Coronavirus likely to spread litigation epidemic

The coronavirus outbreak will cause ripple effects from class actions to complex matters involving the disruption of the global supply chain, contract breaches and consumer product lawsuits over the efficacy of hand sanitizer and vaccines, according to California litigators.

It has already begun in California and the Orange County city of Costa Mesa, which successfully blocked people in quarantine from being transferred from Northern California. In Texas, the city of San Antonio sued the Center for Disease Control over repatriated citizens who contracted the novel virus and were released into the community.

But matters such as insurance coverage, responsibilities of employers, contracts for events, and complaints over the potency of hand sanitizer could all lead to court cases.

“This really is going to be pervasive across many industries,” said Isabelle Ord, a partner at DLA Piper and co-chair of the firm’s Class Action Practice Group and Financial Services Sector.

The first wave of litigation will mostly concern suppliers missing deadlines, predicts David A. Newman, a partner at Morrison & Foerster LLP, who leads the firm’s Coronavirus Task Force.

Looking ahead to the longterm, Newman said to expect big firms involved in more complex contractual disputes with major suppliers in Asia and areas hit hard by the virus over the inability to perform obligations under large commercial contracts.

“I anticipate complicated litigation over the breakdown of contractual relationships of those behind schedule or trying to get out from under projects,” said Newman.

Bankruptcy, tort litigation and lawsuits from angry shareholders could also develop. People may sue senior centers, for example, alleging they weren’t well prepared for the outbreak.

“It unfortunately appears we may be headed for a major global slowdown in demand,” said Newman. “Therefore companies won’t want orders filled and will be all too happy to not take those orders and to make an argument in litigation that what was provided was late or not to spec.”

Litigation could spin off into class actions over false advertising involving cleaning products and face masks.

In contract cases, force majeure or “act of God” clauses will almost certainly be tested by insurers as a way to avoid liability, according to Ord. But a virus isn’t as clear-cut an act of God event as a flood, fire or an earthquake, she said.

“The virus is different than, for example, a flood or an earthquake because you know when that happened,” said Ord. “One day you were fine and the next day you are not. Here, things are less certain and moving more slowly, so it is more difficult to pinpoint when performance is excused or becomes impossible.”

Paul White of Wilson Elser Moskowitz Edelman & Dicker, who represents insurers, wrote that policy holders and insurers should review “business interruption” policies to determine if they are sufficient.

“Direct physical loss” is not suffered by a commercial property as a result of mandatory or voluntary closure, said White. It would have to suffer a direct result of an infectious disease to be covered, White said.

“Broadly ‘direct physical loss’ does not include consequential or resulting economic loss,” wrote White on Wilson Elser’s Insights blog.

But a policy holder might have a claim if a property has become directly physically contaminated.

“For example, if a person is infected via contact with tangible property (such as while on board a cruise ship, visiting a doctor’s office or flying on an airplane), the contamination of physical property may qualify as direct physical loss to property,” said White.

The government’s role is also a factor.

In the United States, “I think we will see more formal government activity like declarations of public emergency and guidance on social isolation measures that may be helpful in assessing when force majeure or impossibility defenses may apply,” said Ord.

In the end, it will boil down to contract terms. Are the words “pandemic” or “epidemic” included? What standard applies? The Center for Disease Control, or the World Health Organization? These are all variables to look out for, said Ord.