Contract Performance Anxiety? There’s Hope.
In addition to reading your businessowners insurance policy ASAP, various other contracts that define your business relationships are especially important now. With COVID-19 on the rise and social distancing a critical part of “flattening the curve,” your ability to meet your business’s contractual obligations may be in question.
But don’t panic, the contracts’ terms might provide answers, or at least help. Consider, for example, these key provisions:
- Force majeure—when performance of a contract is impossible because of acts outside the parties’ control (a.k.a., “acts of god”).
- Default clause—what constitutes a breach and related remedies (read in connection with force majeure clause).
- Termination rights—when a party may terminate a contract and the rights of both parties thereafter.
If your customer or supplier is the one unable to come through, lean into the contract provisions listed above as well as:
- Parties’ obligations—what each party promises to do and by when.
- Indemnification—requires a breaching party to make the other party whole.
- Warranties—a party’s promise about, for example, the condition or age of the goods it’s selling or about the quality of the services it’s providing.
- Representations—a party’s factual statements (e.g., about accuracy of information).
Even if your contract is less than clear, read and understand it, or ask for help. We’re here. It could provide you with important remedies for your current business challenges.
And if you need a break from work and COVID-19 news, take some time to relax with your family. Try a board game (we’re hooked on Catan and keep a running winners tally on the fridge) or old-fashioned coloring in Female Illustrators in Natural History. Share your masterpieces and tag them #StandTallInPlace.
Time to Read that Insurance Policy
Do you own a bar, restaurant, retail store, hair or nail salon or other business forced to close (or limit orders to carry out, delivery, or online) when Wisconsin’s Governor instituted his Safer at Home Order or prohibited gatherings of 10 people or more? It’s time to read your businessowners insurance policy (yes, the hundreds of pages of jargon and legalese).
The good news:
You may have:
- Coverage for loss of “business income” or for business interruption.
- Coverage if a “Civil Authority,” such as a city or state blocks access to your business.
- Coverage for contingent business interruption or supply chain
The bad news:
- Coverage listed above generally applies if you’ve suffered a “direct physical loss.” But a direct physical loss does not have to be structural. Courts have found the following constituted a “direct physical loss”:
- Cat urine odor originating from another person’s condominium
- Carbon monoxide contamination
- Mildew contamination
- Odors from illegal methamphetamine cooking
- Loss related to a virus may be specifically excluded. For example: “We will not pay for loss or damage caused directly or indirectly by any of the following. . . . Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
Even if coverage is not clear or certain, file a written claim with your insurance company and insist that the insurance company issue a written decision on your claim (e.g., a written denial with explanation).
Although the insurance company may deny your claim, you have options.
- Litigate—sue for breach of contract. At least two actions seeking declaratory judgments that coverage exists are already pending, one in New Orleans and one in Oklahoma.
- File a complaint with the Wisconsin OCI. But note, OCI cannot order an insurance company to pay a claim.
- Watch and wait, but not too long. Your insurance policy will limit the time frame for filing a lawsuit. State legislatures or Congress may intervene. Although as of now, that’s looking unlikely.
In the meantime, there is some relief on the insurance front. Governor Evers ordered insurers operating in Wisconsin to assist restaurants who started delivery service during COVID-19 crisis. OCI also encouraged insurers to “offer flexibility to insureds who are incurring economic hardship.”
If you have questions about your business insurance policy, need help filing your insurance claim, or want to discuss options post-denial, please contact Stephanie.
Legal Small Business Tips for Right Now
We’re all gradually adapting to this new social distancing reality. And if you’re managing a small business, figuring out how to please your customers, keep your staff safe and busy, and make ends meet is overwhelming. We’ve dedicated this space on our website to post information, some legal and some not, small business owners need now. For starters:
- Review your businessowners insurance policy. Is coverage related to viruses, bacteria etc. specifically excluded? If not, keep reading. Need help making sense of the insurance contract jargon? Let me know.
- Check out the employer unemployment resources section of the Wisconsin Department of Workforce Development’s website. You may be eligible for unemployment benefits if you’re self-employed, but the amount of income treated as wages may be different than for other employees. And, you’ll still be required to search for work.
- Looking for financial assistance? This too is evolving. But start with the Small Business 20/20 Program, Kiva, and Facebook. The SBA is offering small business loans in designated states. Wisconsin is not on the list, yet, but stay tuned.