As of the close of last month, more than 150 class actions had been filed relating to or stemming from the Coronavirus pandemic (Source: AdLawAccess.com). This article covers what steps your startup or small business can take to help prepare you and your company for the coming wave of COVID-19-related claims. It focuses specifically on potential Coronavirus liability from customers and third-parties and not from the company’s employees, which I will discuss in a follow-up post.
Have You Formed A Legal Business Entity?
If you’re a business owner reading this, chances are you already operate your company through a formal, legal entity, such as an S-corporation or LLC or even Limited Partnership. If not, there may be no better time than now to do so.
Compared to the overall cost of basic formation (particularly in a business-friendly State such as Arizona), unless you are really doing no business and have no contact with the public whatsoever, there is really no excuse not to have your legal business entity set up. Doing so will not only give your business real legitimacy with customers, vendors, and lenders, if done properly operating through a business entity can help limit exposure of your personal assets to potential claimants and creditors if something goes wrong and there is a lawsuit and potential judgment against the business. Without a formal business entity in place, you and your personal assets could be fair game for a judgment creditor.
Is Your Business’ Legal “House” in Order?
If you or your partners are already operating your business through a legal structure, then kudos to you. However, a COVID-19 lockdown is not the time to rest on your laurels. It is, on the other hand, a terrific time to do long delayed “housekeeping” and make sure that you have the proper organizational documents (e.g., operating agreement, Bylaws, annual meeting minutes, etc.) in place to demonstrate that you are following “corporate formalities”. Proper adherence to corporate formalities (even if you are not formed as a corporation) is big factor in being able to demonstrate to the court that your business, in fact, is legitimate and not simply just a front or shell.
If you already have key documents like operating or shareholder agreements in place amongst you and your partners, give yourself another gold star. However, now is a great opportunity to make sure that the terms of such documents still match the needs and expectations of you and your co-owners, as well as the business itself.
Let’s say that you’ve got your entity “house” in total order. What can be done about your day-to-day operations to help dampen potential liability from customers and third-parties?
Coronavirus liability best (for now) practices for businesses (customer and third-party standpoint)
If you’ve read our Phoenix business law blog in the past, you know I’ve explained how negligence laws determine liability of an individual (or a business, as the case may be) based upon what a “reasonable person (or business)” would do under the particular circumstances.
As with so much else in this new Coronavirus world, there is really no playbook on what to do here. For these reasons, it is hard to point to a specific statute or regulation or, ideally, some “safe harbor” for businesses to comply with.
Are you following CDC guidelines?
While there is currently no specific heightened or enhanced duty for a company to follow the Centers for Disease Control and Prevention’s (CDC) guidelines on COVID-19, until there is businesses should thoroughly review and carefully follow CDC guidelines (and I would recommend documenting such compliance) to help avoid potential third-party liability claims or at least hopefully minimize their impact on your and your business. This is especially true given the abundance of information and guidance available to the public regarding social distancing and other preventative measures, all of which could be conceivably considered “reasonable” standards of care for companies. The most recent CDC Coronavirus guidelines for re-opening businesses can be found here.
Are you complying with other Federal, State, and local guidelines?
On that score, businesses should make sure they are complying with all federal, state, and local guidelines regarding COVID-19. I am not saying that such guidelines will serve as an absolute “shield” against Coronavirus liability, however being able to demonstrate that you took the recommended precautions will almost certainly put you in a better legal position than if you had simply ignored them. Plus, it’s the right thing to do. Some states that have already begun to reopen have even issued industry specific guidelines.
(Click here for all of Arizona Governor Doug Ducey’s most recent Executive Orders)
What steps are your specific industry group recommending?
Your company should also take any additional measures to protect customers that would be deemed reasonable for that type of business. If you belong to a trade or industry groups or associations, chances are good that they have already developed or disseminated best practices and resources for dealing with COVID-19 to their members (it’s what you pay your dues for, after all!). Apart from offering your company a practical “playbook” in these unprecedented times, such guidelines are (in addition to the CDC and other governmental recommendations) sure to become the de facto reasonable “standard of care” for your particular sector.
Are all of your business insurance coverage(s) in place and up to date?
Finally, it is also a perfect time to call up or conference with your commercial, property, and even your workers compensation insurance agent(s) and check to make sure your coverages are in place and in sufficient liability limits. It’s a horse I’ve beaten to death on this blog and when counseling new business or startup clients, but your commercial general liability (CGL) and property insurance policies are going to be your first lines of defense for most customer- or third-party related claims against you. Whether and to what extent such policies will even cover COVID-19 related claims is a good discussion to have with your insurance agent (although likely very much up in the air and a dynamic situation in the industry as a whole).
In my next post, I will cover the other, internal aspect of this issue—what your startup or small business can do to avoid or limit liability for workplace Coronavirus claims by current and future employees.
Ben Bhandhusavee is the Managing Attorney for BHANDLAW, PLLC, a Phoenix business and technology law firm working with start-up companies, creative intellectual property, Internet and digital media matters, and complex corporate M&A and technology transactions. Ben can be reached at (602) 222-5542 or by e-mail at firstname.lastname@example.org