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Sources Of Disputes, Legal Arguments, And Financial Recovery In the Wake Of Covid-19 and Businesses Interruption

On Behalf of | May 7, 2020 | Firm News |

Zarco Law Is Here To Help You:

COVID-19 has thrown our way of living into treacherous and unchartered waters.  With each passing day, the scare of this novel virus is causing our emotionally charged government officials at every level to react with decisions that effectively strip our ability to work, shop, play and interact normally in order to slow or prevent the spread of this viral outbreak while causing economic mayhem.  While the effects of this new-normal will last months, the challenges in wake of the current situation to people’s livelihood could last years!

The nationally renowned and highly experienced business litigation and trial attorneys at Zarco, Einhorn, Salkowski are here to proactively help you navigate the legalities and disputes from the economic fallout caused by the turbulence of these previously unchartered waters.  We recognize that the impacts are severe and broad, with potentially deep-lasting impact to your ability to survive financially the resulting effects that are no fault of your own.

For this reason, we highly recommend you to seek qualified and experienced legal counsel, especially a trial lawyer who understands how to frame arguments supported by legally precedent-setting cases, and not play lawyer yourself!  There is an art to even filing insurance claims, specifics must be provided with supporting language from the policy, and one size does not fit all!  What and when you say, don’t say, and report to your stakeholders matters!  Deadlines and notice provisions are key, as well as looking at your situation and opportunities for recovery holistically versus piece-meal.  Facts, ambiguities and contradictions in specific contract agreements contain key subtleties in mounting a proper case and defense!  If you have an insurance policy, don’t take the word of an agent or insurer on whether you’re covered, they usually don’t know and taught to answer a specific way, or may be motivated to look after their own best interest!


The Government’s utilization of its Civil Authority to force shutdowns of our entire way of life and ability to operate our business is having a major impact on our life savings, businesses’ bottom lines, and our ability to follow through on our contractual obligations to our business partners.  This ripple effect includes the requirement of closing our businesses, creating an absent and fearful workforce with obligations for their employees’ compensation, disruption of supply chains, cancellations of reservations and bookings, relying on previously rare and somewhat untested technologies to work virtually and remotely, and so much more.

Businesses are undoubtedly stressed to find ways to manage decreased cash flows and stop the bleeding losses to recoup or minimize the damage for their losses of income, assets, and brand value during and in the aftermath of this unforeseen ‘tragedy’.  What follows is a discussion of some but not all of the legal principles that may come into play as we consider a multitude of legal arguments and business strategies we have used over the last 35 successful years in practice to protect the economic interests of our clients as it relates to their contractual and other business obligations.


There are numerous sources of financial relief strategies that exist for businesses, including but not limited to franchises, dealerships, restaurants, hotels, and others.  Requesting rent relief from the landlord presents an enormous opportunity to protect cash flow from a large expense item with a huge potential impact to the bottom line.  This can come in the form of rent reduction or deferment, whether temporarily or permanently over the long term.  Businesses can also request vendors to defer invoices for goods and services over a longer term as well.  Banks can be requested to defer loan payments.  Franchisors may be requested by their franchisees to abate or defer royalties and fees, provide low interest loans, delay remodels and store development, etc.  Though tenable, the domino effect up and down the stakeholder chain makes some of these strategies a real challenge since they, in turn, have other contractual obligations to their lenders, employees, contractors, customers, etc (ie. taxes, common area maintenance, bank loans).


This very important type of coverage in a business insurance policy is crucial and intended to cover for lost income sustained as a result of a covered peril in order to allow for the continuity of your business into the future.  Not everyone buys insurance policies that include this type of coverage, and in many cases, business interruption coverage is an added option.  In insurance, premium prices are a function of the actuarial financial risk to the insurer and the insured, so you need to be informed of what’s available and what you’re buying; read your policy!  Even when specific Exclusion language exists in an insurance policy that makes the case seem completely defeated and untenable, our talented and creative team is armed with legal arguments that will help us navigate through the treacherous waters of obstructive defenses created by the insurance companies seeking to escape their contractual obligations.  Each case may differ based on specific policy language which requires a skilled, experienced, and creative attorney to interpret; that’s where our team of attorneys come in and shine as our successful track record proves for over 30 years.

Civil Authority coverage, for instance, applies when a local, state, or federal government mandates by prohibition to ‘limit access’ to any aspect of your business which is critical to a business owner’s ability to conduct his normal operations.  This coverage requires loss by an actual covered peril to other property in close proximity to the insured’s property resulting in direct physical loss or damage, not merely by threat or for preventive purposes.  While this requirement of a physical loss is often cited as a reason to deny coverage from a virus, there is legal precedent and case law in some courts that a virus can in fact result in physical loss or damage!  For instance, there are case law examples where odors and substances in the air constitute direct physical loss, such as in New Jersey with ammonia, in Colorado with gasoline, and even one of an unpleasant odor in Massachusetts that rendered the properties uninhabitable, unusable and significantly reduced in value.  Also, the policy’s requirement under civil authority that access to the property be prohibited can directly oppose and conflict with the policy’s other typical language that invokes the insured’s responsibility to ‘mitigate’ the loss, such as by using an unaffected portion of the property, or offering deliveries.  The specific policy provisions taken in combination with the micro and the macro view, and interaction with each other, the specific court presiding over the case, as well as the quality of the lawyer conceiving and making the arguments of the case are all keys as to the whether there is an opportunity to prevail on covering losses.

Contingent Business Interruption Insurance is when the loss is indirect as caused, for instance, by the inability of a supplier to perform his obligations with the Insured (business owner) due to no fault of his own as considered covered by the business owner’s insurance policy. These principles will play a huge role in navigating the contractual obligations and legal strategies that will recover the loss of revenue as well as the expenses required to pay during this crisis.

If covered by insurance, to what extent does pursuing the claim make financial sense given the coverage limits, sub-limits, co-insurance, and deductible?  Is it an All-Risk Policy?  Are there exceptions, limitations to the policy Exclusions, or endorsements that were purchased to gain a particular coverage that was otherwise excluded?  How long is this interruption and virus going to persist, and how does that affect the financial damages?  The complexity of the situation and these documents makes an experienced, quality business trial lawyer best qualified to brainstorm, advise you, and handle these matters at your side.  Broker/Agents and Insurers are not necessarily aware, knowledgeable, or working in your best interest!


Under the contract doctrines of Impossibility of Performance and Frustration of Purpose, a party is discharged from performing a contractual obligation due to no fault of their own, it is impossible or futile to perform, the party could neither have foreseen the risk at the time of entering into the contract, or could they have prevented the event(s) in question from occurring in the first place.  But how long is this impossibility to perform, is it permanent or temporary, how does that affect the brand and customer base, and how does that play into the overall picture?  Is rent still owed to landlords by the legal doctrine of Frustration of Purpose when the business was forced to shut down by no fault of their own, and therefore there is no reason to pay rent for the location to generate income in the first place?!   Franchise agreements commonly include a contract clause with the requirement to ‘Obey all Laws’ which can be argued to be in direct conflict with the doctrine of frustration of purpose!  These and other legal doctrines may provide legal defenses for business owners to not have to continue to perform their contractual obligations.  Although business owners have the responsibility to MITIGATE or take reasonable steps to reduce the damage as reasonably possible, these doctrines provide much needed protection. In other words, most contracts contain language that requires the party to take proactive steps to meet and perform their contractual obligations with prudence, diligence, and care by reasonable efforts subject to the above defenses.


Force Majeure is a defense to contractual obligations to perform and arises when parties cannot reasonably foresee nor control an event, which prevents either party to perform their contractual obligations. An Act of God may be considered as force majeure; it refers to a [natural phenomenon that is exceptional, inevitable, and irresistible, and which its effects could not be prevented or avoided by the exercise of due care or foresight.] (Black’s Law Dictionary 11th ed. 2019)  It stands to reason that businesses would not have the ability to prevent the COVID-19 outbreak by reasonable care or foresight.  In fact, the Director-General of the World Health Organization on March 2, 2020 in a media briefing said “We are in unchartered territory.  We have never before seen a respiratory pathogen that is capable of community transmission, but which can also be contained with the right measures.”  This is where the various governmental entities stepped in to mandate by civil order quarantines, lockdowns, and business closures in attempts to prevent the spread of the virus and shorten its life cycle.  The punitive one-size-fits-all measures imposed on everyone included the required closure of businesses, imposed travel bans, stay at home orders, etc.  Clearly, none of this is within the control, fault, or negligence of the businesses gravely affected, but instead a government imposition of its civil authority for the health benefit of the communities at large.  In essence, the existing contractual obligation(s) between the parties renders such requirements objectively impossible to perform (fear, threat, or uncertainty notwithstanding as a legally unacceptable excuse).


Customers, employees, tenants, and vendors will expect to be protected by establishments in the new normal course of the operation of the business as it moves forward after the coronavirus pandemic.  This new- normal will likely require, and create liability if not provided, for social distancing, protocols and tools for improved hygiene (ie. gloves, masks, soaps, signs), proper ventilation systems that cleans the air, precautionary signs, modified employee policies and procedures protocols, and so much more.  We are in a new paradigm.


Zarco, Einhorn, Salkowski is currently working on these and other litigation matters arising from this pandemic for our clients.  We want to hear your particular circumstances right away to offer you creative solutions to try and solve your legal business challenges and needs during this frightening period!  Time is of the essence; it is always best to be prepared and seek our legal guidance prior to contacting your insurance company and making a claim.  Recognizing the financial need of our clients, Zarco Law will be handling most cases on a primarily success-based contingency basis in addition to a small upfront fee and actual reasonable costs, depending on the extent, complexity and duration of individual cases.  We also offer a free initial consultation.  Feel free to visit our website at and call our firm at 888-580-7844, or contact Robert Zarco at  [email protected] to discuss your options and to enhance the likelihood of obtaining a successful outcome for your business.