Tracking legislation and litigation relating to COVID-19 may feel like a full-time job, so myCOI is here to help. In this article, we give a quick rundown of new bills, judicial cases, and issues to keep an eye on in the coming weeks specific to the construction and property industries.
Business Interruption Coverage Debates Head to Court
Several restaurants and bars across the country started filing claims in March against their business interruption insurance policies. Now more companies are following suit. The claims cite that government shutdown orders and COVID-19 contamination qualify for business interruption coverage. Major insurance companies continue denying the claims, which is escalating things to state and federal courts for declaratory rulings. The insurers’ position is that COVID-19 does not meet the definition of “physical damage” causing a loss of revenue and that many policies specifically exclude coverage for losses related to communicable diseases.
An Illinois dental office recently filed a federal lawsuit against The Cincinnati Insurance Company after receiving an interruption claim denial. Sandy Point Dental lost 95% of its revenue when the state deemed elective dental work nonessential. The practice contends that the presence of a dangerous substance like COVID-19 qualifies as physical damage under the civil authority clause in its policy. Plus, their coverage does exclude bacteria, but makes no mention of viruses.
Florida-based Conch Republic Divers and the Indiana Repertory Theatre are taking similar stances in court against their insurance companies. The diving company lawsuit asserts that mass contamination and closure due to civil order qualify as physical damage. The theater filed that the forced loss of facility use “fits easily within a ‘direct physical loss.’” Both companies state that their policies do not have exclusions for pandemics or viruses.
State Legislatures Pursue Mandated Business Interruption Coverage
A growing number of states including New Jersey, New York, Ohio, Louisiana, Massachusetts, and Pennsylvania have introduced legislation to compel insurance companies to retroactively pay business interruption claims related to COVID-19. Pennsylvania’s House Bill 2372 requires insurers extend coverage to include “business interruption due to global virus transmission or pandemic.” The proposed legislation also states that insurers would indemnify policyholders to the highest limit at the lowest deductible under the coverage.
If the bill passes in its current form, it will apply to policies active as of March 6, 2020, for companies with fewer than 100 full-time employees.
Insurance companies across the country are pushing back stating that covering the claims could force them into insolvency because they were not accounted for in paid premiums. The American Property Casualty Insurance Association (APCIA) estimates $431 billion per month in losses for small businesses with 100 or fewer employees. This is compared to the $6 billion in monthly premiums collected for commercial property risks in the key insurance lines.
David Sampson, president of APCIA, issued a statement saying, “to retroactively mandate insurance coverage for viruses by voiding these exclusions, would immediately subject insurers to claim payment liability that threatens solvency.”
Even if states do pass legislation, it is likely to be challenged within the courts as unconstitutional. The Contracts Clause of the U.S. Constitution largely prohibits states for instituting legislation that impedes contractual obligations.
California Insurance Companies Ordered to Pay Back Premiums
The California insurance commissioner recently mandated insurers refund some March and April premium payments to policyholders for a variety of commercial and personal lines. The refunds stem from risk-reduction changes caused by COVID-19 such as business closures, employee furloughs, and reduced travel. Qualifying lines include commercial auto, workers compensation, commercial multiple peril, commercial liability or “any other line of coverage where the measures of risk have become substantially overstated as a result of the pandemic.”
The state will issue further guidance should the pandemic extend into May. In the meantime, other major insurance providers such as Chubb and Selective Insurance Group are reducing premiums or issuing premium credits while COVID-19 remains an issue.
Congress Passes $2.2 Trillion CARES Act
On March 27, President Trump signed a $2.2 trillion dollar stimulus bill called the CARES Act (Coronavirus Aid, Relief, and Economic Security Act). The bill is one of what legislators say will be many related to the personal and economic impacts of COVID-19. The legislation includes about $43 billion dollars for infrastructure and other construction projects, including hospitals, airports, and transit systems. The bill also provides expedited access to capital with around $350 billion earmarked for small business loans. Other provisions include worker benefit protections, unemployment compensation, and tax relief for individuals and businesses.
Stephen E. Sandherr, CEO of Associated General Contractors of America, labeled the bill a “lifeline” for construction firms, but called for additional legislation: “Congress has provided the industry with a much-needed lifeline that will help firms and workers over the coming days and weeks. But the industry will not be able to truly recover until federal officials pass measures designed to stimulate new demand for construction, make contractors whole for losses incurred because of the coronavirus and protect employee retirement and health plans.”
Insurers Pressured to Cover COVID-19 Business Losses
A bipartisan group of 18 House members issued letters in mid-March to the major trade associations for the insurance industry asking insurers to retroactively cover financial losses related to COVID-19 under commercial business interruption policies. Letters went to the heads of the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, the Independent Insurance Agents & Brokers of America, and the Council of Insurance Agents and Brokers. CEOs from three of the four organizations sent a joint letter responding: “Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats and are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.”
Ohio, Massachusetts, and New Jersey are among states introducing legislation to retroactively expand business interruption insurance policies to cover losses. The general theme of the bills overrides common terms excluding losses due to viruses and adjusts the requirement that an interruption be connected to a “direct physical loss.”
Individual companies are joining the fight seeking judgement that business interruption insurance covers coronavirus-related losses. Famed restaurateur and chef Thomas Keller brought a suit against Hartford Fire Insurance Company arguing that COVID-19 contamination meets the requirements of physical damage because the virus “physically infects and stays on surfaces of objects or materials, ‘fomites,’ for up to twenty-eight days.”
OSHA Issues Guidelines for Workplace Safety Amid COVID-19 Concerns
Construction workers are expressing concern regarding workplace safety and COVID-19. Shared equipment and trucks, tight elevators, and a lack of water for sanitation has left many workers feeling unnecessarily exposed. The Centers for Disease Control (CDC) and the Occupational Safety and Health Administration (OSHA) issued guidance on expectations of employers in responding to COVID-19. While the guidelines do not represent formal regulation, OSHA emphasized that employers already have the pre-existing duty of providing a workplace free from recognized hazards.
In response to several positive cases of COVID-19 at construction sites in Nevada, the state’s OSHA office issued stricter guidelines for construction sites including:
- Limiting gatherings to 10 people or less
- Ensuring all staff maintain a separation of six feet including labor transportation
- Providing sanitation and cleaning supplies for common surfaces including tools and equipment
- Conducting daily surveys of staff health conditions
- Identifying first responders within the labor force and equipping them with personal protective equipment
- Providing access to portable and sanitary water
Nevada OSHA also committed to conducting random onsite inspections. Non-compliance with the COVID-19 safety guidelines may result in financial penalties or the closure of any construction project.
States Intervene on Tenancy Issues
With 3.3 million people already filing unemployment claims and more to come, property owners and managers are growing increasingly concerned with the impending problem of missed rent payments and evictions. The federal government recently placed a 120-day moratorium on evictions from federally subsidized properties. All but 12 states (as of this writing) have acted as well. Some states are subsidizing rent payments and others have delayed evictions while state emergency orders are in effect. Other state action is coming from the courts which are delaying all eviction hearings.
While renters affected by COVID-19 are receiving help, limited resources have been directed toward owners and investors. With nearly 50% of the nation’s 49 million rental units owned by “mom and pop” landlords, the National Multifamily Housing Council is speaking out. The Council, a coalition of apartment building managers, and 10 real estate organizations sent a letter to the White House and Congress stating: “Even if rental relief were provided to large numbers of residents, it is likely that rent payment shortfalls would nevertheless impact the ability of rental property owners to satisfy their own financial obligations.” The group also criticized the CARES Act’s lack of clarity on eviction moratoriums applying only to those impacted by the pandemic. They stated that it creates a false expectation among unaffected renters in not having to meet their lease obligations.
In other potential issues related to leasing, a New York gym operator is the subject of a class action lawsuit for collecting membership fees while closed due to the COVID-19 shutdown. The case is seeking damages due to breach of contract. The issue at the heart of the lawsuit could impact lessees nationwide with a subscription-based revenue model reliant on a physical space.
Workers’ Compensation Tested by COVID-19
Workers’ compensation claims are increasing amid COVID-19. All eyes are on Washington state whose Department of Labor and Industries announced it would pay wage-loss and medical treatment for healthcare workers and first responders exposed to the virus. Without adjustments, COVID-19 may not qualify for workers’ compensation under traditional state lists of occupational diseases. Because Washington operates a monopoly workers’ comp system, the decision to cover the virus for some employee classes could impact other workers participating in the state’s program. The National Council on Compensation Insurance (NCCI) is monitoring if other states will follow Washington’s lead.
At least 10 other states have issued coverage mandates for insurers around COVID-19. Variations of the state actions include testing and emergency or urgent care visits without deductibles or co-pays. NCCI said, “These measures, if expanded to more states, could have the impact of limiting claim activity in the WC market in those cases where only testing or quarantine are necessary.”
For More Information
Regulations regarding COVID-19 are changing rapidly. myCOI will continue to monitor and share the most noteworthy updates likely to impact our clients’ businesses. In the meantime, visit the National Conference of State Legislators for daily legislative updates surrounding COVID-19.