The potential losses for owners, contractors and subcontractors as a result of COVID-19 could be substantial and may result in legislative remedies that could retroactively change insurance policies, says Rob Kennaley of Kennaley Construction Law.
“The construction industry is a cash flow business,” he says. “Negatively impacting cash flow as much as COVID-19 has and will could be fatal to a lot of small businesses and very detrimental to the economy as a whole.”
Kennaley looks south of the border to where several U.S. states have brought forward proposals that would require existing property insurance policies to cover certain COVID-19-related losses.
For the most part, these proposals are meant to protect small business — those with less than 150 employees.
For example, the Massachusetts Senate introduced legislation in late March that, if passed, would require property insurance policies that include business interruption coverage to be “construed to include among the covered perils under such policy coverage for business interruption directly or indirectly resulting from the global pandemic known as COVID-19, including all mutated forms of the COVID-19 virus.”
Other states, such as New York, New Jersey, Ohio and Louisiana, have similar legislation under consideration.
Ontario Ministry of Finance spokesperson Scott Blodgett told the Daily Commercial News that “the government is aware of actions being taken in other jurisdictions related to the financial services sector in light of COVID-19.”
He adds it continues “to work with industry to identify ways to provide relief to consumers and businesses in these difficult times.”
Kennaley says the government has the power to issue orders that amend contractual and other obligations and has done so in the past, particularly during the COVID-19 pandemic. Employers are now permitted to restaff, change work hours and defer leaves, absences and vacations, for example.
What makes the proposed U.S. legislative actions unusual is their retroactivity.
“Usually items that change the nature of contracts are in a go-forward basis,” says Kennaley. “Going back to alter contracts that have already been negotiated is not something that usually happens.”
He explains that negating exclusion clauses and allowing COVID-19 to be defined as physical damage, for example, would interfere with the contractual deal struck by the parties.
According to a construction law and litigation specialist who spoke to the Daily Commercial News, the Ontario Trial Lawyers Association has already conducted significant research regarding the retroactivity of legislation.
“Unless specifically stated that it is retroactive, legislation cannot be retroactive if it alters substantive matters, but is retroactive if it alters procedural matters.”
He questions whether there is constitutional authority to retroactively change the terms of a contract. “There is no question that there will be legal challenges if the government attempts to do so,” he says.
Kennaley says the crux of the matter may come down to funding. He explains the U.S. proposals suggest that insurers themselves pay into a fund to cover claimants, similar to the way victims of uninsured drivers are covered in Ontario.
“The concept is that the insurers will make their contributions back through increased premiums in the future,” he says.
However, Kennaley feels there may not be a readily available group of insurers in Canada able to absorb and compensate owners, contractors and subcontractors for the numerous economic impacts they were not required to absorb under their original contracts, from worker health and safety improvements to increased financial carrying costs due to project delays.
Nevertheless, Kennaley feels economics may force the hands of the federal or provincial governments, perhaps both, and believes that ultimately, the funding remedy needs to be tax-based.
“We say, ‘Don’t be so quick to say that these types of remedies are unacceptable solutions to a party’s right to allocate and contract risk.’ They may be necessary, they are going to be considered, and we think they should be,” he says. “We’re in an important industry and getting on top of these types of things early before companies go under and before projects go down may be the key.”
John Bleasby is a Coldwater, Ont. based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
Recent Comments
comments for this post are closed