By now every construction professional has been inundated with articles regarding the impacts of COVID-19 on the construction industry. The sheer volume of information is overwhelming and changes by the hour. This article is intended to summarize key issues affecting construction professionals and serve as a general road map for navigating the crisis.
1. Determine Project Status
The first consideration is whether the construction projects at issue are allowed to proceed given “shelter in place” and related orders.
Generally speaking, Governor Newsom has deemed construction to be essential and, therefore, exempt from California’s “Safer at Home” order. There is some debate as to whether the governor’s order takes priority over contradictory local (City and County) orders. For example, some Northern California counties and the City of Berkeley have issued orders expressly providing that their local orders legally supersede the State order because the local orders are more restrictive.
If a local ordinance, public entity representative, or the project owner orders the project to shut down, the parties will need to make a fact specific determination regarding how to proceed at that time.
If the project proceeds, employee safety is paramount. In the City of Los Angeles employers are required to develop a “comprehensive COVID-19 exposure control plan” that includes a laundry list of safety requirements. Regardless of the jurisdiction, the parties must err on the side of caution and comply with social distancing (six feet), refrain from holding meetings, and close the project to the public. Anyone who can work remotely should be encouraged to do so.
2. Review Insurance Policies
There is a glut of information online containing some variation of a headline stating that “there is no insurance coverage for coronavirus”. This position is not necessarily accurate and construction professionals should not summarily abandon the prospect of insurance coverage. All insurance policies are different and should be analyzed considering the specific facts and damages at issue.
Construction professionals should promptly review their insurance policies with their risk management team (risk manager, insurance broker and attorneys) to determine whether there is potential coverage.
If there is even a potential for coverage, then a claim should be reported to preserve the insured’s rights under the policy. Some policies and lines of coverage have short notice and reporting periods that could be waived if a claim is not made in a timely manner.
Once notice has been given, steps should be taken to prepare the claim. Develop a timeline and track all pertinent facts and damages as they arise as it is easier than recreating the history of the claim later. Document everything and organize the data in a cohesive fashion. The more thorough and professional the claim, the more likely the insurance carrier is to give it priority.
3. Review Contracts
COVID-19 related issues will likely implicate a wide variety of contractual provisions. Construction professionals should carefully review their contracts to determine whether there is a force majeure provision that governs the actions of the parties during a pandemic. Notice, delay, mitigation and dispute resolution provisions are also likely to come into play. This is an unprecedented situation and cooperation and compromise will be the key to completing projects in the most efficient and cost-effective manner possible.
4. Consider Employee Related Issues
Again, employee safety is the top priority while navigating this crisis. The California Health and Safety Administration (Cal OSHA) protects employees from any conditions that provide imminent danger. Moreover, employees may be eligible for protection under the federal Family and Medical Leave Act (FMLA) and California’s corresponding state laws if an employee is deemed to have a serious health condition, which may include COVID-19 depending on the circumstances.
Employers should regularly update employees as to the steps that are being taken to protect their safety. Implement social distancing protocols and facilitate work from home arrangements where possible. Encourage sick employees to stay home and seek treatment if necessary.
5. Review the Company’s Lease
During this time of uncertainty, all opportunities should be explored to minimize overhead. Along those lines, construction professionals should look to their commercial leases to analyze whether any rent relief may be owed for COVID-19 related issues.
Force majeure clauses are once again likely to be front and center in the analysis. Additional issues will also likely center around whether the premises are habitable, accessible and/or condemned. The parties will also need to consider whether government action prevented access to the premises and whether the landlord continued to provide essential services required by the lease.
6. Open a Line of Communication With Construction Lenders
Similar to the lease review, construction professionals should open a line of communication with their lenders to inquire about options with respect to any construction related loans. Lenders may be willing, if not required, to offer deferments or other relief that may assist in freeing up much needed cash flow.
7. Consider Government Assistance
At the time of this publication the president had just signed a $2 trillion economic stimulus package designed to assist those impacted by COVID-19. Even if companies are unable to obtain insurance coverage or other relief, there may be opportunities to recover government funding.
The requirements for making government claims will likely be similar to the requirements for making an insurance claim so much of the information should already be readily available. As with insurance claims, well documented government claims are likely to receive priority.
The COVID-19 pandemic will pass and the construction industry will survive. The key to navigating the crisis as effectively as possible is to get out in front of the foregoing issues and be in the best possible position to 1) maximize potential recoveries from insurance policies and/or government relief programs; 2) mitigate any potential damages; 3) protect employees and limit exposure to employee claims; 4) document potential claims and damages; and 5) minimize overhead.
Do not be afraid to lean on your legal, financial and other professional partners during these trying times as they are uniquely suited to assist with weathering the storm.
For more information contact:
Jason M. Adams, Esq. is a partner at Gibbs Giden representing construction professionals in the areas of Construction Law, Insurance Law and Risk Management and Business/Civil Litigation. Adams is also a licensed property and casualty insurance broker and certified Construction Risk & Insurance Specialist (CRIS). Jason represents developers, contractors, public entities, investors, lenders, REITs, design professionals, and other construction professionals at all stages of the construction process. Jason is a published author and sought-after speaker at seminars across the country regarding high level construction risk management and insurance topics. Gibbs Giden is nationally and locally recognized by U. S. News and Best Lawyers as among the “Best Law Firms” in both Construction Law and Construction Litigation. Chambers USA Directory of Leading Lawyers has consistently recognized Gibbs Giden as among California’s elite construction law firms.