By Jeffrey R. Schmieler, Esquire 
 
Insurance Coverage during the course of the COVID-19 Pandemic
 
The COVID-19 Pandemic is having a direct effect on the economic livelihood of individuals and the viability of businesses which is nationwide in scope. The losses which have been sustained in many instances are covered by Insurance policies despite coverage denials made by Insurance Companies and Insurance Brokers.
 
The issues surrounding the multitude of business interruption litigation and policy interpretation issues ancillary to the pandemic of COVID-19, include but are not limited to:  coverage analysis, coverage grant provisions, exclusions, policy endorsements, policy riders, civil authority provisions, and current proposed legislation and litigation surrounding insurance claims for this global pandemic.

The issues which must be carefully considered and analyzed include:
 
 - First Party Contract Analysis
 - Business Interruption Coverage
 - Civil Authority Provision
 - Viral Exclusions
 - Current Legislation and Litigation

​Examples of the Range of Force Majeure Clauses
                                                                                                                          
Jeffrey R. Schmieler, Esquire

  
1. Example from a Services Agreement: Neither Party will be liable for any failure or inability to perform, or delay in performing, such Party’s obligations under this Agreement if such failure, inability or delay arises from an extraordinary cause beyond the reasonable control of the non-performing Party; provided that such Party diligently and in good faith attempts to cure such non-performance as promptly as practicable. 
2. Example from a Labor Agreement: If a production cannot be performed and/or the theater cannot operate because of fire, accident, strike, riot or act of God, or the public enemy, which could not be reasonably anticipated or prevented, the Employer will only be responsible to pay one (1) day’s pay to each employee who lost at least one (1) day’s work regardless of how long the incident lasts. 
3. Example from an Employment Agreement: Neither Party will be liable for any delay or failure in performance under this Agreement deemed as a result, directly or indirectly, of any act of God, acts of civil or military authority, acts of public enemy, terrorism, war, accidents, fires, explosions, earthquakes, floods, failure of public transportation, or any similar or dissimilar cause beyond the reasonable control of either Party. 
4. Example broadly defined Force Majeure Clause. Neither party is responsible for any failure to perform its obligations under this Agreement if it is prevented or delayed in performing those obligations by an event of force majeure, including the direct and indirect consequences of said force majeure. Neither Party will be liable for any failure in performance under this Agreement deemed as a result, directly or indirectly of any public emergency, legal restrictions, act of God (whether or not such acts of God have occurred frequently), act of civil or military authority, acts of public enemy, terrorism, war, accidents, fires, explosions, earthquakes, floods, failure of public transportation or communication, viral or bacterial outbreaks, epidemics, pandemics, health related public emergencies, epidemics, pandemics, a national disaster event, large scale disasters, national emergencies, or any similar or dissimilar cause or event beyond the reasonable control of either Party.  Where there is an event of force majeure, the party prevented from or delayed in performing its obligations under this Agreement must immediately notify the other party giving full details of the event of force majeure and the reasons for the event of force majeure preventing that party from, or delaying that party in, performing its obligations under this Agreement and that party must use reasonable efforts to mitigate the effect of force majeure upon its performance under the Agreement and to fulfill its obligations under the Agreement. Licensee has no liability for (i) any costs, losses, expenses, damages, or payments otherwise due under this Agreement during an event of force majeure; and (ii) any costs incurred as a result of delays caused by a force majeure event. This Force Majeure Clause is intended to be liberal construed in accordance with the intendment and understanding of the Parties.
 
In view of the current Coronavirus Pandemic, it is essential to add language to the traditional Force Majeure Clauses to include Virus Related Pandemics.

Contractual Performance in the course of the COVID-19 Pandemic II

Jeffrey R. Schmieler, Esquire

​      It is important to be cognizant of the fact that all persons and entities who are on both ends of a contract have interests in determining and establishing which party should bear the costs of non-performance and that individuals and businesses on both sides of a contract are affected. Virtually everyone is experiencing contracts affected by the pandemic, inclusive of landlords and tenants; business and customers; and vendors and suppliers. Most contracts in existence are being affected including contracts currently being negotiated which may need clauses to excuse performance in the event the pandemic has not ended by a certain date.
       While the ultimate liability is being determined in courts of law, it may be of more importance for the parties to preserve their contractual and business relationship which was in existence prior to the devastating effect of the Coronavirus pandemic, which will require reasonableness on the part of both parties to the contract. In this respect, the negotiation of a reasonable amicable resolution should be considered and is highly recommended. During the course of negotiations, the reasonableness on the part of both parties will be axiomatic in achieving an amicable resolution of the dispute. Should negotiations not resolve the contractual dispute, then mediation is certainly a worthy consideration for potentially resolving the dispute. This can be done remotely with the selected mediator and all necessary parties and their attorneys.
      Should the parties not amicably resolve the contractual dispute through good faith negotiation or participation in mediation, then and in that event, the contractual dispute will ultimately result in litigation in which the cases will be highly fact specific and will depend upon the judicial determination of the meaning of the language of the contract and the relationship of the parties. In the event of litigation, the contractual terms and provisions inclusive of (1) Force Majeure clauses; and (2) Material Adverse Effect clauses will ultimately prove to be determinative together with the extra-contractual legal Doctrines of (1) impossibility of performance; (2) impracticability of performance; (3) frustration of purpose, and (4) acts of God.
     The application of these legal principals in consideration of the specific facts of the case will determine whether the Coronavirus pandemic excuses one party or the other from performing in accordance with the terms of the contract.
Even if a contract does not specifically refer to pandemics, the recent Orders from the President, Governors, Mayors effectively shutting down businesses  and ordering people to stay at home are likely to trigger force majeure provisions in a contract or the invocation of the doctrines of impossibility or impracticability. The governmental restrictions closing businesses and restricting the freedom of movement may cause contractual performance to be impossible.
    At present, during the time of the Coronavirus pandemic, contractual performance is exceeding problematic and complex. The ultimate resolution of the legal issues presented, if not resolved by good faith and reasonable actions by the parties to a contractual dispute, will be determined by the legal system. Reasonableness on the part of both parties to a contractual dispute should always be considered as a viable alternative to litigation and a potential adverse judicial determination. 

INSURANCE COVERAGE FOR COVID-19 CLAIMS
Jeffrey R. Schmieler, Esquire

            COVID-19 and the Coronavirus Pandemic is inflicting serious economic damages to individuals and businesses in enormous dimensions. These enormous losses, in turn, are resulting in COVID-19 insurance claims and litigation which involve the resolution of the complex insurance coverage issues raised by the Coronavirus losses.
            The impact of COVID-19 has adversely impacted virtually every individual and business in the United States.
            Although the insurance industry has initiated a nationwide coordinated effort to suppress corona-virus related claims, there are many Coronavirus claims which are valid claims for insurance coverage under the Property Damage Insurance Policies issued by the Insurance Industry, inclusive of the following:

• Many insurance policies do not contain virus exclusions in the policy
• Virus exclusions which may be contained in the property damage insurance policy may not apply to effectively deny coverage because exclusions in insurance policies are strictly construed by the Courts when interpreting the language of the policy.
• Legislation activity by both Federal and State Governments may alter the existing coverages afforded under the insurance policies.
• “Stay At HOME” orders have a direct bearing on insurance coverage afforded under the Property Damage insurance policies.
• As a direct result of the pandemic and concomitant infection and danger of serious illness and death, insured property cannot be used for its intended purpose and has been damaged resulting in property damage losses covered under the insurance policy.
• Insurance coverage can be sought for the existential threat caused by Government mandated closure orders.
• Developing research and CDC reports indicate COVID-19 physically infects and can stay viable for long periods and can remain alive and potentially deadly for days rendering exposed property to contagion and potentially unsafe and dangerous constituting property losses and damages.
• The Coronavirus is physically causing property losses and damages.
• Business Interruption losses are or may be covered under the property damage coverage including loss of income resulting from the risk of physical loss or damage due to the Coronavirus.
• Some insurance policies cover all risks of physical loss or damage – a broad coverage grant provision which provides coverage unless a particular exclusion exists in the policy.
• “All Risk” policies are interpreted by the Courts broadly in favor of coverage.
• Cases have held that physical loss or damage occurs when a hazardous condition renders the insured property unsafe or that the property cannot be used for its intended purpose.
• Direct physical loss may occur in the absence of structural damage to the insured’s property.
• Some commercial policies may also contain coverage provisions which may cover Coronavirus related losses.

 
In the event that you have suffered a loss which is potentially covered, notice of the loss should be provided to the insurance carrier and consideration should be given to filing a claim based upon a careful review and analysis of the coverage granted in the coverage grant provisions of the insurance policy as well as the exclusions and endorsements contained within the policy.

Jeffrey R. Schmieler, Esquire
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Contractual Performance in the course of the COVID-19 Pandemic
 
The COVID-19 Pandemic is having a direct effect on the legal rights and obligations of individuals and businesses which is nationwide in scope.
 
Parties to commercial and non-commercial contracts must consider regarding the potential applicability of the following defenses, whether they are seeking to enforce a contract or to avoid the enforcement of a contract:
 
Contractual Clauses: All of the terms and provisions of the contract must be carefully analyzed inclusive of but not limited to:

• Force Majeure Contract Clauses
• Material Adverse Effect Clauses

Extra-Contractual Doctrines:

• Impossibility of Performance
• Impracticability of Performance
• Frustration of Purpose
• Acts of God

A claim for tortious interference with economic relations requires proof of four elements, which are: ‘(1) intentional and wilful acts; (2) calculated to cause damage to the plaintiffs in their lawful business; (3) done with the unlawful purpose to cause such damage and loss, without right or justifiable cause on the part of the defendants (which constitutes malice); and (4) actual damage and loss resulting.’ Alexander v. Evander, 336 Md. 635, 652 (1994) (quoting Willner v. Silverman, 109 Md. 341, 355 (1909)). Maryland courts have emphasized that a plaintiff must prove both a tortious intent and that the alleged interference “was accomplished through improper means.” Lyon v. Campbell, 120 Md. App. 412, 431 (1998) (citing inter alia, Macklin v. Robert Logan Assocs., 334 Md. 287, 301 (1994)).

​In Alexander, 336 Md. at 657, the Court said: [W]rongful or malicious interference with economic relations is interference by conduct that is independently wrongful or unlawful, quite apart from its effect on the plaintiff’s business relationships. Wrongful or unlawful acts include common law torts and “‘violence or intimidation, defamation, injurious falsehood or other fraud, violation of criminal law, and the institution or threat of groundless civil suits or criminal prosecutions in bad faith.’” K & K Management v. Lee, [] 316 Md. [137, 166 (1989)], quoting Prosser, Law of Torts, § 130, 952-953 (4th ed. 1971). In addition, “actual malice,” in the sense of ill will, hatred or spite, may be sufficient to make an act of interference wrongful where the defendant’s malice is the primary factor that motivates the interference. (Some citations omitted.) 

​To prove that a defendant has tortiously interfered with a contract, the plaintiff must prove six elements: (1) The existence of a contract or a legally protected interest between the plaintiff and a third party; (2) the defendant’s knowledge of the contract; (3) the defendant’s intentional inducement of the third party to breach or otherwise render impossible the performance of the contract; (4) without justification on the part of the defendant; (5) the subsequent breach by the third party; and (6) damages to the plaintiff resulting therefrom. Brass Metal Products, Inc. v. E-J Enterprises, Inc., 189 Md. App. 310, 348 (2009) (and cases cited therein).
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In Rite Aid Corp. et al. v. Lake Shore Investors, 298 Md. 611, 621 (1984), the Court of Appeals expressly adopted Restatement (Second) of Torts § 774A. The Rite Aid Court said, Section 774A reduces Prosser’s view to specifics. It provides: “(1) One who is liable to another for interference with a contract or prospective contractual relation is liable for damages for (a) the pecuniary loss of the benefits of the contract or the prospective relation; (b) consequential losses for which the interference is a legal cause; and (c) emotional distress or actual harm to reputation, if they are reasonably to be expected to result from the interference. (2) In an action for interference with a contract by inducing or causing a third person to break the contract with the other, the fact that the third person is liable for the breach does not affect the amount of damages awardable against the actor; but any damages in fact paid by the third person will reduce the damages actually recoverable on the judgment.” Comment a points out that “[T]his Section states only the rules applicable to the recovery of compensatory damages. Since the tort is an intentional one, punitive damages are recovered in these actions under appropriate circumstances.” Id. at 620 (footnote omitted).

Jeffrey R. Schmieler, Esquire

        Under the law, an employer or a principal is responsible for damages or injuries caused by the wrongful or negligent acts of employees or agents if those acts causing the damages or injuries were within the scope of the employment.  An agent who is not an employee is regarded as an independent contractor. One who engages as independent contractor is not responsible for damages or physical injuries caused by the acts of that contractor, unless the acts were authorized, directed or intended by the one engaging the services of the contractor.

            The primary consideration is the right to control the actions of the person committing the wrong The exceptions and instances wherein liability may still be imposed are (1) apparent agency; (2) ratification; or non-delegable duty.

Jeffrey R. Schmieler, Esquire

In determining the existence of the relationship, five factors are determinative, namely:​
1)The power to select and hire the employee;
2)The payment of wages;
3)The power to discharge;
4)The power to control the employee’s conduct; and
5)Whether the work is part of the regular business of the employer.
Of these factors, the single most important factor in determining whether an employment relationship exists is whether the employer has the power to control and direct the manner in which the work is performed.
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Jeffrey R. Schmieler, Esquire 

Under the clearly defined law of Maryland, Virginia and The District of Columbia, an Independent contractor is one engaged to perform a task or tasks of another but over whom there is no right to control the manner in which the task or tasks are performed. The Courts have stated that  an Independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right of control with respect to his physical conduct in the performance of the undertaking.  The most important factor in distinguishing an employee from an independent contractor is whether the person engaging the services of another has the power to control and direct the manner in which the work is performed i.e. the power to control and direct the performance of the work is the most important / decisive element / test of whether the person engaged is an employee or independent contractor.
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