Lawsuits Against Businesses Over Coronavirus Have Begun. More to Come?

The coronavirus has upended markets, disrupted supply chains and forced quarantines. It’s all fertile ground for lawsuits.

Hospitals, restaurants, day care centers, nursing homes and hotels may face claims that they didn’t take adequate steps to protect people. Shareholders can sue if companies fail to act effectively in response to the epidemic. Businesses are scrambling to see if their insurance policies cover disruptions caused by the virus. Governments are reviewing their quarantine powers.

“The impact on the global supply chain, I think, is going to be dramatic,” said Paul White, a partner with Wilson Elser Moskowitz Edelman & Dicker who represents insurers.

Some cases have already been filed: The pilots’ union at American Airlines Group Inc. sued the carrier to stop it from serving China, while the city of Costa Mesa, California, sued the U.S. government to halt the transfer of quarantined cruise passengers to a state-owned facility there.

Here’s a survey of the likely legal landscape.

‘Act of God‘

The fallout from business disruptions is going to be “very significant in a way we haven’t seen before,” said Joe Balice, a litigator with Brutzkus Gubner in Los Angeles who represents clients in the textile and apparel industry, many of them hit by factory shutdowns in China.

Manufacturers may sue over missed deadlines, while suppliers could sue energy companies, which have already stopped taking some shipments as transportation demand dwindles.

Michael Hurst, a partner at Lynn Pinker Cox & Hurst in Dallas, expects to see a surge in disputes over whether force majeure clauses, which frees a contract’s parties from their obligations in the event of an “act of God,” apply to the outbreak.

“Someone can say they can’t perform under a contract because they can’t get supplies from China or their people wouldn’t come to work,” Hurst said. “The other side might say you’re being too cautious or you’re just using that as an excuse.”

Insurers are likely to find themselves in court. Balice said businesses are poring over their policies to see if they’re insured against the coronavirus fallout. “And a lot will find out that they are not,” he said.

Business disruption insurance claims typically deal with physical damage, like a factory that has burned down, not closures ordered to control a virus, Balice said. “This could be an area of insurance litigation for many years to come,” he said.

“Companies which already faced business challenges in the Chinese market could get hit hard if they have limited resources,” said Philipp Senff, head of compliance at the law firm CMS in China.

Worker Protections

Some companies have already limited business travel and encouraged employees to work from home. Several industry conferences have been scrapped to prevent large gatherings from spreading the virus.

Now some fear they may be held liable for workers’ participation in meetings or corporate events where employees are exposed. At the same time, efforts to protect staff could run afoul of privacy rules.