Category: Health

The COVID-19 Pandemic and Your Company’s Corporate Disclosures: Key Takeaways from the SEC’s Recently Issued Guidance

The SEC Division of Corporation Finance (the “Division”) recently issued guidance to highlight some of the COVID-19 pandemic-related considerations companies need to bear in mind as they prepare their corporate disclosures. The guidance included three main topics: (1) disclosing the ways COVID-19 may affect the company, both now and in the future; (2) refraining from trading on material, non-public information about the company until that information is publicly disclosed; and (3) reporting company financial information when GAAP financial measures are unavailable. The guidance emphasizes that health and safety are the first priority and should not be compromised to meet reporting requirements.

Takeaways from each topic are outlined below. The full guidance is available here on the SEC website.

Assessing and Disclosing the Evolving Impact of COVID-19

Companies should disclose the effects and risks of COVID-19 as part of their upcoming disclosures. Disclosure of COVID-19-related effects and risks could be included in management’s discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and the financial statements.

The guidance includes questions designed to encourage companies to consider all the possible ways COVID-19 affects their current and future operations. Generally, companies are asked to assess and disclose the effects COVID-19 has had on a company, what management expects its future impact will be, how it is responding to evolving events, and how it is planning for COVID-19-related uncertainties. A company should disclose if COVID-19 is expected to impact future operations differently than how it affected the current period.

Before assembling COVID-19-related disclosures, management should read through and analyze the full set of questions included in the guidance. Companies are encouraged to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management.  Additionally, companies should proactively revise and update disclosures as facts and circumstances change.

Need to Refrain from Trading Prior to Dissemination of Material Non-Public Information

Where COVID-19 has affected a company in a way that would be material to investors or where a company has become aware of a risk related to COVID-19 that would be material to investors, the company, its directors and officers, and other corporate insiders who are aware of these matters should refrain from trading in the company’s securities until such information is disclosed to the public. Further, companies need to consider whether they may need to revisit, refresh, or update previous disclosures to the extent that the information has become materially inaccurate.

Reporting Earnings and Financial Results

The Division recognizes that the impact of COVID-19 may present a number of novel or complex accounting issues that may take time to resolve. These complexities may make it necessary to present a non-GAAP financial measure in company reporting. Companies should not use non-GAAP financial measures or metrics to present a more favorable view of the company. Disclosures should only include those non-GAAP financial measures a company is using to report financial results to the Board of Directors.

Companies should reconcile any non-GAAP financial measures to preliminary GAAP results that either include provisional figures based on a reasonable estimate, or a reasonable range of GAAP results. A non-GAAP financial measure should not be disclosed more prominently than the most directly comparable GAAP financial measure or range of GAAP measures. Companies should additionally disclose why the line item or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting. In filings where GAAP financial statements are required, such as filings on Form 10-K or 10-Q, companies should reconcile to GAAP results and not include provisional amounts or a range of estimated results.

Copyright © 2020 Ryley Carlock & Applewhite. A Professional Association. All Rights Reserved.

For more on the SEC’s COVID-19 response, please see the National Law Review Coronavirus News page.

EPA Announces Additional Action to Assure Availability of Disinfectant Products for Use Against the Novel Coronavirus

On March 31, 2020, the U.S. Environmental Protection Agency (EPA) announced it is taking further action to help ease the production and availability of EPA-registered disinfectants by temporarily allowing manufacturers of certain already-registered EPA disinfectant products to obtain certain active ingredients from any source without prior approval from EPA.  This only applies to products on EPA’s List N: Disinfectants for Use Against SARS-CoV-2 (List N).  EPA announced on March 26, 2020, similar action on certain inert ingredients.

EPA typically requires disinfectant manufacturers to first apply for and receive EPA approval prior to making a change in the source of the active ingredient.  Under this temporary amendment, however, manufacturers can source certain active ingredients from alternate suppliers by informing EPA.  Once EPA has been notified, the registrant can immediately distribute or sell a product modified according to this temporary amendment, provided that the resulting formulation is chemically similar to the current formulation (i.e., the purity of resulting product from the alternate source falls within the certified limits of the currently registered formulation for which they are making the source change).  EPA states that by allowing manufacturers to obtain certain active ingredients from any source it will help alleviate reports of supply chain disruptions by pesticide registrants who manufacture disinfectant products on List N.

The eligible active ingredients are:

  • Citric Acid, Chemical Abstracts Service Registry Number (CASRN) 77-92-9;
  • Ethanol, CASRN 64-17-5;
  • Glycolic Acid, CASRN 79-14-1;
  • Hydrochloric Acid, CASRN 7647-01-0;
  • Hypochlorous Acid, CASRN 7790-92-3;
  • Hydrogen Peroxide, CASRN 7722-84-1;
  • L-Lactic Acid, CASRN 79-33-4; and
  • Sodium Hypochlorite, CASRN 7681-52-9.

EPA will assess the continued need for and scope of this temporary amendment on a regular basis and will update it if EPA determines modifications are necessary.  EPA will notify the public at least seven days prior to terminating this temporary amendment at www.epa.gov/pesticides.

After the termination date of the temporary amendment, registrants will not be able to release for shipment new registered product unless that product is produced using a source of active ingredient identified in the product’s approved Confidential Statement of Formula (CSF) or otherwise would have complied with relevant requirements in the absence of this temporary amendment.

EPA states in its temporary amendment to Pesticide Registration (PR) Notice 98-10, the following procedures to submit a notification for currently registered disinfectant products listed on EPA’s List N:

  • A cover letter with a subject line that clearly indicates that this is a “notification per TEMPORARY AMENDMENT TO PR NOTICE 98-10 (Insert date or other citation) for EPA Registration No. XXXXXX and [insert product name]”;
  • The active ingredient; and
  • The following statement:

[Name of Registrant] is notifying EPA of its intent to use one or more alternate, unregistered sources of active ingredient listed in the TEMPORARY AMENDMENT TO PESTICIDE REGISTRATION (PR) NOTICE 98-10 (Insert date or other citation) in the formulation of EPA Registration No. [xxx-xx].  Each source is chemically identical to (i.e., within the certified limits of) the active ingredients in the Confidential Statements of Formula previously accepted by EPA [insert CSF date(s)]. This self-certification is consistent with the provisions of PR Notice 98-10 and no other changes have been made to the Confidential Statement of Formula or labeling of this product.  Further, I confirm that the ingredients statement of this label remains truthful.  I understand that it is a violation of 18 U.S.C. Section 1001 to willfully make any false statement to EPA.  I further understand that if this self-certification is not consistent with the terms of PR Notice 98-10 and 40 C.F.R. 152.46, this product may be in violation of FIFRA and I may be subject to enforcement actions and penalties under section 12 and 14 of FIFRA.

Applications must be submitted via the CDX portal.  At this time, EPA is not accepting paper applications.  Once an application is submitted, EPA requests that an email is sent to disinfectantslist@epa.gov with the CDX tracking number (CDX _ 2020 _ XXXXXXX).  A registrant may distribute or sell a product modified according to this temporary amendment to PR Notice 98-10 once EPA receives the notification.

©2020 Bergeson & Campbell, P.C.

For more on COVID-19 hygiene and other concerns, see the National Law Review Coronavirus News page.

OSHA Issues Guidance on Preparing for COVID-19

1) OSHA has issued a comprehensive document “Guidance on Preparing Workplaces for COVID-19.”

That Guidance categorizes employers under “Very High Risk,” “High Risk,” “Medium Risk,” and “Lower Risk,” categories.  The employer should first determine under which category the employer falls.  Then the employer should further review the Guidance to determine which “engineering,” “administrative,” “work practice,” and “Personal Protective Equipment” (PPE) measures apply to their company and implement those measures, called “controls” by OSHA.  One control is the erection of physical barriers, such as plastic sheeting to cordon off certain areas from the free flow of air typically in the hallways.

2) Many employers wonder if coronavirus cases are recordable on their 300 logs. Coronavirus, COVID-19, is not an exception to the OSHA Recordkeeping rule.  Therefore, if the coronavirus, COVID-19, diagnosis is confirmed, is work related, and results in treatment beyond first aid, lost time, modified duty, or other recordable circumstance, then it is recordable, and needs to be recorded as an illness on the OSHA 300 log.  If a work-related COVID-19 case for an employee results in in-patient hospitalization, then it is reportable within 24 hours of that in-patient hospitalization to the OSHA Area Office or the national OSHA line.

3) The EEOC has issued guidance that employers in this situation are allowed to take the temperatures of incoming employees.  Typically taking the temperature of an employee is considered a medical examination that must be justified by business necessity.  In the current pandemic situation, employers who test all employees coming to work each day have the business necessity of the pandemic to justify that examination.  Employers should take the temperature of all employees if that will be the employer’s practice, a control to protect other employees in the manufacturing plant or construction site.

4) Also, when using respiratory protection as PPE, the employer must either implement a respiratory protection program with mandatory fit testing, medical evaluation, training on usage and storage, and sufficient facilities for cleaning and storage.  Or, if the employer considers the program voluntary, the employer must provide each employee with Appendix D to inform the employees of the uses and limitations of certain types of masks.  OSHA has issued temporary guidance during the pandemic to relax the annual fit testing requirement, but the temporary guidance requires the employer to follow stringent measures, such as:

  • Perform initial fit tests for each HCP with the same model, style, and size respirator that the worker will be required to wear for protection against COVID-19 (initial fit testing is essential to determine if the respirator properly fits the worker and is capable of providing the expected level of protection), and give workers training on the suspension of annual fit testing to preserve respirators, and then explain the importance of the user seal check, then nevertheless to conduct a fit test if there are visual changes in the employee’s physical condition to affect the seal, and other training.
  • Click here to see the complete guidance before seeking to employ any such suspension, rigorously follow the criteria listed in the publication.

OSHA is out inspecting workplaces and issuing citations.  Be very careful about the use of respirators by your workforce without having the proper program, or, in a voluntary situation, providing the Appendix D.

© Steptoe & Johnson PLLC. All Rights Reserved.

More governmental agency guidance on COVID-19 on the National Law Review Coronavirus News page.

Trademark Applicant & Chinese IP Agency Fined for Malicious Registration of Coronavirus Related Trademarks

On March 26, 2020, the Shaoxing Market Supervision Bureau of Zhejiang Province fined a Chinese intellectual property firm, a trademark applicant and a trademark agent responsible for attempting to register a trademark for “Li Wenliang” (李文亮), a famous doctor that later succumbed to COVID-19 after earlier attempts to warn others of a possible new outbreak.   Specifically, the Bureau fined applicant Yang Mofang, the agency Shaoxing Intellectual Property Agency Co., Ltd. and the trademark agent Chen Mougang 2,000 RMB, 20,000 RMB and 10,000 RMB respectively. This is believed to be the first time a trademark applicant was fined for malicious filing of a trademark.  This is the second IP agency to be fined.

On March 3, 2020, the Shaoxing Market Supervision Bureau was informed that Shaoxing Intellectual Property Agency Co., Ltd.  represented the trademark applicant Yang Moufang for the trademark registration application of “Li Wenliang.”  On the 4th , the Municipal Bureau’s Trademark Advertising Office and the Comprehensive Administrative Law Enforcement Team conducted surprise inspections of relevant business establishments, conducted administrative interviews with relevant responsible persons  and required them to withdraw their applications immediately. In the afternoon, the agency quickly withdrew the trademark registration application. On the 5th, the Shaoxing Municipal Bureau filed an investigation on the applicant, agency and directly responsible person for the malicious registration of the “Li Wenliang” trademark. On March 26, administrative penalties were imposed on the relevant parties.

Per the Bureau, “Li Wenliang was a Wuhan Central Hospital ophthalmologist  unfortunately infected in the fight against new coronavirus epidemic. After his sacrifice, public opinion in the whole society was highly concerned and he had achieved a high degree of popularity and influence in the country. Several parties in the case knew or should have known these circumstances and still applied for trademarks on Dr. Li, which could easily cause significant social adverse effects.”

© 2020 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

For more on IP and other COVID-19 affected industries, see the dedicated National Law Review Coronavirus News page.

COVID-19 Impact on Executive Compensation – Salary/Wage Reductions

Companies impacted by the COVID-19 pandemic, including the concomitant widespread shelter in place orders, may be considering pay cuts for some or all of their workforce, either in addition to or instead of furloughs and layoffs.  In implementing salary or wage reductions, companies should be mindful of federal, state and local wage and hour and labor laws, consent and notice requirements under contractual agreements with individual employees or groups of employees, tax implications on subsequent “make-whole” or “make-up” payments, impact on employee benefit plan participation, governance considerations, and disclosure requirements for public companies.

Prior to implementing salary or wage reductions, companies should:

  • IDENTIFY affected employees and applicable state or local law:
    • Who are the employees affected by potential salary or wage reductions? Are they exempt or non-exempt? Are they part-time or full-time? How many employees are affected at any single location? Will company executives be impacted?
    • Is the salary or wage reduction being undertaken in connection with a reduction in hours? If so, is the reduction proportionate?
    • What state or local law is applicable to the employee’s employment?
    • What are the state and local requirements for the notice, if any, that must be provided to employees prior to or following a wage reduction?
    • Would a reduction result in the employee’s wage falling below the threshold level for exempt classification (currently $684 per week under federal law)?
  • REVIEW the potential effects of a salary or wage reduction under applicable law, contract, agreements, offer letters, and employee benefit plans:
    • Is the employee a party to an employment agreement, offer letter, or other agreement or arrangement that sets base salary? If so, does it expressly provide that base salary cannot be reduced, such that it would need to be amended?
    • Is the employee covered by an agreement, offer letter, or plan with a “good reason” or similar definition that would trigger severance, equity award accelerated vesting, or other rights as a result of a salary reduction? Is there an exception for across-the-board salary reductions and, if so, whether a limit or such reduction applies?
    • Does the employee participate in employee benefit plans and programs (e.g., group health plans, retirement plans, 401(k) plans, severance benefits, and vacation programs) that may be impacted by a reduction in hours and/or salary or wage reduction? For example, salary reductions may reduce an employee’s severance entitlement, pension accrual or matching contribution.
    • Does the company’s employee handbook address salary or wages during a leave of absence or furlough?
  • ACT to execute waivers, deliver notices, take action with respect to employee benefit plans and, for publicly traded companies, provide disclosure of the salary reduction where necessary:
    • Obtain consents to salary or wage reductions and waivers of “good reason” from employees as needed.
    • Provide advance notice in accordance with applicable state and local requirements.
    • Take any necessary actions under employee benefit plans and programs to continue or end coverage/participation, as applicable.
    • Prepare and file disclosure if/as required for public companies (e.g., Form 8-K, press release).
    • Consider creating a working group including representatives from HR, legal, and investor relations to coordinate actions and communications to internal and external interested parties.

 

Wage and Hour considerations; Notice considerations

A number of states and some cities require companies to provide employees with notice of salary or wage reductions and/or notice of hours reductions within a certain number of days in advance of the reduction or within a certain period following the company’s decision to take such actions. Companies with operations in multiple states should confirm with labor/employment counsel whether state or local notice is required. If notice is required, the content of the notice should be reviewed by counsel to confirm that the messaging of the notice is consistent with the company’s approach for labor, employment, employee benefit plan, contract, and tax purposes.

In considering whether to reduce salary or wages of employees classified as “exempt” under the federal Fair Labor Standards Act, companies should carefully analyze applicable federal and state law (for example, exempt employees who perform any work during a work week are generally entitled to full salary, subject to limited exceptions).  Companies should also analyze whether such a reduction would be reasonably likely to result in the employee’s wage being reduced below the threshold level for exempt classification ($684 per week under federal law and $1,125 per week under New York law). If so, companies should consult labor/employment counsel with respect to the best approach with respect to such employees.  Additionally, while outside the scope of this blog post, companies that have employees represented by a union or subject to a collective bargaining agreement, should review any limitations or prohibitions under those agreements.

Contractual agreements

Compensatory arrangements entered into by companies with their employees, particularly with respect to their executive teams, and other arrangements maintained by companies (e.g., severance plans, equity plans, incentive compensation plans) often include provisions that require a specified salary to be paid and/or allow the employee to terminate his or her employment for “good reason” as a result of a salary reduction.

A common provision in good reason definitions is a reduction in the employee’s base salary and/or target bonus opportunity.  Once an employee’s good reason provision is triggered, and assuming that the wages are not reinstated within a short period of time or the employee does not consent to such reduction, the employee could terminate his or her employment and be entitled to severance, accelerated equity vesting, or other rights.  Certain agreements contain exceptions to these provisions for company-wide reductions or similar reductions across the senior-executive team, sometimes up to an overall cap.

In addition, employment agreements or offer letters may expressly provide that an employee’s base salary cannot be reduced below the stated level. If so, a reduction without the employee’s consent could result in a contractual claim. Further, amendments to or terminations of certain broad-based plans providing for specified levels of compensation may be limited or delayed by the provisions of the plan or certain advance notice requirements under the Employee Retirement Income Security Act of 1974.

Companies considering broad-based salary or wage reductions should review their employment agreements, offer letters, and any other agreements that require payment of a specified salary or that contain good reason protections, and should discuss with executive compensation and benefits counsel whether reducing wages could trigger unintentional contractual or administrative claims or severance obligations.

Tax considerations

Companies considering providing for salary, wage, or other compensation reductions in connection with the opportunity of a later guaranteed or conditional (i.e., merit or performance based) “make-whole” or “make-up” payment should be cautious, as such an arrangement could potentially result in an impermissible deferral of compensation under Internal Revenue Code Section 409A (“Section 409A”).  Generally speaking, Section 409A, which governs non-qualified deferred compensation arrangements, requires elections to defer compensation to be made no later than December 31 of the calendar year before the calendar year in which the employee performs the services to which the compensation relates (there are certain exceptions with respect to performance-based compensation that may be applicable to bonuses, but a discussion of these exceptions is beyond the scope of this blog post). If an employee’s consent is required for the compensation reduction and if in connection with such reduction, the company commits to paying additional compensation to the employee in a future taxable year, this type of arrangement could result in adverse tax consequences to the employee (including a 20% additional income tax in addition to applicable income tax). Companies should consult executive compensation and benefits counsel before implementing any program that includes a “make-whole” or “make-up” payment that could be paid in a calendar year following the calendar year of the compensation reduction.  Companies considering such programs should also consult executive compensation and benefits counsel to determine whether Congress, the Treasury Department, or the Internal Revenue Service have issued relief under Section 409A or other guidance in light of the COVID-19 pandemic and widespread salary/wage reductions.

Employee benefit plan considerations

Salary or wage reductions, especially when coupled with layoffs or furloughs, may impact employees’ participation in employee benefit plans. Companies should discuss the impact of a salary or wage reduction with their employee benefits counsel. In particular, companies should:

(1) Review their group health plan and Affordable Care Act requirements to assess requirements for continued coverage, either as an active employee or through COBRA, and the cost for that coverage;

(2) Monitor FSA and Dependent Care FSA contributions to be sure they are properly made depending on the facts; and

(3) Consider the effect of salary or wage reductions on 401(k) contributions and outstanding loans.

Governance considerations

In implementing salary or wage reductions, companies should confirm that such actions are approved at the appropriate level for corporate governance purposes. While decisions to reduce salary and wages for rank-and-file employees may in some cases be made by company management, salary and wage reductions for senior management and executive officers and director fee reductions should be approved by the Compensation Committee or the full Board, as applicable. Companies should consult executive compensation and benefits counsel to review governance documents (including Compensation Committee charter) and prepare the necessary approvals.

Public company disclosure considerations

For public companies, Form 8-K rules generally require disclosure of information that is important to security holders, including disclosure of information under Regulation FD and events material to corporate governance and management.  Broad-based or selective salary or wage reduction programs may trigger disclosure on a Form-8-K (whether under Item 2.05 as steps taken in connection with exit or disposal activities, Item 5.02 as a material amendment of a material management contract or Item 7.01 / Item 8.01 as Regulation FD disclosure or voluntary disclosure) and filing requirements should be carefully reviewed and considered by public companies with counsel. Contracts entered into in connection with salary or wage reductions may be required to be filed with the company’s next quarterly or annual report.

Our executive compensation lawyers are tracking the companies that have been implementing salary and wage reductions and are available to discuss the alternatives that other companies have been implementing.

© 2020 Proskauer Rose LLP.

For more on employment considerations amid the COVID-19 pandemic, please see the Coronavirus News section of the National Law Review.

DOL Publishes Additional FAQs, Making Clear That Employees on Furlough or Layoff Are Not Eligible for FFCRA Paid Sick Leave or Expanded FMLA

The Department of Labor issued additional FAQs on Thursday March 26. They now offer 37 FAQs on how the paid sick leave and expanded FMLA leave under the Families First Coronavirus Response Act will apply. The leave obligations begin April 1, 2020.

As more and more employers are required to shutdown due to state orders or layoff employees due to business concerns, a frequently asked question is whether the employees impacted by these closures and layoffs will still be eligible for paid sick leave and paid FMLA leave under the FFCRA. According to the FAQs issued by the DOL, they will not:

24. If my employer closes my worksite on or after April 1, 2020 (the effective date of the FFCRA), but before I go out on leave, can I still get paid sick leave and/or expanded family and medical leave?

No. If your employer closes after the FFCRA’s effective date (even if you requested leave prior to the closure), you will not get paid sick leave or expanded family and medical leave but you may be eligible for unemployment insurance benefits. This is true whether your employer closes your worksite for lack of business or because it was required to close pursuant to a Federal, State or local directive. You should contact your State workforce agency or State unemployment insurance office for specific questions about your eligibility.

***

26. If my employer is open, but furloughs me on or after April 1, 2020 (the effective date of the FFCRA), can I receive paid sick leave or expanded family and medical leave?

No. If your employer furloughs you because it does not have enough work or business for you, you are not entitled to then take paid sick leave or expanded family and medical leave. However, you may be eligible for unemployment insurance benefits. You should contact your State workforce agency or State unemployment insurance office for specific questions about your eligibility. For additional information, please refer to https://www.careeronestop.org/LocalHelp/service-locator.aspx.

In addition to several FAQs on the impact of layoffs and furloughs, the FAQs also address what documentation employers should request, whether the paid sick leave and paid FMLA can be used intermittently and whether other employer-offered paid leave can be used concurrently with that required by FFCRA.

Jackson Lewis P.C. © 2020

EPA Can Help You Keep It Clean in a World with COVID-19

Virus-killing myths, like gargling salt water, are floating around as fast as toilet paper has flown off the grocery store shelves.

When those shelves are restocked, what is effective for cleaning surfaces in residential, commercial, and industrial environments?  The U.S. Environmental Protection Agency (“EPA”) has released a list of EPA-registered disinfectant products that have qualified for use against SARS-CoV-2, the novel coronavirus that causes COVID-19.

Along with hand washing and social distancing, cleaning and disinfecting with effective products are an important part of slowing the spread of the virus.  The EPA published the list with other important information on disinfectant products and links to the Centers for Disease Control (CDC) to inform the public and help reduce the spread of COVID-19.  According to the EPA’s accompanying press release, coronaviruses are “enveloped viruses, meaning they are one of the easiest types of viruses to kill with the appropriate disinfectant product. Consumers using these disinfectants on an enveloped emerging virus should follow the directions for use on the product’s master label, paying close attention to the contact time for the product on the treated surface (i.e., how long the disinfectant should remain on the surface).”

How do we know the listed products are effective and not a scam?  The EPA developed its Emerging Viral Pathogen program in 2016 to allow manufacturers to voluntarily provide EPA with data to show their products are effective against viruses. The purpose of the program was to gather the information through a pre-approval process so that if an outbreak occurs, companies with pre-approved products can make off-label claims for the use of the products against the outbreak virus. That planning proved fruitful: the use of the program was triggered for the first time for SARS-CoV-2 on January 29, 2020.

The EPA’s list includes recognizable products such as Clorox Multi-Surface Cleaner + Bleach and Lysol Brand Bleach Mold and Mildew Remover but is not meant to serve as an agency endorsement of any particular product as there may be additional disinfectants it has not reviewed that do meet the program’s criteria.  The EPA recommends to consumers to check if the EPA registration number that is on the product’s label (“EPA Reg. No.”) is included on the program list of disinfectants for use against SARS-CoV-2 to ensure the product can be used effectively.  Products can be marketed and sold under different brand names, but if they have the same EPA registration number, they are the same underlying product and can be used.

© 2020 Ward and Smith, P.A. All Rights Reserved.

COVID-19 Insurance Impacts

In the throes of the COVID-19 pandemic, businesses have been significantly impacted and, whenever possible, should turn to their insurance carriers for coverage to mitigate the fallout from this virus.  As an initial step, policyholders should consider the insurance coverages listed below that may be triggered by COVID-19 losses or claims:

  • Business Interruption Coverage
  • General Liability Coverage
  • Workers Compensation Coverage
  • Directors and Officers Coverage

Policyholders should keep in mind that each situation is unique, based on the policy language, factual circumstances and applicable state law. As a starting point, policyholders should examine their policy language carefully to determine whether coverage may exist for COVID-19 related losses or claims.

Property Policies-Business Interruption Coverage

Business interruption coverage in general

Some policyholders might benefit from claims under business interruption coverage in their Property Policy in the wake of COVID-19, even though this kind of coverage is generally triggered where there is physical loss or damage. Courts vary on whether contamination rendering a building uninhabitable or unusable constitutes physical damage. Given that COVID-19 rendered buildings uninhabitable and unusable, the issue that may arise is whether COVID-19 contamination constitutes physical damage. We are aware of at least one case where a policyholder is suing its insurance carrier for business interruption coverage arguing that COVID-19 constitutes physical damage because the virus contaminates surfaces.

Policy exclusions must also be taken into consideration when determining coverage. After epidemics such as SARS, MERS, Zika, and Ebola, many insurance companies wrote in exclusions for infectious diseases. However, state legislatures might intervene and forbid these types of exclusions as a matter of public policy. For example, recently the New Jersey state legislature introduced a bill that would require insurance companies to cover business interruption losses as a result of COVID-19 despite the presence of these types of exclusions.

Given the level of uncertainty resulting from the pandemic, and the significant adverse financial impacts many businesses are facing as a result, the New York State Department of Financial Services (NYSDFS) issued a letter instructing insurance companies to provide policyholders and NYSDFS with an explanation of benefits letter to provide clarity around business interruption coverage under the policies at issue.

Contingent business interruption coverage

Some policyholders might benefit from contingent business interruption coverage in their Property policy, which is triggered when someone in your supply chain cannot perform due to a covered loss which in turn interrupts your business. In the case of the COVID-19 pandemic, businesses have certainly been impacted as a result of supply chain interruptions of third parties. Whether contingent business interruption coverage is available depends on policy language.

Off-premises business interruption coverage

This type of coverage is triggered where a service, such as electricity, water, sewage, communications, or gas, is disrupted leading to business interruption. We may see these essential services heavily challenged by COVID-19 impacts on the workforce and there may be adverse effects that have not yet reached businesses, but may be coming soon.

“Civil Authority” coverage

Some Property policies include “civil authority” coverage which covers losses as a result of a government or civil authority restricting access to the policyholder’s premises. Policies differ as to the terms of coverage including duration of coverage, whether the premises has to be damaged by a covered cause, and whether coverage extends broadly, such as when the civil authority restricts, hinders, impairs access, or narrowly, such as when the civil authority “prohibits” or “denies” access. Generally, civil authority coverage applies when there is a direct link between the civil authority’s order and the policyholder’s loss. For policy holders in localities where the state or local government has ordered a shutdown or curtailment of businesses to curb the spread of COVID-19 policyholders might recover under civil authority coverage.

General Liability Coverage

Businesses with general liability policies might be covered against third-party claims arising out of COVID-19. General liability policies typically cover third-party claims for “bodily injury” and “property damage” under “Coverage A,” and personal injuries, such as false imprisonment, under “Coverage B.” “Property Damage” is typically defined to include both physical injury to tangible property and loss of use of tangible property that is not physically injured.

Under Coverage A, businesses may be at risk for claims alleging that the business did not take proper precautions to mitigate the spread of COVID-19, thus resulting in bodily injuries. Princess Cruise Lines recently was sued by two of its passengers after the ship was quarantined because of a COVID-19 outbreak, alleging that the company did not take proper precautions to prevent the spread of the virus despite knowing that some passengers were infected. The occurrence giving rise to the claim must be “accidental” and there may ultimately be an inquiry whether companies knew and ignored risks, or whether the circumstances amount to an accident. Coverage claims will also have to address any potentially applicable exclusions to coverage under general liability policies.

In terms of liability under Coverage B, companies may be sued for false imprisonment as a result of improper or unwarranted quarantines.

Workers Compensation Coverage

Businesses that face claims from their employees who contracted COVID-19 in the course of employment should turn to workers compensation policies for coverage. Generally, workers compensation provides coverage for employees who were injured by accident or contracted a disease in the course of their employment. Many state statutes carve out coverage exceptions for “ordinary diseases of life,” meaning diseases that can be contracted by the general public. Whether insurers cover workers compensation claims for employees who contract COVID-19 through the course of employment is yet to be determined.

Directors and Officers Coverage

Businesses are also at risk of shareholder and securities suits, particularly in the context of disclosing the impacts of COVID-19 on business. The U.S. Securities and Exchange Commission (SEC) has been active in monitoring the impact of COVID-19 on publicly-traded companies, investors, and the market. On March 4, 2020, the SEC issued a press release, through which the SEC Chairman encouraged companies to provide investors with as much information as possible regarding COVID-19 impacts, plans, and risks. A class action lawsuit has already been filed against Norwegian Cruise Line alleging deceptive practices by the company in hiding the impacts of COVID-19 on the business, and subsequent stock losses.

If you have paid your premiums, you are entitled to all of the benefits your policies provide. In these challenging times, be sure to check all of your insurance policies for potential coverage.

© 2020 Van Ness Feldman LLP

Economic Relief for Businesses Impacted by Coronavirus (COVID-19)

In response to the Coronavirus (COVID-19) outbreak, the federal government and many states have developed paths towards economic relief for small businesses. Below is a summary of such programs at the federal level and in New York, Connecticut, and New Jersey.

I. Federal – U.S. Small Business Administration (the “SBA”)

In response to the Coronavirus (COVID-19) outbreak, the SBA has made Economic Injury Disaster Loans (“EID Loans”) available for qualifying businesses that have suffered economic injury as a result of the epidemic.  Below is a summary of the SBA’s eligibility requirements, application procedures, and general loan terms for the EID Loans.

SBA EID Loan Eligibility

In order to be eligible for an EID Loan a business must first be located in a geographic area that is a declared disaster area recognized by the SBA.  Recognized Declared Disaster Areas are listed on the SBA’s website. As of March 17, 2020, the following areas are approved for disaster loan assistance due to the Coronavirus (COVID-19): California, Connecticut, Idaho,  Maine, Massachusetts, New Hampshire, New York, Oregon, Rhode Island, and Washington. The entire State of Connecticut was declared a federal state of disaster due to the Coronavirus outbreak effective as of January 31, 2020. Many other states are currently in the process of submitting requests to the SBA for an economic injury disaster declaration as a result of the virus and should be eligible for EID loans in the coming days and weeks.

The SBA further requires that a business qualify as a small business to be eligible for an EID Loan. The definition of a “small business” varies by industry but generally is based on the number of employees a business has or the amount of revenue a business generates annually. The SBA has an interactive website to help companies determine whether or not they qualify as a “small business” under the SBA’s regulations. Generally, a full-service restaurant qualifies as a “small business” so long as it has less than $8,000,000 in annual revenue. Private and nonprofit organizations may also qualify for EID Loans.

Finally, a business must demonstrate that it has suffered “substantial economic injury” as a direct result of the disaster, in this case the Coronavirus outbreak, in order to qualify for an EID Loan. For the SBA’s purposes a “substantial economic injury” generally means a decrease in income from operations or working capital with the result that the business is unable to meet its obligations and pay ordinary and necessary operating expenses in the normal course of business.

Ultimately, an applicant’s eligibility for an EID Loan will be determined by the SBA based on the applicant’s type of business, available financial resources, and its demonstration of substantial economic injury.

EID Loan Application Process

An EID Loan, and all other SBA disaster assistance loans, can be applied for by an (1) online application or (2) by a paper form, using SBA Form 5. The SBA has suggested that online applications will be processed more quickly than applications submitted on a physical form.

In addition to the EID Loan application form, an applicant must submit the following documentation to the SBA –

  1. Tax Information Authorization (IRS Form 4506T), completed and signed by each principal owning 20% or more of applicant business, general partner, general manager or owner who has 50% ownership interest in affiliate business. (Affiliates include, but are not limited to business parents, subsidiaries, and/or other businesses with common ownership or management with applicant business.)
  2. Complete copies, including all schedules, of the most recent Federal income tax returns for the applicant business; if unavailable a written explanation must be submitted in lieu
  3. Personal Financial Statement (SBA Form 413) completed, signed, and dated by the applicant and each principal, general partner or managing member.
  4. Schedule of Liabilities listing all fixed debts (SBA Form 2202)

Following the submission of a complete loan application, the SBA will conduct a credit check of the applicant and verify the business’ financial information. The SBA may request additional financial information including tax returns for principals, general partners and managing members of the business, as well as a current profit-and-loss statements, and balance sheets for the business. The SBA’s stated goal is to review an application and decide on a business’ eligibility for the EID loan program within 2-3 weeks. Given the anticipated high volume of applications to this program as a result of the Coronavirus, it is likely that the application and review process will take longer. Once an application is fully accepted and approved, the applicant will need to sign the applicable EID Loan documents and return them to the SBA. The applicant can expect to receive a disbursement of the EID Loan funds within one week from the SBA’s receipt of the fully executed loan documents.

The EID loan amount awarded by the SBA will be based off an applicant’s actual economic injury and the business’ financial needs, as determined by the SBA. The SBA will factor in the availability of other potential sources of financial contribution and business interruption insurance when determining an EID loan amount to be awarded to a small business.

EID Loan Use and General Terms

The funds from an EID loan may be used by the small business to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The terms of an EID Loan shall be determined by the SBA on a case-by-case basis, based upon each applicant’s needs and ability to repay. Generally, the maximum amount of an EID loan for the Coronavirus disaster is $2 million with an interest rate of 3.75% for small businesses or 2.75% for non-profits. The maximum repayment term of an EID loan is 30 years. There are no pre-payment penalties imposed by the SBA on an EID loan.

Alternatives to EID Loans

Small businesses that do not qualify for EID loans or have alternative needs may still be eligible for financial assistance from one of the SBA’s alternative loan programs.

The SBA has an 7(a) Loan Guarantee Program involves loans for small businesses in an amount up to $5,000,000 made by private lenders that are guaranteed by the SBA (“SBA 7(a) Loan”). An SBA 7(a) Loan is made directly by a private lender, who also handles the application and loan process, but is subject to the SBA’s terms and guidelines. To encourage private lenders to make these loans, the SBA guarantees a certain percentage of the SBA 7(a) Loan amount.  Small businesses looking for an acceptable lender for a SBA 7(a) Loan can use the SBA’s lender matching tool or contact their local SBA office for recommendations. The local Connecticut SBA office can be reached at 860-240-4700. The general timeline for the approval of an SBA 7(a) Loan application is 5 to 10 business days.

In order for a business to qualify for a SBA 7(a) Loan, it must qualify as a “small business” under the SBA’s regulations, operate for profit, be engaged in, or propose to do business in, the U.S., have reasonable owner equity and resources to invest in business, and be for a sound business purposes. The acceptable use of the 7(a) Loan funds is generally less restrictive than that of the EID loans and permissible uses include use for working capital, expansion or renovations, new construction, the purchase of land or buildings, the purchase of equipment or fixtures, lease-hold improvements, the refinancing of existing debt for compelling reasons,  seasonal line of credit, inventory, or starting a business. The proceeds from an SBA 7(a) Loan may not be used for the reimbursement of an owner for previous personal investments toward the business, the repayment of any delinquent withholding taxes, or anything not deemed a “sound business purpose” as determined by the SBA. Interest rates for SBA 7(a) Loans are determined by the private lender and generally based off the prime rate or LIBOR rate at the time of the loan but are subject to interest rate caps set by the SBA.

For businesses that need loan funds in a shorter period of time, the SBA offers a SBAExpress loan program which provides term loans and line of credits in amounts up to $350,000. The approval process for an SBAExpress loan is generally completed within 36 hours of receipt of an application.  A SBAExpress loan must also be obtained through a private lender and may be used for the same general purposes as an SBA 7(a) Loan.

II. New Federal Legislation

Emergency Family and Medical Leave Expansion Act and Emergency Paid Sick Leave Act

On March 18, the United States Senate approved a relief package to provide sick leave, unemployment benefits, free coronavirus testing, and food and medical aid to people impacted by the pandemic. The legislation was passed by the House on March 14, and was signed by President Trump on the evening of March 18. The legislation contains provisions that require immediate review and action for employers with fewer than 500 employees.

Both the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act will take effect 15 days after enactment, i.e. April 2, 2020. These provisions expire on December 31, 2020.

Covered employers (i.e., private employers with fewer than 500 employees) will be provided payroll tax credits to cover the wages and health care contributions paid to employees under the sick leave and family medical leave programs, up to the specified caps.

III. New York

New York State is currently assessing options to mitigate hardships to NYS businesses. As of March 19, 2020, the following orders and programs have been established in New York State in response to the COVID-19 outbreak:

Work From Home

On March 18, Governor Cuomo announced he will issue an executive order directing non-essential businesses to implement work-from-home policies effective Friday, March 20, to help reduce density as a social responsibility to protect their workforce. He also announced that businesses that rely on in-office personnel must decrease their in-office workforce by 50%. Exceptions will be made for essential service industries, including shipping, warehousing, grocery and food production, pharmacies, healthcare providers, utilities, media, banks and related financial institutions and other businesses that are essential to the supply chain.

Paid Sick Leave

On March 18, Governor Cuomo signed legislation to provide the following:

  • Employers with 10 or fewer employees and a net income less than $1 million will provide job protection for the duration of the quarantine order and guarantee their workers access to Paid Family Leave and disability benefits (short-term disability) for the period of quarantine including wage replacement for their salaries up to $150,000.
  • Employers with 11-99 employees and employers with 10 or fewer employees and a net income greater than $1 million will provide at least 5 days of paid sick leave, job protection for the duration of the quarantine order, and guarantee their workers access to Paid Family Leave and disability benefits (short-term disability) for the period of quarantine including wage replacement for their salaries up to $150,000.
  • Employers with 100 or more employees, as well as all public employers (regardless of number of employees), will provide at least 14 days of paid sick leave and guarantee job protection for the duration of the quarantine order.

Shared Work Program

The New York State Department of Labor (NYSDOL) Shared Work Program allows businesses to manage business cycles and seasonal adjustments while retaining trained staff and avoiding layoffs. Employees can receive partial Unemployment Insurance benefits while working reduced hours. Full-time, part-time and seasonal employees are eligible.

IV. Connecticut

Connecticut has provided a number of resources, in addition to the SBA, for Connecticut businesses including the following:

DECD’s COVID-19 Business Emergency Response Unit

The Connecticut Department of Economic and Community Development has created a COVID-19 Business Emergency Response Unit dedicated to assisting businesses navigate resources and develop new resources. A dedicated phone line is has been set up at 860-500-2333 to provide assistance to Connecticut’s small businesses for this purpose.

Unemployment Assistance

Workers directly impacted by the coronavirus pandemic no longer must be actively searching for work to qualify for unemployment assistance. And employers who are furloughing workers can use the Department of Labor’s shared work program, which allows businesses to reduce working hours and have those wages supplemented with unemployment insurance. Further information can be found here.

Tax Filing Extensions

The Department of Revenue Services has extended deadlines for filing and payments associated with certain state business tax returns. Effective immediately, the filing deadlines for certain annual tax returns due on or after March 15, 2020, and before June 1, 2020, are extended by at least 30 days. In addition, the payments associated with these returns are also extended to the corresponding due date in June.

The impacted returns and the associated filing dates and payment deadlines are set forth below:

  • 2019 Form CT-1065/CT-1120 SI Connecticut Pass-Though Entity Tax Return: Filing date extended to April 15, 2020; payment deadline extended to June 15, 2020
  • 2019 Form CT-990T Connecticut Unrelated Business Income Tax Return: Filing date extended to June 15, 2020; payment deadline extended to June 15, 2020
  • 2019 Form CT-1120 and CT-1120CU Connecticut Corporation Business Return: Filing date extended to June 15, 2020; payment deadline extended to June 15, 2020

Business Interruption Insurance

A business interruption insurance policy should list or describe the types of events it covers. Events that are not described in the policy are typically not covered. It is important to review the policy exclusions, coverage limits, and applicable deductibles with your agent, broker or insurer. The Connecticut Insurance Department has an FAQ that provides more information.

V. New Jersey

New Jersey has not yet released any official assistance programs for businesses impacted by COVID-19. Several State agencies are currently engaging with local business leaders, local financial institutions, and business advocacy groups to better understand what supports would be most impactful to ensure business and employment continuity. While businesses await direction, the New Jersey Economic Development Authority (NJEDA) has a portfolio of loan, financing, and technical assistance programs available to support small and medium-sized businesses.

© 1998-2020 Wiggin and Dana LLP

TTB and FDA Relax Restrictions on the Production of Hand Sanitizers by Alcohol Manufacturers

With the increasing pace of the spread of the Coronavirus (COVID-19) and the related emergent need to increase the available supply for hand sanitizer products across the United States, the Alcohol and Tobacco Tax and Trade Bureau (TTB), followed by the Federal Drug Administration (FDA), have relaxed requirements for certain alcohol producers to produce these products without first amending their existing permits or obtaining prior formula approval.

On March 18, 2020, TTB came forward advising industry members that it has found it necessary and desirable to waive provisions of the internal revenue law to provide certain exemptions and authorizations for distilled spirits permittees to produce ethanol-based hand sanitizers to address the demand for such products during this time of national emergency. More specifically, TTB’s guidance provides:

  1. The exemptions are in effect through June 30, 2020.

  2. Alcohol fuel plants (AFPs) and beverage distilled spirits plants (DSPs) are exempted from the need to obtain additional permits or bonds to manufacture hand sanitizer or to supply ethanol to other TTB-authorized permit holders.

  3. All TTB-permitted DSPs are authorized to manufacture hand sanitizer without prior formula approval if the formula is consistent with the World Health Organization (WHO) guidance.

  4. Industrial alcohol user permittees may also use denatured ethanol to manufacture hand sanitizer consistent with the WHO guidance, and these permit holders are further exempted from the need to request approval to increase the quantities of ethanol they may procure.

  5. Hand sanitizers made with denatured alcohol are not subject to federal excise tax, but federal excise taxes will apply to hand sanitizer made with undenatured alcohol.

On March 20, 2020, the FDA—which also has jurisdiction over the production of hand sanitizing products—issued revised guidance that specifies that the FDA does not intend to take action against firms that prepare alcohol-based hand sanitizers for consumer use and for use as healthcare personnel hand rubs for the duration of the public health emergency declared by the Secretary of Health and Human Services on January 31, 2020. More importantly, to be compliant with FDA’s guidance, the alcohol at issued must be denatured (not undenatured) and the packaging must be consistent with FDA’s Labeling for Ethyl Alcohol Formulation Consumer Use found at Appendix A to the guidance.

Finally, for those alcohol manufacturers (or others) that are not currently licensed DSPs or related permit holders, TTB is also expediting its processing and approval of these applications (in some instances within days) to allow for greater production and access to these vital products in our time of national need.

© 2020 McDermott Will & Emery