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Your Lease, Insurance Policies, & COVID-19

Linville Team Photograph

Posted By Linville Team

COVID-19 and its various implications are uncharted territory for many individuals across all sorts of different industries. Navigating this new normal may be overwhelming, which is why we want to be a resource to you in any way that we can. As tenants find themselves wondering what the next phase looks like for their business, or perhaps temporarily closing their doors amidst stay-at-home or shelter-in-place orders, landlords may also wonder what this means for their commercial leases. 

Once again, the information we are providing here is far from exhaustive, but hopefully helps you get started in thinking through a plan of action for your specific situation. That being said, particularly when discussing contracts (like leases) or insurance policies, every decision and recommendation must be made on a case-by-case basis. We would be happy to help you review your commercial real estate contracts such as leases and purchase and sale agreements, to help determine a plan of action. For all insurance related questions, please reach out to your insurance agent to review your policy with you.  

Without further ado, if your business or commercial tenant has been affected by the coronavirus epidemic, here are a few considerations as you navigate this season. 

Force Majeure 

Whether you are a tenant or a landlord, it is advisable to look at your lease and see whether it includes a Force Majeure clause. Force Majeure clauses, also known as “Act of God” clauses, excuse a party’s nonperformance under a contract when “superior forces” prevent a party from upholding its contractual obligations. Across many different industries, the current question is whether or not a pandemic, such as COVID-19, constitutes a force majeure that would invoke the enforceability of these particular clauses. The answer to that question is still playing out and will largely depend on your state and even the specific wording in a particular contract. 

With regard to leases, the primary question is whether, if a tenant is unable to remain open due to the coronavirus pandemic, are they excused from certain contractual obligations? Depending on the lease force majeure could apply as a blanket condition to all lease obligations, but it could also require the landlord to provide written notice before the delay clock for the force majeure to begin. 

Property & Business Interruption Insurance 

Another question it seems that a lot of people are asking whether they are protected by their property and business interruption insurance. Property policies cover physical damage to property and business interruption losses. These usually cover a policyholder’s losses when its operations, or those of its vendors, are disrupted. Most of the time, however, the invocation of this is contingent upon direct physical loss or property damage. Some policies include loss of use and function as falling under physical damage. Some policies also provide coverage if there is an order of civil authority that prevents business operations, even if no physical damage. 

If you are unsure whether or not this applies to your losses, the best recommendation is to document everything. If you think that your losses are covered under your policy, call your insurance broker and review your policy. What we have heard from several companies, is that if you are in doubt, it doesn’t hurt to submit your claim as soon as is practicable, however that does not guarantee coverage.  

Other Insurance Considerations  

As a business owner, you likely have a few different insurance types in order to protect you when issues arise. We recommend reviewing any of the following policy types that you hold: 

  • Supply Chain Insurance 
  • Event Cancellation Insurance 
  • General Liability & Umbrella Liability Insurance 
  • Worker’s Compensation Insurance
  • Director’s and Officer’s Liability
  • Employment Practices Liability (EPL) 
  • Cyber Policies
  • Environmental Liability 

All insurance considerations are still evolving at this time. As the COVID-19 pandemic continues to progress, there will likely be developments in coverage applications. We are staying in touch with contacts in the insurance industry and their best recommendation is that you maintain records to prepare for a claim including:

  1. Keeping records of anyone entering your premises
  2. Document any relevant government communications which have caused you to take action 
  3. Take note of any specific locations affected by any action or recommendation
  4. Maintain financial documents regarding costs for financial loss and remediation costs