CORONAVIRUS CANCELLATIONS MEAN REVENUE LOSS, POTENTIAL LIABILITY

By Cynthia L. Cooper, ABA Journal | April 2nd, 2020

 Litigation lawyer Vanessa L. Miller first took notice of the coronavirus spread in Wuhan, China, in early January. A partner at Foley & Lardner in Detroit, Miller knew that many automotive clients relied on that region for parts manufacturing.

“We didn’t know how widespread the coronavirus would be, obviously, but once it hit Europe, it was likely already in other locations. It was a matter of a domino effect,” says Miller.

The designation of COVID-19 as a pandemic by the World Health Organization on March 11 affected tens of thousands of business and consumer contracts. In short order, music festivals, theater, sporting events, university classes and travel were canceled, followed by the closure of restaurants, bars, gyms, “nonessential” businesses and government shutdowns of borders and cities.

Lawyers were suddenly swamped with questions about contractual provisions for delays or cancellations, and they found themselves immersed in force majeure provisions, common law doctrine and specifics on business interruption tucked away in insurance agreements.

Facing the fallout

All of these concepts become muddied, of course, if a party uses the pandemic as an excuse for poor or already failing performance or other bad faith activity. But the invocation of force majeure or common law doctrines even in good faith circumstances is only the beginning of legal and business concerns.

While force majeure and common law theoretically return parties to their precontracting positions, the practical ramifications may be quite different.

Disappointment can set in for businesses after a Covid-19 cancellation when they turn to a review of insurance coverage.

“People will be looking to see whether insurance could provide compensation for the losses that are going to be incurred here,” says Don Hayden, a commercial litigator at Mark Migdal & Hayden in Miami. “Most of the insurance clauses for business interruption have a specific exemption for pandemics. So people are, unfortunately, not going to be able to recover for business interruption for the most part.”

Other types of insurance, such as event cancellation insurance, may also exempt pandemics or offer coverage, unless a pandemic or disease rider has been purchased.

“I don’t know that you are going to see a lot of recovery out of the insurances. The losses are going to be insurmountable in some cases,” Hayden says. Already calls are coming in from clients who are considering bankruptcy, he says.

Even in the world of force majeure and unforeseen events, COVID-19 marks an era of significant challenges.

“I don’t think we’ve seen anything like this. Not with SARS or other viruses that occurred earlier,” says Miller. “We’re all seeing that this event is unprecedented, and it’s having unprecedented impact.”

Cynthia L. Cooper is a journalist and lawyer in New York City.

By |2020-04-06T18:34:42+00:00April 3rd, 2020|MEDIA|Comments Off on CORONAVIRUS CANCELLATIONS MEAN REVENUE LOSS, POTENTIAL LIABILITY

About the Author:

Mark Migdal & Hayden is a commercial litigation law firm, based in Miami, Florida.
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