US: Lawsuits against Businesses over the

Coronavirus are only beginning

In just a few weeks the Coronavirus has caused thousands of deaths, turmoil in the markets, disrupted supply chains and forced quarantines. Now the legal fallout from the Coronavirus has started.

Some cases have already been filed: The pilots’ union at American Airlines Group Inc. sued the carrier to stop it from serving China, while the city of Costa Mesa, California, sued the U.S. government to halt the transfer of quarantined cruise passengers to a state-owned facility there. A suit seeking class-action status alleges that the maker of the hand sanitizer Purell exaggerates its product’s powers to prevent illness.

Hospitals, restaurants, day care centers, nursing homes and hotels may face claims that they did not take appropriate measures to protect people. Shareholders can sue if companies fail to act effectively in response to the epidemic. Businesses are frantically checking to see if their insurance policies cover disruptions caused by the virus. Many will find that they are not covered. Governments are reviewing their quarantine powers.

It can be expected that there will be a surge in the number of disputes over whether force majeure clauses, which frees a contract’s parties from their obligations in the event of an “act of God,” apply to the outbreak. Manufacturers may sue over missed deadlines, while suppliers could sue energy companies, which have already stopped taking some shipments as transportation demand dwindles.

The fallout from business disruptions is going to be “very significant in a way we haven’t seen before,” said Joe Balice, a litigator with Brutzkus Gubner in Los Angeles who represents clients in the textile and apparel industry, many of them hit by factory shutdowns in China.

Companies could argue they can’t perform under a contract because they can’t get supplies from China or their people wouldn’t come to work. Insurers are likely to find themselves in court as businesses dispute the interpretation of clauses in their insurance policies.

Business disruption insurance claims typically deal with physical damage, like a factory that has burned down, not closures ordered to control a virus, Balice said. “This could be an area of insurance litigation for many years to come,” he said.

Companies will also need to take steps to limit the risk to their employees.

Several companies have already limited business travel and encouraged employees to work from home. Many industry conferences have been scrapped to prevent large gatherings from spreading the virus. Some Companies fear they may be held liable for workers’ participation in meetings or corporate events where employees are exposed. Privacy rules are another complication for companies trying to respond to the virus. “What can they and can’t they ask their workforce about their potential exposure to the virus, travel activities and medical history?” said David Newman, a partner at Morrison & Foerster in Washington, who is leading the firm’s task force on advising clients about the outbreak.

Businesses that have daily contact with the public or who deal with captive populations are also at risk of getting sued, said Carl Tobias, a University of Richmond law professor who teaches mass torts. He cited nursing homes, like the one in Washington state whose residents account for many of the U.S. casualties so far. “The claim could be they didn’t move quickly enough to protect residents once it was clear the virus was a danger, or that they didn’t have proper contingency plans in place,” Tobias said.

Airlines have spent years in European Union courts battling and shaping rules on when they should compensate passengers. The EU’s Court of Justice might again have to weigh in on whether the companies could claim extraordinary circumstances beyond their control to avoid new payouts, EU Transport Commissioner Adina Valean said at a press conference Monday.

Government efforts to fight the virus through mandatory quarantines and other such steps are another potential source of litigation. Henry Greenberg, president of the New York State Bar Association and a former general counsel of the state’s health department, said officials have “tremendous authority” to trace and isolate virus carriers, based on a “vast body of law” over communicable diseases. The trick for government officials is to weigh public health against individual rights and avoid excesses, he said, citing “some overreaction and stigmatizations” that occurred when health workers who treated Ebola patients in Africa returned to the U.S. in 2014.

Claims involving the government have already arrived. In addition to Costa Mesa’s suit over the proposed transfer of the cruise passengers, San Antonio has sued U.S. Health and Human Services Secretary Alex Azar and other officials over the government’s quarantine of a cruise passenger in the area after she was cleared by two tests for the virus. A third test came back positive — after her release.

A dozen passengers from the ship, the Diamond Princess, have contacted Miami-based Lipcon, Margulies, Alsina & Winkleman to explore litigation against Princess Cruises parent company Carnival Corp., and several have retained the firm, partner Michael Winkleman said. “It’s a very difficult situation for the company, but they should have been familiar from handling previous norovirus cases on board,” he said, adding that the question is “whether they pursued all reasonable and proper care.” The cruise line said it did.

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This document is for information purposes only and does not purport to represent legal advice.  
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