Mitigating Losses: Legal guidance to help practices mitigate coronavirus-related losses and return safely to work.
By Andrew S. Ittleman
May 26, 2020
The coronavirus pandemic has disrupted virtually every American industry. In many instances, state and local shutdown orders have required businesses to close, and even “essential” businesses have encountered difficulties based on workplace safety concerns, failures in supply chains, and reductions in demand resulting from changed customer behaviors and spending habits.
The coronavirus pandemic has hit the medical aesthetics industry with laser-like precision. Even in the absence of shutdown orders in local jurisdictions, many states have prohibited elective medical procedures altogether, and social distancing requirements have made the unique, in-person interactions between practitioners and their clients difficult, if not outright unlawful. Moreover, unlike other areas of the healthcare space where physicians could recoup some of their lost revenue through telemedicine consultations, cosmetic surgeons and medspas have not been as fortunate. There is simply no replacement for the one-on-one meeting between practitioner and patient in this particular industry.
Ultimately, business owners have been left struggling with questions about how to mitigate past losses and return to work. This article provides an overview of some of the legal issues the medical aesthetics industry may encounter as it enters an unknown future.
Without question, insurance will be the focal point of the legal world for the foreseeable future, keeping in mind the decades of litigation that followed 9/11 (was it one event or two?) and Hurricane Katrina (was it wind damage or flood?). In fact, numerous lawsuits have already been filed against insurers in the U.S. following denials of claims for pandemic-related losses, and this litigation will last for years.
To understand the extent to which your business may be covered for losses related to the coronavirus, the obvious starting point is your policy. As you review it, you will encounter clauses potentially
applicable to the coronavirus, but in most instances they will be vague, subject to further interpretation and provide different coverage based on particular circumstances. For instance, your policy might provide business interruption coverage if your building falls down, but only a deep cleaning if one of your employees is tested positive for Covid-19, unless an exclusion applies. As you review your policy, be on the lookout for the following types of coverage:
Pandemic coverage: Explicit pandemic coverage is rare, and in most instances is something that the insured entity specifically bargained for when purchasing insurance. For instance, Wimbledon, the British Open and many live events in the U.S. purchased and paid for pandemic insurance for years. As a result much of their losses for cancellations in 2020 will be covered. For the rest of us, we will need to look elsewhere in our policies for protection, as “bacteria, mold and viral” exclusions will likely preclude coverage.
Business interruption coverage: Business interruption insurance coverage is intended to protect companies against the loss of income from unexpected events that cause direct physical loss or damage. However, policies often do not define what constitutes a “direct physical loss” necessary to trigger coverage, leaving the judicial system to figure it out. Indeed, there are numerous published court cases studying these clauses based on E. coli, asbestos or other contaminations and odors, but rulings typically turn on state laws and the specific language of the policy. In other instances, pandemics may be explicitly excluded based on changes in the insurance industry dating back to the SARS pandemic, in which case policyholders will face severe difficulties in pursuing their claims in the absence of other technical details in their policies.
Civil authority coverage: Many policies include “civil authority” coverage as a matter of course, which is designed to apply to the actual loss of business income sustained by the insured when access to the insured’s premises is prohibited by order of a civil authority, such as a local or state government. However, in most instances, the civil authority must completely block access to the business premises for the coverage to apply, creating a question regarding how, exactly, the civil authority impacted the policyholder’s business. For instance, whether the civil authority limited business operations or completely closed business premises will be an important question of fact. Likewise—and critical for the medical aesthetics industry—whether the civil authority prohibited elective medical procedures will be another important consideration. Moreover, you will need to determine whether there are exclusions in the policy that preclude coverage if the civil authority loss arises from a noncovered pandemic clause. It should be noted that insurers are already denying claims submitted by healthcare practitioners arising from prohibitions of elective procedures, with several already the subject of federal class action lawsuits.
In addition to insurance, practitioners must also be mindful of their contracts with third parties, including suppliers, banks, landlords, key personnel, and other vendors and contractors. These agreements likely assume that business will always be “business as usual,” without an intervening pandemic, shutdown orders and the collapse of the global economy. Whether the parties to these agreements are nevertheless required to perform will again require an interpretation of the agreements themselves and applicable state law. When reviewing your agreements, be mindful of the following clauses and legal concepts:
Force majeure: Force majeure clauses relieve parties from their obligations to perform under a contract when an unforeseen event beyond the parties’ control prevents or delays performance. However, not all force majeure clauses are drafted alike. Some may include an exclusive list of events triggering the application of the clause, some may include a nonexclusive list with broad catchall language and still others may simply define the term without supplying examples. Thus, whether your or your counterparty’s obligations to perform under an agreement will be excused will likely be based on the terms of the force majeure clause, keeping in mind that courts typically construe them narrowly.
Impossibility of performance and frustration of purpose: Even in the absence of a force majeure clause, a party’s performance under a contract may be excused if it was impossible or its purpose was frustrated by overriding events. Generally, the legal doctrine of “impossibility of performance” will apply if the party’s performance has been rendered impossible, and not merely more difficult or inconvenient. Alternatively, the doctrine of “frustration of purpose” applies when the purpose of the agreement, i.e., the reason why the parties entered the agreement in the first place, was substantially frustrated by factors beyond the parties’ control, the nonoccurrence of which was assumed by the parties when they entered the agreement. For instance, if a medspa has a contract to purchase a certain amount of product on a monthly basis from a supplier or an agreement to pay a contractor a monthly fee for services rendered, and both agreements assume that the medspa would be a going concern throughout the duration of the agreements, the medspa’s performance under the agreement may ultimately be excused.
After weeks of government-enforced shutdowns, businesses are reopening and medical practitioners are once again providing elective procedures. However, without Covid-19 vaccines, there are widespread concerns of additional future outbreaks, meaning that it is assumed that people will continue to contract the disease when going about their daily routines. Thus, the question remains, how can your practice or medspa avoid future liability if your patients or employees fall ill with the coronavirus? There is no one-size-fits-all answer, but there are important best practices you can employ to avoid liability down the road.
First things first: can your clinic be held liable if a patient contracts the coronavirus as a result of an elective medical procedure? Setting aside the very real hurdle the patient will face in proving that the elective procedure was the cause of the patient’s illness, it is critical to remember that malpractice and negligence are typically defined by state law as the failure to use “reasonable” care, with the definition of reasonableness driven by what is acceptable and appropriate by similar and reasonably careful professionals. Thus, while you may never be able to completely insulate your clinic from the coronavirus, you can take reasoned, measured and concrete steps to protect yourself and your business from allegations of wrongdoing should that worst case scenario arise.
Perhaps the most effective step you can take is the implementation of a workplace surveillance program. As your business reopens, understand that you and all of your employees and patients present a risk of infection and disease spread. In response, many companies are working with occupational health professionals to develop policies and procedures designed to keep workplaces clean and safe. These programs often include weekly testing for employees, routine temperature checks, cleaning controls, required informational submissions and written policies dictating how employees should conduct themselves if they feel ill or have spent time with someone who recently became sick.
Medical practitioners are also asking additional questions of their patients, including whether they or the people they live with are experiencing symptoms, and whether they work in or have recently visited a high-risk environment, such as a hospital. OSHA, the Centers for Disease Control and Prevention (CDC) and many local authorities have also published recommendations for companies returning to work amid the pandemic, all of which should be reviewed before providing elective procedures.
Civil authorities are important, as their edicts will relate to definitions of “reasonable care” in your local community. As an initial matter, pay attention to them, and review the orders and other bulletins routinely posted on their websites, as they often detail whether and how particular businesses can operate during local health emergencies.
If you provide an elective procedure in a jurisdiction still prohibiting them, you could face fines and penalties, future negligence liability and reputational damage. You may also be consuming medical resources (such as personal protective equipment) sorely needed by local triage units. Moreover, if the elective treatment you provide could require the need for emergency care, the patient’s risk of contracting the coronavirus could be heightened, warranting additional disclosures in informed consents. Finally, whether your insurance policies will protect you if a patient is injured by an elective procedure received during the coronavirus pandemic may also depend on the mandates of civil authorities.
In sum, there are many questions, but perhaps only two certainties. First, there are reasonable steps your practice or medspa can take now to protect your employees and patients from the coronavirus and your business from downstream liability. Second, there is no sign that things will be back to normal for the foreseeable future. Hopefully, you can get back to work without relying on the judicial system, as the courts themselves are not yet fully operational, and in many places were overwhelmed with caseloads even before this pandemic began. Should you have a business dispute resulting from the pandemic, courteous negotiations are always the best measure, as most companies have little appetite for fighting right now. But if litigation is unavoidable, understand that neither the law nor the process is perfect, and it may take years for your case to reach a conclusion, and pursuing it could divert resources away from your reopening efforts. However you proceed, trust that making prudent decisions now will help you carve the path ahead.