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COVID-19 and Construction Industry Insights
March 17, 2020
Restrictions related to COVID-19 have created immediate impacts for businesses of all sizes. Regardless if your industry has been directly affected by government mandates to work from home or restrict travel, it seems that no company can operate under a "business as usual" mindset over the near future.
Our COVID-19 Task Force wants to share a few immediate thoughts related to issues involving business operations, contractual obligations, and insurance coverage that all of those involved in the construction industry should consider:
1.  Will insurance coverage pay for my business interruption/loss of work?
Maybe. Most business interruption insurance policies have exceptions and restrictions for what events trigger coverage. It is unclear whether a pandemic, or the threat of one, would constitute an occurrence under most standard business interruption policies. There may be circumstances in certain locations/industries where the government requires closures or stoppages. If those occur, then other provisions of a policy may be triggered. When in doubt, report your claim to the carrier to avoid a late notice denial. Also, save and/or print any notifications you receive from governmental entities, customers, contractors, or others related to your business or specific projects you believe may impact your business operations. Keep documentation related to business interruptions to include cancelled appointments, delayed shipments, notices from employees that they are unable to work, or governmental restrictions. Our insurance coverage team also can provide a consultation after a review of your individual policy. Regardless of whether you have coverage, understand that business interruption insurance only may cover a portion of financial losses that likely must be calculated by a professional.
2.  What if a completion deadline is missed due to health or government restrictions?
Contract language is key. One of the first places in a contract to check for relief is the "force majure" clause, which typically is reserved for "acts of god." A force majure clause is generally intended to excuse performance of a contract if something extraordinary and unforeseeable occurs. Some of these clauses are drafted narrowly, some are broad. In the unlikely event your contract includes a force majure provision that specifies "pandemic," then the interpretation exercise may be narrow. If it does not, the question of whether the underlying circumstances apply could require a more nuanced approach. If the force majure clause contains "disease or outbreak," then it may apply. The same may hold true if the labor force on one side the contract is restricted due to a governmental shutdown. It is entirely possible both sides to a contract will need relief from the other under these circumstances. This is why effective communications and advance notice of potential issues is crucial for all parties. You will want to locate and review all contracts related to your construction business or project to review the language in those contracts, and notify the appropriate parties if you are claiming COVID-19 restrictions are impacting your ability to perform under a contract.
3.  What if we need a schedule adjustment to accommodate a small disruption?
A change order may be appropriate under that circumstance. Most owners or GCs will want subcontractors to use schedule "float" to make up the difference in time, but subcontractors may want a non-compensable change order to grant additional time. Start by following the contractual chain of command and explain how your company's circumstances may require adjustments in schedule and the steps being taken to mitigate impacts. Be prepared to address your current status on the job and whether the request is too remote or unlikely to require immediate relief. Also, document what is happening with your employees, any governmental notices you receive related to your projects, missed or delayed material shipments and the like.
Please contact us if you have any immediate questions or need guidance on a specific issue. Our COVID-19 Task Force will provide additional, more detailed guidance over the next few weeks.
Construction Law Stephanie U. Eaton
336.631.1062 Julian E. Neiser