insured.” Id. at *2. The insurer argued that coverage did not apply because “subsidiaries of the insured, such as Nelco, are not considered ‘direct suppliers’ under the policy.” Id. The court noted that the “term ‘direct suppliers’ is not defined anywhere in the policy,” and concluded that the “language of the policy on this point is vague and ambiguous.” Id. at *4. The court concluded that the “ambiguity survives the proffers of extrinsic evidence” and ruled in favor of the insured. Id. at *6.

As illustrated by DIRECTV, Park, and Archer, CBI coverage is an effective tool to protect an insured against risk of loss or damage to others upon which the insured depends. Accordingly, in the wake of the Covid-19 outbreak, insureds should pay close attention to the CBI provisions in their policies and take measures to ensure that they are maximizing the benefits provided by this valuable asset.

G. Exclusions

Property insurance policies have a range of exclusions that insurers might argue apply to preclude or limit coverage for SARS-CoV-2 losses. As explained above, however, many of these exclusions may not be as broad as insurers contend and, even if they are, may not apply in a given situation.

IV. GENERAL LIABILITY INSURANCE

Like with MERS, SARS, and other viruses before it, SARS-CoV-2 was initially spread by and between animals before infecting humans. The person-to-person spread is thought to occur by way of respiratory droplets transmitted by way of coughing and sneezing, with those droplets being inhaled into the lungs of others.(15) How easily this virus can be spread amongst humans is not yet fully understood, including whether the virus can be transmitted by touching an object that has the virus on it.

Thus, it is possible that people attending concerts and other events might be infected by exposure to others who have contracted SARS-CoV-2 and may, in turn, sue the venue, promoter, artist, agent, or vendors—in essence, anyone that they might blame because they contracted SARS-CoV-2. In such an event, a general liability policy might provide protection.

A general liability policy covers claims for bodily injury (including, sickness, disease, and death, and frequently emotion distress). It also typically covers claims for damage to or loss or use of property (such as contamination). This insurance does not typically cover an insured for its own losses, but is designed to protect an insured against claims and suits by third parties. Liability insurance can prove invaluable should such suits arise, typically obligating an insurer to pay for its insured’s defense (often with any cap on the amount the insurer must pay). And, when an insurer has a duty to defend, it must defend immediately and fully, even if the suit is meritless. As one court has explained:

[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity The defense duty is a continuing one, arising on tender of defense and lasting until the underlying lawsuit is concluded Imposition of an immediate duty to defend is necessary to attorney the insured what it is entitled to: the full protection of a defense on its behalf. [T]he insurer may not decline to defend a suit merely because it is devoid of merit, but instead must assert appropriate defenses on its insured’s behalf in the underlying action.”

Montrose Chem. Corp. v. Superior Court, 6 Cal. 4th 287, 295 & 298 (1993).

V. WORKERS’ COMPENSATION AND EMPLOYERS LIABILITY INSURANCE

Workers’ compensation and employers liability insurance typically insures employers for claims by their employees for “bodily injury by accident or bodily injury by disease.” They usually obligate the injury to defend any claim, proceeding or suit for benefits payable by the insurance. This coverage may apply as to employees that have contracted SARS-CoV-2, but not yet developed COVID-19, and those that have developed COVID-19. This is because the virus itself might be deemed to cause injury to the lungs even before COVID-19 develops. Cf. Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 45 Cal. App. 4th 1, 44-48 (recognizing that with exposure to asbestos, “‘injurious physiological processes’” begin with exposure to fibers long before disease manifests itself).

While employees typically cannot bring workers’ compensation claims as civil lawsuits, if they do, then the workers’ compensation insurer may be obligated to defend the insured. See Theodore v. Zurich Gen. Accident & Liab. Ins. Co., 364 P.2d 51, 55 (Alaska 1961) (court rejected insurer’s contention that it did not have to defend insured when claim against insured fell within the purview of workers’ compensation laws rather than purview of maritime laws).

Furthermore, as discussed below, steps that an insured takes to reduce the chance that its employees will be exposed to SARS-CoV-2 may be covered by their insurance as a reasonable step to mitigate damages that might result from such exposure.

VI. POLITICAL RISK INSURANCE

Political risk insurance policies typically insure against several types of “political risk,” covering risks such as currency restrictions, expropriation of assets, political violence, and terrorism, contract frustration, and trade credit. Coverage often depends on the precise terms of the policy—and political risk policies have many variations in their terms.

One insured risk implicated by the SARS-CoV-2 outbreak is contract frustration. Contract frustration insurance protects a company’s trade or sales contract with a foreign company from an action (or inaction) of a foreign government, often including impacts from changes in laws, rules, or regulations. Thus, if a government implements a rule impairing an insured’s ability to get the benefit of a contract, such as quarantines or other travel or shipping restrictions, a political risk policy may afford coverage (but note that the terms of political risk policies vary substantially, so a close review is warranted).

Another insured risk implicated by SARS-CoV-2 is the inability to collect on accounts receivable. If, for example, a trading partner cannot pay its debts because of insolvency or financial distress resulting from a SARS-CoV-2 outbreak, quarantines, or travel or transport restrictions, then trade credit insurance may cover a substantial part of the loss.

As circumstances develop, other risks often covered by political risk policies may arise. For example, it is possible that a government might take control of an insured’s assets, either directly or by implementing restrictions by which it is, for all intents and purposes, exercising control over those assets. In such a situation, there could be coverage on the theory that there has been an expropriation of assets.

Political risk policies typically contain varying conditions and requirements that an insured must address in order to secure coverage. For example, some political risk policies include very restrictive notice provisions that require that an insured give notice of “any occurrence likely to give risk to a claim” to the insurer within days or weeks of the insured’s knowledge of an occurrence. What this means—in connection with the claims arising out of SARS-CoV-2—is that an insurer may argue that its insured was required to give notice of an “occurrence” within days of outbreak, even if it has not yet suffered any actual loss. While a purported delay in notice might not be a bar to coverage under the law of most U.S. jurisdictions (where late notice often is recognized as a valid coverage defense only if and to the extent that an insurer is actually and substantially prejudiced by the delay), this might not be true under political risk policies governed by another jurisdiction’s laws.

Many political risk policies contain a “due diligence” clause stating that the insured is to do everything “reasonably practicable” to protect or remove the insured property and to avoid or diminish any potential loss. Other policies may require the insured to take steps to mitigate its loss. Because of the room for debate about whether an insured did everything “reasonably practicable” under the circumstances and whether the “mitigation” was appropriate, an insured may need to document what it did, and why.

VII. INSURANCE FOR COSTS INCURRED TO MINIMIZE EXPOSURE TO SARS-COV-2 AND TO MITIGATE LOSSES OR DAMAGES

A. First-Party Insurance

Property, political risk, and other first-party insurers typically are obligated to pay for the expenses their insureds incur in trying to reduce or mitigate loss that might be covered by a policy. Typically, reasonable costs of mitigation efforts are covered, even if it turns out that those expenses exceeded what the loss otherwise might have been.

Event cancellation and property policies also typically call for insureds to take reasonable steps to reduce or mitigate losses. In fact, in many of these policies, an insured not only has the right to take such steps, but may have an affirmative obligation to do so. And, these policies usually also provide reimbursement for preventative measures taken to avoid loss. Historically, these provisions were known as “sue and labor” provisions (the word “sue” has the now-obsolete meaning of “to go in pursuit of”). Today, such provisions are often referred to as “expenses to prevent loss” provisions.

This coverage commonly applies when, for example, an insured boards up its windows to prevent damage. The insured is entitled to reimbursement for these costs regardless of whether the covered property actually suffers damage from a covered peril. Cf. Royal Indem. Co. v. Grunberg, 553 N.Y.S.2d 527, 529 (App. Div. 1990) (an insured entitled to coverage under its homeowners policy for expenses incurred to prevent imminent collapse of home because “the policy places an affirmative duty on the insured to maintain and repair all covered property in the event of any loss”). See also Zurich Ins. Co. v. Pateman, 692 F. Supp. 371, 376 (D. N.J. 1987) (“Under this provision the underwriter is liable for all costs expended by the insured in preventing or ameliorating a loss which the underwriter would be required to pay.”).

The “prevention of loss” clause may be regarded as a distinct type of coverage supplementing a property insurance policy. The clause is designed to protect the insurer’s interest by reducing and mitigating the risk of damage from a covered loss. Accordingly, deductibles applicable to other types of coverage provided by the policy should not apply to the “sue and labor” coverage, and the insured should receive full reimbursement from the insurer for these expenses. See, e.g., Am. Home Assurance Co. v. J. F. Shea Co., 445 F. Supp. 365, 369-70 (D.D.C. 1978) (deductible does not apply to sue and labor coverage because it would be “inconsistent to place an affirmative obligation of this nature on the insureds for the benefit of the insurer and then additionally . . . require the insureds to pay for the first [portion] of the cost in providing this benefit.”). See also Western & Clay v. Landmark Am. Ins. Co., 2011 WL 321740, *4 (W.D. Wash. Jan. 28, 2011) (adopting Shea). For the same reason, amounts paid under “sue and labor” clauses will generally not count against an insured’s policy limits, barring policy language to the contrary. See generally M. J. Rudolph Corp. v. Lumber Mut. Fire Ins. Co., 371 F. Supp. 1325, 1327 (E.D.N.Y 1974).

Even absent a “sue and labor” or “prevention of loss” clause in its property policy, an insured may be able to rely on the common law of mitigation of damages or loss to recover costs incurred to avoid insured losses.

Courts long have recognized that if an insured takes steps to prevent or minimize damage to covered property, its insurer should pay. See, e.g., Slay Warehousing Co. v. Reliance Ins. Co., 471 F.2d 1364, 1367-68 (8th Cir. 1973) (“[T]he obligation to pay the expenses of protecting the exposed property may arise from either the insurance agreement itself or an implied duty under the policy contract based upon general principles of law and equity” (citations omitted)); Winkler v. Great Am. Ins. Co., 447 F. Supp. 135, 142 (E.D.N.Y. 1978) (if insured had raised his house to avoid flood damage, insurer would have to pay expenses because “the duty to protect the property from further damage implies a responsibility on the insurer’s part to pay for the costs of reasonable protective measures”); see also McNeilab, Inc. v. N. River Ins. Co., 645 F. Supp. 525, 551 (D.N.J. 1986) (“[I]n cases where an insured takes steps to minimize the harm already incurred, the insured is lessening an already vested damage recovery right and is, therefore, entitled to reimbursement for its reasonable expenses from its insurer.”).

B. Third-Party Insurance

Many insureds have taken or are taking steps to prevent or reduce the chances that third parties or its own employees are exposed to SARS-CoV-2. These steps include closing venues and stores, evacuating media outlet facilities, relocating some operations, cancelling events, and telling employees to work from home or restrict travel. The expenses incurred may be covered under general liability, workers’ compensation and employers liability, and other types of third-party insurance.

Third-party insurance policies generally do not contain policy terms requiring mitigation of damages. Insureds nonetheless have common law duties to mitigate damages under such policies. Further, courts have held that insurers are required to reimburse insureds for expenses incurred by mitigating threatened covered damage before any damage has occurred.

For example, in Globe Indemnity v. California, 43 Cal. App. 3d 745 (1974), the court held that fire suppression costs incurred to prevent a fire from spreading from an insured’s own property to a third person’s property were covered as “sums which the insured became legally obligated to pay as damages because of . . . property damage[.]” Id. at 748. The court further held that it could not

conceive as a reasonable rule of law that which would encourage an insured property owner not to report that neighboring property was being destroyed by reason of his negligence in permitting a fire to escape from his property because his insurance would cover him for the property damage but not for the fire suppression costs.

Id. at 751.

Other courts have made the same point. For example, one court commented 60 years ago:

It is folly to argue that if a policy owner does nothing and thereby permits the piling up of mountainous claims at the eventual expense of the insurance carrier, he will be held harmless of all liability, but if he makes a reasonable expenditure and prevents a catastrophe, he must do so at his own cost and expense

Leebov v. United States Fid. & Guar. Co., 401 Pa. 477, 481 (1960). See also AIU v. Superior Court, 51 Cal. 3d 807, 833 (1990) (environmental response costs “incurred largely to prevent damage previously confined to the insured’s property from spreading to government or third party property . . . are ‘mitigative’ in nature . . . [and] constitute[] ‘damages’”); Watts Indus., Inc. v. Zurich Am. Ins. Co., 121 Cal. App. 4th 1029, 1043 (2004) (removal of parts to stop leaching of lead into water supply “fits within a reasonable definition of both remediation and mitigation, even though it does not involve impounding and purifying water already contaminated”); Hakim v. Mass. Insurers’ Insolvency Fund, 424 Mass. 275, 280 (1997) (“where, as here, there was contamination of adjacent property, the costs of remedial efforts to prevent further contamination of that property are not excluded from coverage by the owned property exclusion”).

VIII. CONCLUSION—AND SOME CAUTIONARY NOTES

Even though there are standard forms of insurance policies, an insured should never assume that its policy does not have important variations. So-called “standard” forms often vary from insurer to insurer, and most policies have endorsements changing their terms. In any event, assessing possible insurance coverage requires a close and careful review of insurance policies and the nuances of their policy language. There’s also a wealth of insurance industry drafting history, secondary authority, and court decisions that may govern how policy language is to be interpreted (with ambiguities generally resolved in favor of coverage). Even if a policy appears clear on its face as not providing coverage, that clarity may be an illusion.

As noted above, insurance policies contain exclusions and limitations on coverage. Some are clearly labeled as such, while others are buried elsewhere, including in insuring agreements and provisions that otherwise grant coverage. All such exclusions and limitations need to be carefully reviewed to assess their impact on coverage, particularly those that may apply to bacteria, viruses, and other agents.

Additionally, policies may carry time restraints and other traps that could jeopardize the availability of coverage. First-party insurance, such event cancellation and property policies, typically require notices “as soon as practicable,” call for the insured to file a proof of loss within a specified period (often a matter of 30 or 60 days after inception of the loss), and may require that an legal action to enforce rights to coverage be filed within a year after the inception of the loss.

Third-party policies have their own time restraints and traps, too. They typically require that the insured notify the insurer of a clam or suit “as soon as practicable,” or, with claims- made-and-reported policies, that a claim, even if timely noticed, be reported to the insurer before the end of the policy period. Such reporting requirements may be strictly enforced.

Insurance policies also have other conditions that might operate to limit coverage, such as conditions stating that the insured must cooperate with its insurer and not admit liability, incur expenses, or settle without the insurer’s consent or approval.

There are all sorts of intricacies involved in sorting through exclusions and conditions—not simply based on policy language, but also on how courts have approached these conditions and, given differences in court decisions, what jurisdiction’s law governs. Therefore, all potentially applicable insurance should be considered and carefully analyzed. By doing so, insureds may discover that they have substantial financial protection for their losses.


Citations

  1. https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200310-sitrep-50-covid- 19.pdf?sfvrsn=55e904fb_2.
  2. Id.
  3. https://www.who.int/emergencies/diseases/novel-coronavirus-2019/technical-guidance/naming-the- coronavirus-disease-(covid-2019)-and-the-virus-that-causes-it.
  4. Id.
  5. See Lloyd’s Policy Wording, GC(NAC) (U.S.A. & Canada) NMA 2746 (amended Jan. 24, 2017).
  6. https://www.bbc.com/news/world-asia-china-51368873
  7. https://www.cdc.gov/coronavirus/2019-ncov/faq.html
  8. See Beazley Policy Wording, available at https://www.yumpu.com/en/document/read/50184246/beazley-event-cancellation-wordingpdf
  9. Michael Levenson, “Scale of China’s Wuhan Shutdown Is Believed to Be Without Precedent,” New York Times (Jan. 22, 2020), https://www.nytimes.com/2020/01/22/world/asia/coronavirus-quarantines-history.html.
  10. Business Income (and Extra Expense) Coverage Form, CP 00 30 04 02, at A.5.a.
  11. Id.
  12. Id.
  13. Albert Risk Management Consultants, “The Next Level of Business Income Coverage,” IRMI Expert Commentary (November 2011), https://www.irmi.com/articles/expert-commentary/the-next-level-of-business-income-coverage.
  14. “ISO Creates Coverage Options to Help Businesses Survive Ebola,” ISO (Dec. 3, 2014), https://www.verisk.com/archived/2014/december/iso-creates-coverage-options-to-help-businesses-survive-ebola/.
  15. Centers for Disease Control and Prevention, “2019 Novel Coronavirus,” https://www.cdc.gov/coronavirus/Covid-19/about/transmission.html.

Authors/For Additional Information

Los Angeles
Anamay Carmel: 424-313-7848. ACarmel@PasichLLP.com
Kirk Pasich: 424-313-7850. KPasich@PasichLLP.com
Pamela Woods: 424-313-7840. PWoods@PasichLLP.com

Manhattan Beach
Michael Gehrt: 424-313-7855. MGehrt@PasichLLP.com

New York
Peter Halprin: 646-974-6470. PHalprin@PasichLLP.com
Jeffrey Schulman: 646-849-9008. JSchulman@PasichLLP.com
Mikaela Whitman: 646-849-9009. MWhitman@PasichLLP.com


Pasich LLP
https://pasichllp.com

Los Angeles:
10880 Wilshire Blvd., Ste. 2000
Los Angeles, CA 90024

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March Update on How Employers Can Respond to COVID-19 with FAQs

Since publishing our previous post last month, there have been a number of significant developments related to the 2019 Novel Coronavirus – now officially called “COVID-19.”  Notably, during the week of February 23, 2020, the U.S. Centers for Disease Control and Prevention (“CDC”) reported community spread of the virus that causes COVID-19 in California, Oregon, and Washington.  Community spread in Washington resulted in the first death in the U.S. from COVID-19, as well as the first reported case of COVID-19 in a health care worker, and the first potential outbreak in a long-term care facility.

Recent Developments and Federal Guidance

  • CDC has published an Interim Guidance for Businesses and Employers, cautioning employers to use the guidance to determine the risk of the Coronavirus, and not to use race or country of origin to make a determination. The guidance covers recommended strategies for employers to use, including: (1) actively encouraging sick employees to stay home; (2) separating sick employees; (3) emphasizing staying home when sick, respiratory etiquette and hand hygiene by all employees; (4) performing routine environmental cleaning; and (5) advising employees before traveling to consult CDC’s Traveler’s Health Notices and other CDC guidance.  Additionally, the guidance states that if an employee is confirmed to have COVID-19, employers should inform fellow employees of their possible exposure to COVID-19 in the workplace, but maintain confidentiality as required by the Americans with Disabilities Act (“ADA”).
  • OSHA has developed a comprehensive Safety and Health Topics webpage dedicated to COVID-19, including materials on hazard recognition, medical information, standards and regulations, control and prevention, and additional resources. There, OSHA informs that workers with increased exposure risk include those involved in healthcare, deathcare, airline operations, waste management, and travel to areas, including parts of China, where the virus is spreading, and that OSHA standards, including those for personal protective equipment (PPE, 29 CFR 1910.132) and respiratory protection (29 CFR 1910.134), require employers to assess the hazards to which their workers may be exposed and how such assessments should be made.  In addition to PPE and respirator protection requirements, OSHA lists the General Duty Clause as another relevant standard that may apply, and directs employers that, although common cold and flu are exempted under OSHA’s recordkeeping requirements (29 CFR Part 104), COVID-19 is a recordable illness when a worker is infected on the job.  According to OSHA’s Deputy Director of the Directorate of Enforcement Programs at the ABA OSH Law Conference being held this week, OSHA is currently working on additional safety guidance.
  • CDC has updated/issued the following travel guidance related to COVID-19:
    • China — Level 3, Avoid Nonessential Travel (updated February 22);
    • Hong Kong — Level 1, Practice Usual Precautions (issued February 19);
    • Iran — Level 3, Avoid Nonessential Travel (updated February 28);
    • Italy — Level 3, Avoid Nonessential Travel (updated February 28);
    • Japan — Level 2, Practice Enhanced Precautions (updated February 22);
    • South Korea — Level 3, Avoid Nonessential Travel (updated February 24).
  • On March 3, 2020, the CDC reported 60 total U.S. cases of COVID-19 in 12 states, six of which were deadly. Just the following day, on March 4, 2020, the CDC reported 80 total cases in 13 states, nine of which were deadly.  The numbers alone demonstrate the rapidly developing nature of this virus.  As of March 4, 2020, California and Washington have the largest number of reported cases (between 20 to 30).
  • State and local governments have also been responding to the crisis. On February 25, 2020, San Francisco Mayor London Breed declared a local emergency to prepare for Coronavirus (although there are still zero confirmed cases of COVID-19 in San Francisco residents).

Frequently Asked Questions for Employers

Many employers are being asked questions from customers, vendors, and employees about how they are preparing and responding to COVID-19.  Below are some of the FAQs that are most common with the guidance from the CDC.

Can I encourage my employees to stay home if they are sick?

  • Yes, in accordance with the CDC’s guidelines, employees who have symptoms of acute respiratory illness are recommended to stay home and not come to work until they are free of fever (100.4° F or greater using an oral thermometer), signs of a fever, and any other symptoms for at least 24 hours, without the use of fever-reducing or other symptom-altering medicines (e.g. cough suppressants). Employees should notify their supervisor and stay home if they are sick.

Can I mandate my employees to report their illnesses to supervisors?

  • Yes, if an employee is unable to report to work due to illness, you can require that the employee notify his or her immediate manager before the scheduled start of the shift. However, employers should not require its employees to disclose the nature of the illness at the time of the absence for privacy issues.  The ADA does not permit such an inquiry in the absence of objective evidence that symptoms will cause a direct threat. Such evidence is completely absent before a pandemic occurs and/or is declared by the CDC, which it has not as of this date.
  • However, if a pandemic has been declared by the CDC and an employer has a reasonable belief that an employee has been exposed to, or has contracted, COVID-19, or is experiencing flu-like symptoms, such as a fever or chills and a cough or sore throat, the employer can send that employee home to protect the rest of the workforce, ask the employee to disclose certain health information and may require the employee to undergo medical testing before returning to work.

Can I require my employees to seek medical attention when they are ill?

  • Depending on the nature of the illness, employers should encourage their employees to seek medical care if their symptoms necessitate it, otherwise, to address their symptoms at home. And, if an employer reasonably believes, on an individualized assessment, that an employee might have been exposed to COVID-19, the employer can ask the employee to disclose certain health information and may require the employee to undergo medical testing before returning to work.

Can I require my employees to provide medical documentation of being cleared to return to work if they have been sick with a fever?

  • Yes, an employer may require that an employee provide a medical note supporting clearance to return to work after three (3) days of being absent for work due to illness. However, as a practical matter, the CDC’s guidelines are that companies should not require a healthcare provider’s note for employees who are sick with acute respiratory illness to validate their illness or to return to work, as healthcare provider offices and medical facilities may be extremely busy and not able to provide such documentation in a timely way.

If I have an employee who has been traveling for work or personal, can I require him or her to disclose if they traveled in areas where they may come in contact with COVID-19?

  • If the CDC or state or local public health officials recommend that people who visit specified locations remain at home for several days until it is clear they do not have pandemic influenza symptoms, employers may ask whether employees are returning from these locations, even if the travel was personal.

Do I have to provide a respirator or face mask if an employee requests one?

  • No, not if the employer has determined that respiratory protection is not required to address a health hazard (i.e., there is no foreseeable exposure to a toxic chemical or an airborne illness in the workplace). In such circumstances, the employer is permitted to refuse requests from employees to voluntarily use respirators.  However, if employers are inclined to permit voluntary use of N-95 filtering face-piece masks, or more substantial masks, it is important to understand that OSHA considers those to be respirators, covered by OSHA’s respiratory protection standard.  Surgical masks are not covered by the standard.  Employers must confirm that use of the masks does not create a health hazard before permitting voluntary use of the masks, and then must provide a copy of or the contents of Appendix D of OSHA’s respirator standard to any employee permitted to use the masks.  If more substantial respirators (e.g., tight-fitting full face respirators) are permitted for voluntary use, the employer must also fit test the employee and ensure a medical evaluation is completed to confirm the employee can safely use the respirator.  Notably, OSHA has stated that surgical masks are not considered respirators; thus, to the extent employers are permitting the use of surgical masks or employees are asking to wear surgical masks, Appendix D and other requirements would not apply.

As this situation continues to evolve in the United States, our firm has developed a task force of labor, employment and OSHA attorneys to timely advise companies on the federal and state and local guidance and requirements.

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Comprehensive And Updated FAQs For Employers On The COVID-19 Coronavirus

LAST UPDATED: March 9, 2020

Fisher Phillips has assembled a cross-disciplinary taskforce of attorneys across the country to address the many employment-related issues facing employers in the wake of the COVID-19 coronavirus. The COVID-19 Taskforce has created a Frequently Asked Questions (FAQ) document, which has been continually updated since first published on March 3 and will continue to be updated as events warrant. It now includes sections on Remote Work Policies and Workers’ Compensation, added on March 9. You can contact any member of the Taskforce with specific questions, and a full listing of the Taskforce members and their practice areas is at the end of this publication.

BACKGROUND

A new virus first identified in Wuhan, China in late 2019 has been spreading across the globe and is now in the United States. The new coronavirus, COVID-19, is not a flu but a pneumonia-like infection. Coronaviruses, so called because of their crownlike shape, range from the common cold to SARS-CoV and 2012’s MERS (Middle East Respiratory Syndrome). They differ from Avian (H1N1) influenza and swine flu.

What are the symptoms of the current COVID-19 coronavirus?

The virus symptoms manifest as a mild to severe respiratory illness with fever, cough, and difficulty breathing. The Centers for Disease Control (CDC) believes at this time that symptoms may appear in as few as two days or as long as 14 days after exposure. Unfortunately, at this point there is no easy way to test for the COVID-19 coronavirus. A CDC-developed laboratory test kit to detect the COVID-19 coronavirus began shipping in February to select qualified U.S. and international laboratories.   

How is the current COVID-19 coronavirus transmitted?

People can catch COVID-19 from others who have the virus. The disease can spread from person to person through small droplets from the nose or mouth which are spread when a person with COVID-19 coughs or exhales. These droplets also land on objects and surfaces around the person. Other people then catch COVID-19 by touching these objects or surfaces, then touching their eyes, nose, or mouth. Therefore, it is important to stay more than 1 meter (3 feet) away from a person who is sick. The CDC recommends as much as 6 feet. It is possible to catch the virus from someone even before they have symptoms, but little is known about this aspect of the virus at this time.

Can the virus spread from contact with infected surfaces or objects?

It may be possible that a person can get COVID-19 by touching a surface or object that has the virus on it and then touching their own mouth, nose, or possibly their eyes, but this is not thought to be the main way the virus spreads.

WORKPLACE SAFETY ISSUES

What if an employee appears sick?

If any employee presents themselves at work with a fever or difficulty in breathing, this indicates that they should seek medical evaluation. While these symptoms are not always associated with influenza and the likelihood of an employee having the COVID-19 coronavirus is extremely low, it pays to err on the side of caution.           Retrain your supervisors on the importance of not overreacting to situations in the workplace potentially related to COVID-19 in order to prevent panic among the workforce.

Can we ask an employee to stay home or leave work if they exhibit symptoms of the COVID-19 coronavirus or the flu?

Yes, you are permitted to ask them to seek medical attention and get tested for COVID-19, and under most circumstances you can ask them to leave work.

UPDATED QUESTION & ANSWER (March 6, 2020)
Can I take an employee’s temperature at work to determine whether they might be infected?

The Americans with Disabilities Act (ADA) places restrictions on the inquiries that an employer can make into an employee’s medical status, and the Equal Employment Opportunity Commission (EEOC) considers taking an employee’s temperature to be a “medical examination” under the ADA. The ADA prohibits employers from requiring medical examinations and making disability-related inquiries unless (1) the employer can show that the inquiry or exam is job-related and consistent with business necessity, or (2) the employer has a reasonable belief that the employee poses a “direct threat” to the health or safety of the individual or others that cannot otherwise be eliminated or reduced by reasonable accommodation.

Taking an employee’s temperature may be unlawful if is not job-related and consistent with business necessity. The inquiry and evaluation into whether taking a temperature is job-related and consistent with business necessity is fact-specific and will vary among employers and situations. You should exercise caution before relying on media reports to in attempt to justify the taking of temperatures of your employees without objective evidence that there is an actual threat to your business. Moreover, as a practical matter, an employee may be infected with the COVID-19 coronavirus without exhibiting recognized symptoms such as a fever, so temperature checks may not be the most effective method for protecting your workforce.

UPDATED QUESTION & ANSWER (March 6, 2020)
An employee of ours has tested positive for COVID-19. What should we do?

You should send home all employees who worked closely with that employee for a 14-day period of time to ensure the infection does not spread. Before the employee departs, ask them to identify all individuals who worked in close proximity (three to six feet) with them in the previous 14 days to ensure you have a full list of those who should be sent home. When sending the employees home, do not identify by name the infected employee or you could risk a violation of confidentiality laws. You may also want to consider asking a cleaning company to undertake a deep cleaning of your affected workspaces. If you work in a shared office building or area, you should inform building management so they can take whatever precautions they deem necessary.

UPDATED QUESTION & ANSWER (March 5, 2020)
One of our employees has a suspected but unconfirmed case of COVID-19. What should we do?

Take the same precautions as noted above. Treat the situation as if the suspected case is a confirmed case for purposes of sending home potentially infected employees. Communicate with your affected workers to let them know that the employee has not tested positive for the virus but has been exhibiting symptoms that lead you to believe a positive diagnosis is possible.

UPDATED QUESTION & ANSWER (March 6, 2020)
How can we distinguish between a “suspected but unconfirmed” case of COVID-19 and a typical illness?

There is no easy way for you to make this determination, but you should let logic guide your thinking. The kinds of indicators that will lead you to conclude an illness could be a suspected but unconfirmed case of COVID-19 include whether that employee traveled to a restricted area that is under a Level 2, 3, or 4 Travel Advisory according to the U.S. State Department, whether that employee was exposed to someone who traveled to one of those areas, or similar facts. You should err on the side of caution but not panic.

UPDATED QUESTION & ANSWER (March 5, 2020)
One of our employees self-reported that they came into contact with someone who had a presumptive positive case of COVID-19. What should we do?

Take the same precautions as noted above. Treat the situation as if the suspected case is a confirmed case for purposes of sending home potentially infected employees. Communicate with your affected workers to let them know that the employee is asymptomatic for the virus but you are acting out of an abundance of caution.

UPDATED QUESTION & ANSWER (March 6, 2020)
One of our employees has been exposed to the virus but only found out after they had interacted with clients and customers. What should we do?

Take the same precautions as noted above with respect to coworkers, treating the situation as if the exposed employee has a confirmed case of COVID-19 and sending home potentially infected employees that he came into contact with. As for third parties, you should communicate with customers and vendors that came into close contact with the employee to let them know about the potential of a suspected case.

UPDATED QUESTION & ANSWER (March 9, 2020)
If we learn or suspect that one of our employees has COVID-19, do we have a responsibility to report this information to the CDC?

There is no obligation to report a suspected or confirmed case of COVID-19 to the CDC. The healthcare provider that receives the confirmation of a positive test result is a mandatory reporter who will handle that responsibility.

What steps can we take now to minimize risk of transmission?

Repeatedly, creatively, and aggressively encourage employees and others to take the same steps they should be taking to avoid the seasonal flu, which is already one of the worst flus in the last 10 years. For the annual influenza, SARS, avian flu, swine flu, and the COVID-19 virus, the best way to prevent infection is to avoid exposure. Perhaps the most important message employers can give to employees is to stay home if sick. In addition, instruct your workers to take the same actions they would to avoid the flu. For example:

  • Wash your hands often with soap and water for at least 20 seconds. If soap and water are not available, use an alcohol-based hand sanitizer.
  • Avoid touching your eyes, nose, and mouth with unwashed hands.
  • Avoid close contact with people who are sick.
  • Stay home when you are sick.
  • Cover your cough or sneeze with a tissue, then throw the tissue in the trash.
  • Clean and disinfect frequently touched objects and surfaces.
  • Ensure that employees have ample facilities to wash their hands, including tepid water and soap, and that third-party cleaning/custodial schedules are accelerated.
  • Teleconference in lieu of meeting in person if available.
  • Educate your employees about COVID-19, its symptoms, and the potential health concerns associated with any travel at this time.
  • Have a single point of contact for employees for all concerns that arise relating to health and safety.
  • Wear personal protective equipment, such as gloves and goggles, if touching or working bloodborne pathogens.
  • Follow updates from the CDC and the World Health Organization (WHO) regarding additional precautions.

You may reference the Occupational Safety and Health Administration’s (OSHA’s) Guidance on Preparing Workplaces for an Influenza Pandemic for additional information on preparing for an outbreak. 

Can an employee refuse to come to work because of fear of infection?

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 (OSH 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 China or to work with patients in a medical setting without personal protective equipment at this time may rise to this threshold.  Most work conditions in the United States, however, do not meet the elements required for an employee to refuse to work. Once again, this guidance is general, and employers must determine when this unusual state exists in your workplace before determining whether it is permissible for employees to refuse to work.

In addition, Section 7 of the National Labor Relations Act (NLRA) extends broad-based statutory protection to those employees (in union and non-union settings alike) to engage in “protected concerted activity for mutual aid or protection.” Such activity has been defined to include circumstances in which two or more employees act together to improve their employment terms and conditions, although it has been extended to individual action expressly undertaken on behalf of co-workers.  

On its own website, the National Labor Relations Board (NLRB) offers a number of examples, including, “talking with one or more employees about working conditions,” “participating in a concerted refusal to work in unsafe conditions,” and “joining with co-workers to talk to the media about problems in your workplace.” Employees are generally protected against discipline or discharge for engaging in such activity. 

Can employers in the United States refuse an employee’s request to wear a medical mask or respirator?

Yes, under most circumstances. Under the OSHA respiratory protection standard, 29 C.F.R. 1910.134, which covers the use of most safety masks in the workplace, a respirator must be provided to employees only “when such equipment is necessary to protect the health of such employees.” Likewise, OSHA rules provide guidance on when a respirator is not required: “an employer may provide respirators at the request of employees or permit employees to use their own respirators, if the employer determines that such respirator use will not in itself create a hazard” (29 C.F.R. 1910.134(c)(2)). In almost all work situations, however, there is no currently recognized health or safety hazard – even when employees work near other people and thus there is no need for a mask or respirator.

The WHO has stated that people only need to wear face masks if they are treating someone who is infected with the COVID-19 coronavirus. The WHO has also said that wearing masks may create a false sense of security among the general public. Doctors agree that the best defense against the COVID-19 coronavirus and influenza is simply washing your hands. Thus, the consensus is that there are more appropriate measures of defense than wearing a surgical mask or respirator.  

Can an employee refuse to work without a mask?

OSHA has addressed the common question of whether an employee can simply refuse to work in unsafe conditions. The safety agency provides the following guidance, which wouldn’t require the use of a mask or respirator in most situations. An employee’s right to refuse to do a task is protected if all of the following conditions are met:

  1. Where possible, you have asked the employer to eliminate the danger, and the employer failed to do so;
  2. You refused to work in “good faith.” This means that you must genuinely believe that an imminent danger exists;
  3. A reasonable person would agree that there is a real danger of death or serious injury; and
  4. There isn’t enough time, due to the urgency of the hazard, to get it corrected through regular enforcement channels, such as requesting an OSHA inspection.

Given the consensus that face masks are only necessary when treating someone who is infected with the COVID-19 coronavirus or influenza, masks are likely not necessary to protect the health of most employees. Therefore, most employers do not have to provide, or allow employees to wear, a surgical mask or respirator to protect against the spread of the COVID-19 coronavirus or influenza. The use of the word “may” in OSHA’s respiratory protection standard makes it clear that when a respirator is not necessary to protect the health of an employee, it is within the discretion of the employer to allow employees to use a respirator. Accordingly, you are well within the applicable OSHA standard to deny an employee’s request to wear a surgical mask or a respirator in almost all situations.

Absent a legally recognized disability, unique physical condition, or an occupation where employees work directly with those impacted by a condition such as the COVID-19 coronavirus or flu, you are generally not required to allow workers to wear masks at work.

What steps should we take if we use chemicals to combat the COVID-19 coronavirus?

Be mindful of the specific requirements of OSHA’s Hazard Communication standard if new chemicals, or temporary employees, are introduced into work areas to combat the COVID-19 coronavirus. You are required to provide employees with effective information and training on hazardous chemicals in their work area at the time of their initial assignment, and whenever a new chemical hazard the employees have not previously been trained about is introduced into their work area. A comprehensive hazard communication program should include contain labeling and other forms of warning, safety data sheets, and employee training. Now is also a good time to retrain employees under OSHA’s bloodborne pathogens standard, including revisiting and communicating the elements of your exposure control plan.

What should healthcare employers do to protect workers from exposure to the COVID-19 coronavirus?

Healthcare personnel caring for patients with confirmed or possible COVID-19 should adhere to CDC recommendations for infection control and prevention (ICP):

  • Assess and triage these patients with acute respiratory symptoms and risk factors for COVID-19 to minimize chances of exposure, including placing a facemask on the patient and isolating them in an Airborne Infection Isolation Room (AIIR), if available;
  • Use Standard Precautions, Contact Precautions, and Airborne Precautions and eye protection when caring for patients with confirmed or possible COVID-19;
  • Perform hand hygiene with alcohol-based hand rub before and after all patient contact, contact with potentially infectious material, and before putting on and upon removal of PPE, including gloves. Use soap and water if hands are visibly soiled;
  • Practice how to properly don, use, and doff personal protective equipment (PPE) in a manner to prevent self-contamination; and
  • Perform aerosol-generating procedures in an AIIR, including collection of diagnostic respiratory specimens, while following appropriate IPC practices, including use of appropriate PPE.

In addition, healthcare employers must comply with any state-specific requirements to protect healthcare workers from exposure. For instance, healthcare facilities in California are required to follow recommendations under CAL/OSHA’s Aerosol Transmissible Diseases (ATD) Standard, Title 8 of the California Code of Regulations Section 5199. Because COVID-19 meets the criteria for a novel aerosol transmissible pathogen under the ATD Standard, California healthcare employers must provide a powered air purifying respirator with a HEPA filter(s), or a respirator providing equivalent or greater protection, to employees who perform high hazard procedures on COVID-19 persons under investigation or confirmed cases.

ISSUES FOR WORKFORCES THAT TRAVEL

What current travel restrictions are in place?

In light of the COVID-19 coronavirus outbreak in China, President Trump issued a Presidential Proclamation limiting the entry of foreign nationals who were physically present in China during the 14-day period before their attempted entry into the United States. And while the U.S. had already instituted a travel ban related to Iran for political reasons, the administration announced that the ban is being expanded to include any foreign national who has visited Iran within the last 14 days due to the outbreak that has taken place in that country. 

Does the Chinese travel restriction apply to those visiting Taiwan, Hong Kong, and Macau?

No. It only applies to those who were present in the People’s Republic of China, and specifically exempts Hong Kong and Macau. In addition, the U.S. immigration law and various other regulations treat Taiwan (a.k.a. Republic of China) separately from the People’s Republic of China. Therefore, Hong Kong, Macau, and Taiwan are all exempt from these travel restrictions.

Who is exempt from the travel restrictions?

The order provides a long list of exempt immigration statuses. For example, people traveling on crew member visas, or diplomatic or International Organization visas are exempt. It also exempts Lawful Permanent Residents (green card holders), spouses and children (unmarried under 21) of U.S. citizens and green card holders, and parents and siblings of unmarried under 21-year-old U.S. citizens and green card holders.

The proclamation also includes a provision that permits entry of any foreign national whose entry would not pose a significant risk of spreading the virus, as determined by the CDC. This provision would appear to allow anyone to otherwise seek entry. However, in reality, U.S. Customs and Border Protection may simply utilize the travel restriction rules to deny entry instead of deferring to the CDC’s conclusion.

Are there conditions for the return of those who are exempt from the travel restrictions?

Yes, any U.S. citizen returning to the United States who has been in Hubei province, China in the previous 14 days may be subject to up to 14 days of quarantine. Any U.S. citizen returning to the United States who has been in the rest of mainland China within the previous 14 days may undergo a health screening and possible self-quarantine. 

Can employees returning from China fly into any airport?

No. The Department of Homeland Security (DHS) has directed “all operators of aircraft to ensure that all flights carrying persons who have recently traveled from, or were otherwise present within, the People’s Republic of China” only land at one of the following airports:

  1. John F. Kennedy International Airport (JFK), New York
  2. Chicago O’Hare International Airport (ORD), Illinois
  3. San Francisco International Airport (SFO), California
  4. Seattle-Tacoma International Airport (SEA), Washington
  5. Daniel K. Inouye International Airport (HNL), Hawaii
  6. Los Angeles International Airport (LAX), California
  7. Hartsfield-Jackson Atlanta International Airport (ATL), Georgia
  8. Washington Dulles International Airport (IAD), Virginia
  9. Newark Liberty International Airport (EWR), New Jersey
  10. Dallas/Fort Worth International Airport (DFW), Texas
  11. Detroit Metropolitan Wayne County Airport (DTW), Michigan

According to DHS, these are airports “where enhanced public health services and protocols are being implemented.” 

UPDATED ANSWER (March 5, 2020)
Can we prohibit an employee from traveling to a non-restricted area on their personal time?

You generally cannot prohibit otherwise legal activity, such as travel abroad by an employee. While a federal court of appeals recently held that it is not necessarily a violation of the ADA to terminate an employee who refuses to cancel personal travel to an area of the world with a high risk of exposure to a deadly disease, you still could risk legal exposure, reduced employee morale, and negative publicity if you do so. This includes pregnant employees or those with medical conditions. However, you should educate your employees before they engage in travel to risky environments to try and work out a solution, and you can – and should – monitor those employees returning from such travel for signs of illness.

What should I do if an employee has recently traveled to an affected area or otherwise may have been exposed to the COVID-19 coronavirus?

As noted above, the ADA prohibits employers from making disability-related inquiries and requiring medical examinations unless (1) the employer can show that the inquiry or exam is job-related and consistent with business necessity, or (2) the employer has a reasonable belief that the employee poses a “direct threat” to the health or safety of the individual or others that cannot otherwise be eliminated or reduced by reasonable accommodation.

According to the EEOC, whether a particular outbreak rises to the level of a “direct threat” depends on the severity of the illness. The EEOC instructs employers that the assessment by the CDC or public health authorities provides the objective evidence needed for a disability-related inquiry or medical examination.  

UPDATED QUESTION & ANSWER (March 4, 2020)
We have an employee who has recently traveled overseas to a country that is not on any restricted list, but we’re worried about the risk of transmission. Should we institute a “soft” quarantine?

There is likely no greater risk of this employee being infected with the COVID-19 coronavirus than any of your other employees. Follow the same preventive steps and guidance contained within this FAQ to put your organization in the best position.

Can employees refuse to travel as part of their job duties?

Employees who object on behalf of others or act in groups could be covered by the NLRA’s protection of concerted protected activity. You will want to proceed with caution and consult with your attorney before taking any steps in this regard. Moreover, under the federal OSH Act, employees can only refuse to work when a realistic threat is present.

Therefore, if employees refuse your instruction to travel for business to any other country for fear of catching the COVID-19 coronavirus, try to work out an amicable resolution. For example, the employer and the employee can check and discuss the CDC (avoid Nonessential travel), State Department (Do Not Travel to China), and DHS Travel Advisories, which provide guidance on China Travel.

The CDC is also advising that some individuals may be more at risk of infection than others in the general population. Thus, follow the CDC direction on pregnant employees or on related reproductive issues, and do not make decisions without medical support. Moreover, actions by other countries, especially in Asia, may cause employee concerns, and absolute warnings and restrictions like those on China may not exist. 

REMOTE WORK

UPDATED QUESTION & ANSWER (March 9, 2020)
Should we institute a temporary remote work policy in light of the COVID-19 coronavirus outbreak?

Whether your company implements a remote work policy is entirely dependent on your organization’s circumstances and the area of the country where your workers reside. You may not want to introduce a new system in place if you have had not yet had time to test and develop your remote work capabilities. On the other hand, if you have established protocols in place, this could be a good opportunity to leverage them. Regardless of what you choose to do, you should make your decision based on objective evidence and not emotion or fear. Make sure your decision is educated and intentional, not reactionary and spur-of-the-moment.

UPDATED QUESTION & ANSWER (March 9, 2020)
What infrastructure should we have in place for a remote work plan?

You will want to identify the roles that are critical to your business operations and determine whether those individuals can carry out their jobs while working remotely. If you can proceed, the next critical component is assessing your technological capabilities. Do you have the support in place to assist with the inevitable questions and IT problems that will arise? Do you have sufficient security and privacy protocols in place? Considering these questions will help you determine whether you can move forward with a remote work plan.

UPDATED QUESTION & ANSWER (March 9, 2020)
What can we do to prepare for a possible remote work scenario?

There are a number of things you should do today to prepare for the possibility that your workers will need to operate remotely for a period of time.

  • Take an inventory of the types of equipment your workers would need to get their job done and ensure they have access to them. This could include laptops, desktop computers, monitors, phones, printers, chargers, office supplies, and similar materials.
  • Encourage your employees to prepare for the possibility of an immediate instruction to work at home. They may want to develop a “ready bag” that they take home with them at the end of each day that would allow them to begin working remotely at a moment’s notice. This would obviously include laptops, smartphones, and other related technology, but could also include physical items (such as binders, documents, materials).
  • Make sure you consider and clearly communicate with your workers about which physical items are acceptable to be taken from the workplace and which need to stay in your location at all times.
  • You might want to take the time now to digitize any relevant physical materials to make remote working easier.
  • You will also want to communicate with your workforce about whether they can or should take digital photos of physical calendars, whiteboards, Kanban boards with stickie notes, or similar items, or whether they are prohibited from doing so.
  • But perhaps the most important thing you should do is take the time to develop a remote work policy if you do not have one in place, or review and update your existing policy as it relates to this specific situation.

UPDATED QUESTION & ANSWER (March 9, 2020)
What should be included in a remote work policy?

Your policy should lay out the expectations you have for your workers as the embark on their temporary remote work routines. The number one item you should convey to them is that you expect them to help your organization maintain normal business operations during this period of time to the extent possible. Consider all aspects of their work and make sure they understand what is expected of them.

  • How strict will your policy be? Are your workers simply encouraged to work at home or absolutely barred from coming to the office?
  • Will there be exemptions for “essential” personnel that need to be at a certain physical location?
  • Will they need to be available at all times during working hours, or will remote meetings and appointments be scheduled ahead of time? (Take into account that your workers’ lives may be disrupted in other ways because of the COVID-19 outbreak, and therefore they may not be able to maintain normal working hours during this time or may be somewhat distracted by family or medical obligations during certain times of the day.)
  • Will remote meetings take place online, over the phone, or on camera?
  • Will you prohibit employees from meeting together in person during this period? Will you only restrict in-person meetings of a certain size (no more than three or five workers)?
  • Will you prohibit employees from meeting with third parties while doing company business during this period of time?
  • Will you prohibit workers from performing work outside of their homes (coffee shops, libraries, etc.) because of security concerns? If this kind of work is permitted, do you have sufficient security infrastructure in place (encryption, password-protection, log-out/lock requirements, etc.) and are your workers aware of your requirements to prevent data breaches or other loss?
  • Can workers perform work on their own devices, and if so, do you have a comprehensive BYOD (bring your own device) policy in place?

You should include an anticipated end date in your remote work announcement, and/or inform your employees that you will provide weekly updates regarding the status of the remote work period.

UPDATED QUESTION & ANSWER (March 9, 2020)
What are some concepts we should keep in mind to ensure our remote work time is productive and successful?

There are a number of steps you can take to ensure that the temporary remote work time goes well for your workers and for your organization. 

  • From a functionality standpoint, you may want to agree on a single communications platform that all workers will be required to participate in. It could be email, instant messaging, Slack, Skype, Zoom Conferencing, or some other designated tool.
  • Take an honest approach with yourself about whether any concerns you have regarding reduced productivity among your workers while they are working at home are realistic or overblown. Recognize that you aren’t babysitting your employees while they are performing work at the office, so you shouldn’t begin to micromanage them while they are at home. Keep an eye on the bigger picture and track overall productivity, not moment-by-moment activities.
  • In fact, experts say that overwork is more likely for remote workers than a lack of productivity, especially in the first week of a remote work assignment. Keep an eye out for employee burnout and overstressed workers and address your concerns as appropriate.
  • Another concern for workers not used to working remotely is that they may feel untethered and disconnected from the organization during this time period. Some tactics to prevent and overcome this problem include:
    • Developing and distributing an agenda for all team get-togethers and meetings, as well as meeting minutes and task lists after they are completed, so that those unable to attend can feel part of the action;
    • Schedule virtual team lunches and digital social time where workers can interact on a social level;
    • Connect workers new to remote work with your experienced remote workers to serve as informal mentors, available to answer questions or give advice about best ways to cope with the change and handle work; and
    • Consider other ways to ensure your workers feel connected with each other and with the organization, whether that includes daily meetings, frequent phone calls or texts, or other actions that can go a long way towards ensuring their peace of mind.

INTERNATIONAL WORKFORCES

What should we do about expats working abroad and our global workforce?

Generally, the reaction to the COVID-19 coronavirus varies from country to country (or even jurisdiction to jurisdiction within a particular country). Employers with expats or other employees abroad should ensure copies of all expat assignment agreements and contracts are nearby if needed for reference. Most often the resolution of issues related to obligations with respect to these employees begin with reviewing applicable contractual obligations and agreements. You should also review all travel, medical, and other insurance policies to determine coverage limitations and to help assess risk. 

Should we bring our expats home?

In some circumstances, it may be best practice to do so. You should undertake a careful evaluation of conditions in the location where they are living and working on a frequent basis. It would be a good practice to require your expat employees to regularly report back on conditions and their circumstances.

What if one of our expat employees becomes quarantined abroad?

If an expat or employee is quarantined abroad, you should seek legal and other advice regarding the particular facts and circumstances of the situation. You will need to develop a plan to meet your obligations to the employee and their family, as well as your company needs. Each situation will be different, so your advice will need to be tailored to the situation.

What about our expats located in an area that is heavily affected by the COVID-19 outbreak?

In areas currently heavily affected, you should undertake a thorough review of conditions as they pertain to all employees within the area on a daily basis. The applicable laws vary from jurisdiction to jurisdiction. Some countries impose significant obligations concerning a duty of care to employees on employers that are more comprehensive than U.S. rules. You should not assume the law in other jurisdictions applies as it does here. 

IMMIGRATION ISSUES

What will happen to my foreign national’s immigration status if they are stuck outside the U.S.?

Generally speaking, U.S. immigration law only applies to a foreign national when that person is physically in the country. In most situations, a person is not considered to have failed to maintain lawful immigration status if they are not physically in the U.S. The employee’s absence from the U.S., however, could trigger other collateral immigration issues. It is important to seek specific legal advice for each impacted case.

Does the Presidential Proclamation mean that the U.S. consulates will deny all visa applications filed in China in those non-exempt categories?

The State Department has not yet made specific announcements. However, some U.S. consulates in China have already postponed interview scheduling. A blanket visa denial rule is unlikely, however, because the terms of this order make it permissible to depart from China, remain in a third country for 14 days, and then lawfully seek entry into the U.S.

At the very least, visa applications filed in China will likely be delayed.  On February 1, 2020, the U.S. Embassy in China announced: “Mission China will be closed to the public from February 3-7 in accordance with Chinese government guidance. Emergency American citizen services will be available.” On February 10, 2020, the U.S. Embassy posted: “As of February 10, 2020, regular visa services at the U.S. Embassy in Beijing and the U.S. Consulates General in Chengdu, Guangzhou, Shanghai and Shenyang are suspended. Due to the ongoing situation relating to the novel coronavirus, the U.S. Embassy and Consulates have very limited staffing and may be unable to respond to requests regarding regular visa services.” 

Does the Presidential Proclamation affect those with visas?

The Proclamation specifically exempts any alien seeking entry into or transiting the United Sates pursuant to an A-1, A-2, C-2, C-3 (as a foreign government official or immediate family member of an official), G-1, G-2, G-3, G-4, NATO-1 through NATO-4, or NATO-6 visa. 

If my foreign national employee is subject to these travel restrictions, what are my options to get them back to the U.S. as soon as possible?

This will be a case-by-case analysis, but most likely the employee will have to consider going to a third country, remain in that third country for at least 14 days, and then proceed to the U.S. This may require extra planning, such as dealing with a visa to go to the third country. In addition, when several other countries have started to implement similar travel restrictions, the situation remains in flux. It is also unclear if the administration would expand this order to include more countries and regions depending on the ongoing situation of the outbreak.

What issues can we expect green card holders to encounter?

Travel restrictions may cause issues for green card holders who have already been outside of the United States for an extended period of time. Extended absences from the United States by green card holders may lead to extensive questioning upon re-entry or a determination that the green card holder has abandoned their permanent resident status. 

What happens to employees on temporary visas who cannot work?

Pending specific guidance from DHS, these workers would presumably be treated as if they were on an approved, unpaid leave, and therefore would not be out-of-status for failing to work.

Must I pay an H-1B alien the salary listed in the petition even if that person cannot now work?

Again, you could presumably put such a person on an unpaid leave of absence until they are able to work again.

HEALTHCARE/HIPAA ISSUES

Does the COVID-19 coronavirus emergency trump HIPAA privacy rules?

No, the government recently sent a stern reminder to all employers, especially those involved in providing healthcare, that they must still comply with the protections contained in the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule during the COVID-19 coronavirus outbreak. The Office for Civil Rights of the U.S. Department of Health and Human Services (HHS) issued a reminder after the WHO declared a global health emergency. In fact, the Rule includes provisions that are directly applicable to the current circumstances.

What are our obligations under the HIPAA privacy rules if we are contacted by officials asking for emergency personal health information about one of our employees?

The privacy restrictions mandated by HIPAA only apply to “covered entities” such as medical providers or employer-sponsored group health plans, and then only in connection with individually identifiable health information. Employers are not covered entities, so if you have medical information in your employment records, it is not subject to HIPAA restrictions.

Nevertheless, disclosures should be made only to authorized personnel, and care should be taken even in disclosures to government personnel or other groups such as the Red Cross. Further, you should be careful not to release information to someone until you have properly identified them.

How should we treat medical information?

We recommend you treat all medical information as confidential and afford it the same protections as those granted by HIPAA in connection with your group health plan. In certain circumstances, if you have plan information, you can share it with government officials acting in their official capacity, and with health care providers or officially chartered organizations such as the Red Cross. For example, you can share protected health information with providers to help in treatment, or with emergency relief workers to help coordinate services.

In addition, you can share the information with providers or government officials as necessary to locate, identify, or notify family members, guardians, or anyone else responsible for an individual’s care, of the individual’s location, general condition, or death. In such case, if at all possible, you should get the individual’s written or verbal permission to disclose.

However, if the person is unconscious or incapacitated, or cannot be located, information can be shared if doing so would be in the person’s best interests. In addition, information can be shared with organizations like the Red Cross, which is authorized by law to assist in disaster relief efforts, even without a person’s permission, if providing the information is necessary for the relief organization to respond to an emergency.

Finally, information can be disclosed to authorized personnel without permission of the person whose records are being disclosed if disclosure is necessary to prevent or lessen a serious and imminent threat to the health and safety of a person or the public.

May covered entities share protected health information with public health authorities?

When there is a legitimate need to share information with public health authorities and others responsible for ensuring public health and safety, covered entities may share PHI to enable them to carry out their public health responsibilities. This may arise with the current outbreak of COVID-19. The key, as always, is to limit disclosures to the minimum necessary to the purpose, strictly in accordance with these parameters.

For example, covered entities may share information as necessary with the Centers for CDC, as well as health departments authorized by law to receive such information, to prevent or control disease or injury. You may even disclose PHI to foreign government agencies that are working with authorized public health authorities. 

BENEFITS/GROUP HEALTH PLAN ADMINISTRATION

UPDATED ANSWER (March 4, 2020)
If our employees are no longer working, are they still entitled to group health plan coverage?

Not necessarily. You need to check your group health plan document (or certificate of coverage if your plan is fully insured) to determine how long employees who are not actively working may remain covered by your group health plan. Once this period expires, active employee coverage must be terminated (unless the insurance carrier or self-funded plan sponsor otherwise agrees to temporarily waive applicable eligibility provisions), and a COBRA notice must be sent. If your plan is self-funded and you would like to waive applicable plan eligibility provisions, you should first make sure that any stop-loss coverage insurance carriers agree to cover claims relating to participants who would otherwise be ineligible for coverage.

UPDATED ANSWER (March 4, 2020)
What happens to group health plan coverage if employees are not working and unable to pay their share of premiums?

In the normal course of events, group health plan coverage will cease when an employee’s share of premiums is not timely paid. However, several actions might be taken that could allow coverage to continue.

First, the insurance carrier providing the health coverage may voluntarily continue the coverage while the disaster is sorted out and until an employer reopens its doors. More likely, the employer may make an arrangement with the insurance carrier providing health coverage to pay the employees’ share of premiums to keep coverage in place (at least temporarily) and possibly until the employer can reopen its doors. Each situation will be different, depending upon the insurance carrier and the relationship between the employer and the insurance carrier. Therefore, each factual situation will need to be individually assessed.

WAGE AND HOUR ISSUES

Must we keep paying employees who are not working?

Under the Fair Labor Standards Act (FLSA), for the most part the answer is “no.” FLSA minimum-wage and overtime requirements attach to hours worked in a workweek, so employees who are not working are typically not entitled to the wages the FLSA requires. 

One possible difference relates to employees treated as exempt FLSA “white collar” employees whose exempt status requires that they be paid on a salary basis. Generally speaking, if such an employee performs at least some work in the employee’s designated seven-day workweek, the salary basis rules require that they be paid the entire salary for that particular workweek. There can be exceptions, such as might be the case when the employer is open for business but the employee decides to stay home for the day and performs no work. A U.S. Department of Labor (USDOL) opinion letter addressing these matters can be accessed here.

Also, non-exempt employees paid on a “fluctuating-workweek” basis under the FLSA normally must be paid their full fluctuating-workweek salaries for every workweek in which they perform any work. There are a few exceptions, but these are even more-limited than the ones for exempt “salary basis” employees. 

Of course, an employer might have a legal obligation to keep paying employees because of, for instance, an employment contract, a collective bargaining agreement, or some policy or practice that is enforceable as a contract or under a state wage law. 

Finally, we caution employers to consider the public relations aspect of not paying employees who may not be working if they have contracted or are avoiding the COVID-19 coronavirus. Given the publicity surrounding this outbreak, it is possible that situations involving these kinds of issues could reach the media and damage your reputation and employee morale. Consider the big picture perspective when making decisions regarding paying or not paying your employees.

Can we charge time missed to vacation and leave balances?

The FLSA generally does not regulate the accumulation and use of vacation and leave. The salary requirements for exempt “white collar” employees can implicate time-off allotments under various circumstances. The USDOL has provided some guidance on this topic in an opinion letter that is accessible here. Again, however, what an employer may, must, or cannot do where paid leave is concerned might be affected by an employment contract, a collective bargaining agreement, or some policy or practice that is enforceable as a contract or under a state wage law. 

EMPLOYEE LEAVE/ADA

Does family and medical leave apply to this situation?

Employees requesting leave could conceivably be protected by the Family and Medical Leave Act (FMLA) to the extent they otherwise meet FMLA-eligibility requirements. Even in the absence of state or federal protection, an employer’s internal policies may extend protection to such individuals. Of course, there is nothing to prevent you from voluntarily extending an employee’s leave, even in the absence of any legal obligation.

Generally, employees are not entitled to take FMLA to stay at home to avoid getting sick. As with many employment laws, the worst thing an employer (or as is often the case, an untrained supervisor) can do at times like this is to reject immediately an unorthodox leave request before the facts are in. When in doubt, the wisest approach is to work with counsel to ensure legal compliance, thereby minimizing exposure to costly litigation.

Does contraction of COVID-19 coronavirus implicate the ADA?

Generally, no, because in most cases the COVID-19 coronavirus is a transitory condition. However, some plaintiffs could make an argument that the ADA is implicated if the virus substantially limited a major life activity, such as breathing. Moreover, if an employer “regards” an employee with COVID-19 as being disabled, that could trigger ADA coverage.

Can I send employees home who exhibit potential symptoms of contagious illnesses at work?

Yes, sending an employee home who displays symptoms of contagious illnesses would not violate the ADA’s restrictions on disability-related actions.

May an employer encourage employees to telework as an infection-control strategy?

Yes. The EEOC has opined that telework is an effective infection-control strategy. The EEOC has also stated that employees with disabilities that put them at high risk for complications of pandemic influenza may request telework as a reasonable accommodation to reduce their chances of infection during a pandemic. 

DISCRIMINATION/HARASSMENT/EEO ISSUES

Do we have any EEO concerns related to the COVID-19 coronavirus?

Employers cannot select employees for disparate treatment based on national origin. The CDC recently warned: “Do not show prejudice to people of Asian descent, because of fear of this new virus. Do not assume that someone of Asian descent is more likely to have COVID-19.” 

Employers will need to closely monitor any concerns that employees of Asian descent are being subjected to disparate treatment or harassed in the workplace because of national origin. This may include employees avoiding other employees because of their national origin. 

An employer may not base a decision to bar an employee from the workplace on the employee’s national origin. However, if an employee, regardless of their race or national origin, was recently in China and has symptoms of the COVID-19 coronavirus, you may have a legitimate reason to bar that employee from the workplace. 

LABOR RELATIONS

My workforce is unionized. Can my company make changes to unionized employees work schedules or duties in response to the COVID-19 coronavirus?

The NLRA imposes on employers the duty to bargain in good faith over mandatory subjects of bargaining such as wages, hours, and terms and conditions of employment. Generally speaking, employers who make unilateral changes to these facets of employment may be subject to unfair labor practice charges that would apply even in emergency situations such as this one, unless your collective bargaining agreement provides otherwise. Many collective bargaining agreements contain provisions that allow for employer flexibility in determining work assignments, scheduling, and layoffs. The first authority for determining your rights and obligations is your own collective bargaining agreement.

I have a “force majeure” clause in my contract.  Does it cover an outbreak such as the COVID-19 coronavirus?

Possibly. A “force majeure” clause is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. Whether an outbreak like the COVID-19 coronavirus triggers the force majeure clause in a contract, and the effect of that clause on the provisions of the contract, will vary significantly with each employer.

There is no force majeure clause in my contract.  Does that mean I still have to abide by all of the contract provisions during the outbreak?

The general duty to bargain over changes in contractual terms may be suspended where compelling economic exigencies compel prompt action. The law views “compelling economic exigencies” as extraordinary, unforeseen events having a major economic effect that requires the employer to take immediate action and make a unilateral change.

Although an outbreak like the COVID-19 coronavirus would seem to fit the description of a “compelling economic exigency,” realize that its effect will be different for every employer. That is, while it may suspend the duty to bargain for one employer whose only facility was infected, it will likely not suspend the duty for an employer that has lost significant accounts or contracts as a result of the outbreak. In practice, the safest course of action (and the one most likely to avoid future litigation) is to notify the union in all cases, even if you believe that your particular situation fits into the “compelling economic exigency” category.

How much notice do I have to give the union before I make a change to my contract?

The law requires employers to give the union “adequate” notice of a proposed change to the collective bargaining agreement, so as to engage in meaningful bargaining over that change on request. There is no hard and fast rule as to how much notice is adequate. But where an employer can show a need for a prompt change and time is of the essence, a notice period as short as a couple of days might be considered adequate under the circumstances.

Wouldn’t our no-strike clause prohibit bargaining unit members from refusing to work?

That would likely depend on a host of factors ranging from the articulated rationale for withholding services to specific language within the no-strike clause itself. Most such provisions effectively preclude covered employees from striking or otherwise refusing to perform work as scheduled. By the same token, long-standing labor relations doctrine generally requires bargaining unit members to, “work now, and grieve later.” 

That being said, such provisions do not necessarily trump those aspects within Section 13(a) of the OSH Act entitling all employees to refuse to work if they reasonably believe they are in imminent danger, and compelling employees (particularly in high risk industries) to report for work under such circumstances may also present adverse public relations implications. Consequently, circumstances like these are best examined on a case-by-case basis under advice of counsel and – in some circumstances, following dialogue with the authorized bargaining representative.

WARN ACT/PLANT CLOSINGS

Do we have an obligation to provide notice under the WARN Act if we are forced to suspend operations on account of the coronavirus and its aftermath?

Yes, if your company is covered by the Worker Adjustment and Retraining Notification (WARN) Act. The federal WARN Act imposes a notice obligation on covered employers (those with 100 or more full-time employees) who implement a “plant closing” or “mass layoff” in certain situations, even when they are forced to do so for economic reasons. It is important to keep in mind that these quoted terms are defined extensively under WARN’s regulations, and that they are not intended to cover every single layoff or plant closing.

Generally speaking, employers must provide at least 60 calendar days of notice prior to any covered plant closing or mass layoff. Note, however, that if employees are laid off for less than six months, then they do not suffer an employment loss and, depending on the particular circumstances, notice may not be required. Unfortunately, in situations like this, it is hard to know how long the layoff will occur so providing notice is usually the best practice.

Fortunately, even in cases where its notice requirements would otherwise apply, the WARN Act provides a specific exception when layoffs occur due to unforeseeable business circumstances. This provision may apply to the COVID-19 coronavirus. But due to the fact-specific analysis required, this exception is often litigated. 

Moreover, this exception is limited, in that an employer relying upon it must still provide “as much notice as is practicable, and at that time shall give a brief statement of the basis for reducing the notification period.” In other words, once you are in a position to evaluate the immediate impact of the outbreak upon your workforce, you must then provide specific notice to “affected employees.” You must also provide a statement explaining the failure to provide more extensive notice, which in this case would obviously be tied to the unforeseeable nature of the outbreak and its aftermath.

The WARN Act has specific provisions requiring notice to employees, unions and certain government entities. The Act further specifies the information that must be contained in each notice. Keep in mind that some states have “mini-WARN” laws that may apply. Please work with your employment counsel to ensure compliance notices are provided.

Will this law really be enforced this law in light of the outbreak?

In the aftermath of an outbreak, the extent to which the USDOL will focus upon enforcement of the WARN Act remains to be seen. Nonetheless, the law provides stiff penalties for non-compliance, including up to 60 days of back pay and benefits, along with a civil penalty of up to $500 per day. More importantly, it provides for a private cause of action in federal court, suggesting that employers may soon be responding to lawsuits arising under the WARN Act regardless of the enforcing agency’s official position.   

Consequently, we advise that you evaluate your current situations to ascertain whether the most recent outbreak has triggered a WARN Act qualifying event in your organization. If so, provide as much notice to affected employees as is practicable under the circumstances. When in doubt, the best approach is to work through counsel to arrive at a safe but practical solution to a potentially thorny situation for many employers that are impacted by the outbreak, either directly or indirectly.

WORKERS’ COMPENSATION

UPDATED QUESTION & ANSWER (March 9, 2020)
My employee alleges that they contracted the coronavirus while at work. Will this result in a compensable workers’ compensation claim?

It depends. If the employee is a health care worker or first responder, the answer is likely yes (subject to variations in state law). For other categories of employees, a compensable workers’ compensation claim is possible, but the analysis would be very fact-specific.

It is important to note that the workers’ compensation system is a no-fault system, meaning that an employee claiming a work-related injury does not need to prove negligence on the part of the employer. Instead, the employee need only prove that the injury occurred at work and was proximately caused by their employment. Additionally, the virus is not an “injury” but is instead analyzed under state law to determine if it is an “occupational disease.” To be an occupational disease (again subject to state law variations), an employee must generally show two things:

  • the illness or disease must be “occupational,” meaning that it arose out of and was in the course of employment; and
  • the illness or disease must arise out of or be caused by conditions peculiar to the work and creates a risk of contracting the disease in a greater degree and in a different manner than in the public generally.

The general test in determining whether an injury “arises out of and in the course of employment” is whether the employee was involved in some activity where they were benefitting the employer and was exposed to the virus. Importantly, special consideration will be given to health care workers and first responders, as these employees will likely enjoy a presumption that any communicable disease was contracted as the result of employment. This would also include plant nurses and physicians who are exposed to the virus while at the worksite.

As for other categories of employees, compensability for a workers’ compensation claim will be determined on a case-by-case basis. The key point will be whether the employee contracted the virus at work and whether the contraction of the disease was “peculiar” to their employment. Even if the employer takes all of the right steps to protect the employees from exposure, a compensable claim may be determined where the employee can show that they contracted the virus after an exposure, the exposure was peculiar to the work, and there are no alternative means of exposure demonstrated.

Absent state legislation on this topic, an employee seeking workers’ compensation benefits for a coronavirus infection will still have to provide medical evidence to support the claim. Employers who seek to contest such a claim may be able to challenge the allowance if there is another alternative exposure or if the employee’s medical evidence is merely speculative.

Finally, employers should be aware that states are taking action on this issue. For instance, Washington Governor Jay Inslee recently directed his Department of Labor and Industries to “ensure” workers’ compensation protections for health care workers and first responders. The directive instructs the Department to change its policies regarding coverage for these two groups and to “provide benefits to these workers during the time they’re quarantined after being exposed to COVID-129 on the job.” We expect other states to follow Washington’s lead. 

UPDATED QUESTION & ANSWER (March 9, 2020)
My employee contracted COVID-19 while on a business trip for my company. Is this a compensable workers’ compensation claim?

Again, it depends. While an employee who contracts a disease while traveling for business may be eligible for workers’ compensation benefits in many jurisdictions, the analysis will be very fact-specific. In most states, the worker will need to satisfy the test for compensability outlined above. States often differentiate between exposures that occur while “working” during a business trip versus exposures that occur during “down time.” Some states create almost strict liability for any injury that occurs on a business trip, whether the employee is working or not. But again, in order to have a compensable claim, the employee must, at a minimum, establish that they had an exposure to the coronavirus while traveling for business. Like other matters, these cases are best examined on a case-by-case basis under advice of counsel. 

UPDATED QUESTION & ANSWER (March 9, 2020)
What are the likely benefits an employee will be eligible to receive if their coronavirus infection is found to be a compensable workers’ compensation claim?

The good news is that, except in rare situations, an employee diagnosed with the virus will have no significant long-term health care problems. Therefore, medical costs associated with the claim are likely to be limited to visits to the family physician and anti-viral medications. More significant cases may involve hospital stays of two to three weeks.

The compensation costs should also be limited to the lost time associated to any recovery time. They may also be associated with lost time due to quarantine as required by the employer or local, state, or federal government agencies. 

There could be more significant costs in extreme and rare situations involving complications from the virus. However, these cases would usually be limited to claimants who are older or suffer from immune deficiencies. 

EDUCATIONAL INSTITUTIONS

Our Education Practice Group has published its own set of FAQs and a 10-Point Action Plan For Educational Institutions which can be accessed here.

FISHER PHILLIPS COVID-19 TASKFORCE MEMBERS

WORKPLACE HEALTH AND SAFETY

Travis Vance, co-chair, Workplace Safety and Catastrophe Management Practice Group
Howard Mavity
Nick Hulse 

INTERNATIONAL LAW

William Wright, chair, International Employment Practice Group
Nan Sato

IMMIGRATION LAW

Shanon Stevenson, co-chair, Global Immigration Practice Group
Ralph Hua 

HEALTHCARE INDUSTRY

Kevin Troutman, co-chair, Healthcare Practice Group
Laurel Cornell, co-chair, Healthcare Practice Group
Daniel Kanter

WARN ACT COMPLIANCE

Hagood Tighe
David Kresser

LABOR RELATIONS

Steve Bernstein, co-chair, Labor Relations Practice Group

WAGE AND HOUR LAW
Hagood Tighe, co-chair, Wage and Hour Law Practice Group

WORKERS’ COMPENSATION

Bob Robenalt
Jerry Cline 

EMPLOYEE BENEFITS

Tiffani Greene

EDUCATION LAW

Suzanne Bogdan, chair, Education Practice Group
Susan Guerette
Kristin Smith 

Return to table of contents

CONCLUSION

We will continue to monitor this rapidly developing situation and provide updates as appropriate, including updating this FAQ on as-needed basis. Make sure you are subscribed to Fisher Phillips’ alert system to gather the most up-to-date information. For further information, contact your Fisher Phillips attorney or any member of our COVID-19 Taskforce, headed by Travis Vance and Howard Mavity.


This Legal Alert provides an overview of a specific developing situation. It is not intended to be, and should not be construed as, legal advice for any particular fact situation.

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Resources to Combat the Coronavirus

Subscribe to Converge: https://hospitalitylawyer.activehosted.com/f/18

The U.S. Equal Employment Opportunity Commission. (March 17, 2020). Pandemic Preparedness In The Workplace and the Americans With Disabilities Act. Available on https://www.eeoc.gov/facts/pandemic_flu.html

American Chemistry Council, Center for Biocide Chemistries. (2020). Novel coronavirus (COVID-19)-fighting products. Available from https://www.americanchemistry.com/Novel-Coronavirus-Fighting-Products-List.pdf

Centers for Disease Control and Prevention. (2020). Coronavirus disease 2019 (COVID-19) situation summary. Available from https://www.cdc.gov/coronavirus/2019-nCoV/summary.html

Centers for Disease Control and Prevention. (2020). Interim guidance: Get your mass gatherings or large community events ready for coronavirus disease 2019 (COVID-19). Available from https://www.cdc.gov/coronavirus/2019-ncov/community/mass-gatherings-ready-for-covid-19.html

Centers for Disease Control and Prevention. (2020). Interim guidance for businesses and employers to plan and respond to coronavirus disease 2019 (COVID-19). Available from https://www.cdc.gov/coronavirus/2019-ncov/specific-groups/guidance-business-response.html

Centers for Disease Control and Prevention. (2020). Interim US guidance for risk assessment and public health management of persons with potential coronavirus disease 2020 (COVID-19) exposure in travel-associated or community settings. Available from https://www.cdc.gov/coronavirus/2019-ncov/php/risk-assessment.html

Park, H., Kline, S. F., Kim, J., Almanza, B., & Ma, J. (2019). Does hotel cleanliness correlate with surfaces guests contact? International Journal of Contemporary Hospitality Management, 31(7): 293-2950. Available from https://doi.org/10.1108/IJCHM-02-2018-0105

U.S. Department of Labor, Occupational Safety and Health Administration. (2020). COVID-19 control and prevention. Available from https://www.osha.gov/SLTC/covid-19/controlprevention.html

World Health Organization. (2020). Getting your workplace ready for COVID-19. Available from https://www.who.int/docs/default-source/coronaviruse/getting-workplace-ready-for-covid-19.pdf

Coronavirus Virus: Revenue Management survival tips for hotels: https://insights.ehotelier.com/insights/2020/03/09/coronavirus-survival-tips-for-hotels/

OSHA’s Guidance on Preparing Workplaces for an Influenza Pandemic: https://www.osha.gov/Publications/influenza_pandemic.html

Australian Department of Health. (2020). Information for hotels and hotel staff. Available from https://www.health.gov.au/sites/default/files/documents/2020/02/coronavirus-covid-19-information-for-hotels-and-hotel-staff-coronavirus-covid-19-information-for-hotels-and-hotel-staff_0.pdf

New Zealand Ministry of Health. (2020). COVID-19 (novel coronavirus) – Information for hotels and hotel staff. Available from https://www.health.govt.nz/our-work/diseases-and-conditions/covid-19-novel-coronavirus/covid-19-novel-coronavirus-information-specific-audiences/covid-19-novel-coronavirus-information-hotels-and-hotel-staff

Guidelines on Infection Control & Prevention in Hotel Industry: https://www.chp.gov.hk/files/pdf/105_guideline_on_infection_controland_prevention_in_hotel_industry.pdf

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