Insights

Cornavirus_Shelter_in_Place_Alert_SOCIAL

Coronavirus: Shelter-in-Place Orders and Your Real Estate Operations

In recent days, state and local governments have been increasingly calling for individuals and business to cease conducting business in the ordinary course in response to the COVID-19 outbreak. Numerous state and local governments have taken steps to either expressly restrict daily life and business operation or to encourage the curtailment of such activities. Such governmental action has typically also included specific directives and/or guidance related to travel and requirements for individual social distancing. Owners, tenants, managers, and investors in real estate should be aware of several key aspects of these governmental directives, orders and guidance as they become more prevalent:

Compulsory or Guidance

Governmental action to restrict business activity in response to the COVID-19 outbreak has generally taken two forms: compulsory orders issued by the applicable government executive or guidance from the applicable government executive or public health agency. While compliance with governmental guidance informs the standard of care in evaluating potential premises liability, guidance is generally not compulsory in the same manner as a governmental order, which purports to compel compliance through enforcement. In developing a plan to address governmental action related to curtailment of business operation, assessment of the action as either compulsory or guidance is critical.

Essential or Permitted Activities

Governmental action to restrict business activity in response to the COVID-19 outbreak typically identifies certain activities, both personal and business related, that are expressly permitted, usually subject to public health guidance on social distancing. These exceptions generally fall into the categories of essential services, business operations necessary to preserve and protect a business that is not otherwise an essential service, and personal activities necessary for health and welfare.

  • Essential services may include support of critical public and private infrastructure, health care, banking and financial institutions, shipping and logistics, grocery and food service, delivery and carry-out restaurant operations, farming, news media, gas station and automotive services, services to support the function of other essential business and individuals working remotely, support and maintenance of residential facilities and educational facilities for the purpose of distance learning, among others. 
  • Business activities necessary to preserve and protect a business that is not otherwise an essential service may include payroll, security, critical maintenance, and services required to permit employees to work remotely.
  • Personal activities necessary for health and welfare may include the procurement of grocery items, household and medical supplies, individual outdoor activities (subject to social distancing requirements), seeking medical care, and other tasks essential to maintain individual health and safety.

Since it is impossible for these governmental directives to address all activities and the scope of excluded activities vary between jurisdictions, owners and tenants of real estate must closely analyze governmental action in the applicable jurisdiction in order to determine the extent to which its operations can continue without modification.

Gatherings

Many governmental directives issued in connection with the COVID-19 outbreak limit gatherings of people to a specific number. Owners and tenants should carefully analyze these gathering limitations (and any exceptions or exclusions contained therein) to confirm compliance.

Force Majeure

The impact of these governmental actions and the extent to which the actions take the form of compulsory government orders may render contract performance impossible or trigger contract clauses excusing nonperformance. Because the applicability of force majeure and related doctrines is highly fact and contract specific, owners and tenants should carefully review their contracts in connection with any governmental action to curtail business operation to determine whether provisions exist to provide performance relief under the circumstances.

Labor and Employment

These government actions may prevent employees from reporting to a work facility or limit the number of employees who can do so; if those employees are unable to work remotely, employers may consider measures such as reducing scheduled hours, reducing compensation, or resorting to layoffs (temporary or permanent). Each course of action raises a host of issues under federal, state, and local employment laws.

Insurance

While the scope of insurance coverage will depend upon the specific terms of each insurance policy, a variety of insurance policies may respond with insurance for the types of coronavirus-related exposures that commercial policyholders have already or will soon experience.

Commercial property insurance policies may provide coverage for business income losses resulting from coronavirus-related disruptions to the operations of a business or its customers and suppliers, including when due to the actions of a "civil or governmental authority." In addition, a number of commercial property insurance policies contain express "communicable disease" coverage extensions, the terms of which can vary significantly from insurance policy to insurance policy.

Insurance coverage may also be available for coronavirus-related liabilities. In particular, commercial general liability ("CGL") insurance policies should potentially respond with coverage for bodily injury claims that a business allegedly failed to exercise reasonable care in guarding against, or warning of, the risk of exposure to coronavirus exposure. Likewise, directors and officers ("D&O") insurance may provide coverage for the costs and liabilities arising from shareholder lawsuits regarding the alleged inadequacy of a company's coronavirus-related disclosures or the actions of its directors and officers in response to the COVID-19 pandemic.

Similarly, claims that employment practices in response to the COVID-19 pandemic are discriminatory or violate employee privacy rights may be covered under employment practices liability insurance ("EPLI") programs. Finally, the cyber insurance policies may respond with coverage for losses resulting from COVID-19 related social engineering and phishing campaigns, as well as cyberattacks occasioned by increases in telework/remote access and the use of employees' personal electronic devices.

Given substantial variations in both insurance policy language and the scope of insurance coverage within the market, any insurance coverage analysis for COVID-19 exposures must include a careful review of a company's specific insurance program.

Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.

 
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