With more than 115,000 cases confirmed in more than 100 countries, the coronavirus has emerged as an unquestioned global public health threat. While the course of the crisis continues to evolve and governments around the world, particularly in high-risk countries such as China, Italy, and South Korea, mobilize to deal with the immediate threat, the longer-term strategic impacts of the situation also require analysis and strategic planning.

We offer the following preliminary thoughts on the possible business and legal impacts of the virus. The situation remains too fluid to be predictable and there are many legal gray areas and unanswerable questions, but there are also a number of topics that businesses need to be prepared to address in three areas: business interruption issues, employment law and real estate.

Business Interruption

Because the virus originated in the Chinese city of Wuhan, and because of China's role in the operation of the global supply chain, the most immediate legal issue presented by the virus is the disruption of manufacturing in China. As reported in the Wall Street Journal, China's exports declined 17.2% in the January-February period compared with a year earlier—the biggest decline in nearly a year. This disruption ripples into the buyers around the world these companies supply, and ultimately, to their customers.

Many customers are exploring the possibility of filing business interruption insurance claims resulting from lost sales and interrupted supply arrangements. While this coverage is relatively straightforward for interruptions tied to things like fires, floods, and other perils—classic contractual force majeure situations—a public health crisis falls under the much less clear category of a "contingent business interruption"—an event involving the insured's premises that interferes with production. It can be anticipated that, in light of the current crisis, there will be both litigation on the applicability of force majeure clauses as well as a wholesale rewriting of those clauses in future contracts.

As the 2003 SARS epidemic in Hong Kong demonstrated, a key issue in disease-related contingent interruptions is official government recognition of the situation such as classifying it as a "legally notifiable disease." Often, critical policy language limits coverage to cases in which those magic words are present and can spell the difference between coverage and exclusion.

Similarly, interruption coverage language is also often tied to specific events, usually not clearly connected to a disease outbreak but related to the outbreak. For instance, physical damage, cleanup, and decontamination following a disease outbreak might trigger coverage under a policy. It is also possible that coverage might be triggered by a lack of access to a manufacturing facility in the event of a government quarantine.

Ultimately, the specific language of the policy is critical. Review it carefully and bring in experts—attorneys, risk managers, and others—to help you determine if you're covered. This can be particularly tricky in situations where supply agreements may be less than precise in their language, whether those agreements are upstream or downstream. In these settings, factors outside the four corners of a contract can come into play, such as customary industry norms, prior and ongoing emails and phone calls, and prior course of dealing.

Speaking of which, while the crisis is ongoing, one useful approach to managing the situation is plain old communication. While being mindful of your legal obligations, it may be helpful to reach out to your counterparties, as well as others in your industry, to explore what, if any, modifications to your existing business arrangements might be feasible. Whether those solutions are extensions of deadlines, renegotiation of financing arrangements, or other remedies, nobody involved in any business arrangement wants to see the entire agreement collapse. Often, a solution can be worked out and merits exploration.

In the short term, because of the exingencies of the situation, those whose businesses are coming under financial pressure as a result of significant supply chain disruptions may be more willing than usual to engage in settlement discussions.

Employment Law

Employers must be ready to address the delicate balancing act that must be performed between ensuring that workers have a safe (disease-free) workplace and protecting employee rights, particularly confidentiality.

Whether an American employee has been in a country hard-hit by the virus, such as China, Italy, or South Korea, or whether the employee has been in potential contact with an infected person in this country, the employee may be subject to an involuntary quarantine imposed by a foreign government or a U.S. state or local government. Each state's law will regulate what rights these employees may have and whether these employees (1) should be entitled to paid leave while quarantined or (2) may be terminated. It can be anticipated that if litigation arises, even if there is no specific federal or state prohibition on termination, courts may try to find ways to lessen the impact of termination on an employee.

If an employer suspects that one or more of its employees poses a potential risk of spreading the virus, whether they are symptomatic or not, there is a question whether the employer can mandate health screenings for particular (as opposed to all) employees, as well as whether that employee should be required to be quarantined (or at least kept away from the office). If there is a requirement that the employee not come to the office, there will be issues of whether the employer will be required to provide equipment for remote work from the employee's home and, if not, whether the employee is entitled to pay while quarantined.

Asymptomatic employees pose a trickier challenge. Consider, for example, an employee who has recently returned from travel in South Korea and exhibits no symptoms. Given the potential severity of the disease, employers may wish to consider requesting that that worker stay home until the incubation period (10-14 days) has run its course. It is conceivable that the worker could attempt to file a "regarded as" disability claim. Employers will need not only to consider the federal and state law implications of such claims but also to start discussions now with their insurers to decide how to address this issue should it arise. It is theoretically possible that, by basing actions solely on an employee's travel history rather than national origin, employers may be able to avoid discrimination claims, unless the travel was in connection with work. It is essential, however, to take all possible measures to protect confidential information, particularly medical records and to ensure that protecting the health of all employees occurs without disclosing sensitive information.

Real Estate

If fears of contagion spread, it is likely that all commercial real estate may see a decline. Retail businesses may find that their regular flow of customers is substantially reduced. Service businesses may find that their hours are curtailed because employees are quarantined or because customers do not want to come to a place where they have to physically interact with employees, such as barber shops, restaurants, and beauty parlors. Commercial property values may decline, rent rates may decline, and the ability of tenants to make their lease payments may increase loan default rates.

Already there are reports of the huge impact the virus is having on small businesses in Northern Italy and parts of China. If that kind of impact begins to be felt in the United States, whole sections of the country might experience a drastic change in commercial real estate values.

Conclusion

With the situation changing daily and with new cases constantly being diagnosed, it can be anticipated that this crisis will not abate quickly. Businesses therefore need not only to plan for the immediate impact on their employees but also on the longer-term impact on their business plans.

Magdalen Blessey Bickford is a member of McGlinchey Stafford, a full-service law firm providing innovative legal counsel to business clients nationwide.