Practice Area: Business Law

Many business owners had insurance policies that included “business interruption” coverage. If the pandemic isn’t business interruption, what is?

As the global pandemic caused by COVID-19 swept into the United States and stay at home orders and mandatory business closures rolled out of governors’ offices like water over Niagara Falls, business owners, small, medium and large, sought out help from any source possible. Unfortunately, “business interruption” insurance policies have many exclusions and what a layperson would assume would be included is actually excluded from coverage.

Business Interruption in many cases is being linked to one thing

It seems as though the insurance industry linked arms and denied all claims for business interruption caused by the pandemic. Business interruption coverage is usually found in property coverage; meaning there must be property damage that causes the business interruption. The insurance carriers have taken the position that government shut down due to a virus is not covered.

What if a virus is not excluded in my policy? Is my business covered then?

Some policies do have specific exclusions for viruses and mold, among other things. But that raises the question, if a virus rises to the level of being specifically excluded in some policies, what if it is not excluded in my policy? Wouldn’t my losses be covered then? It depends on the type of policy and the language in the policy.

Courts in some jurisdictions have found that business interruption coverage is triggered where “property” is rendered unusable or unfit for its intended purpose, including being contaminated, even where there is no physical property damage.

Don’t throw away those receipts just yet

The approach taken by the insurance industry has given rise to numerous lawsuits seeking coverage under common business interruption clauses under several different theories. More than a dozen cases have already been filed seeking to have state and federal courts in various jurisdictions determine that losses due from closure as a result of the virus actually are included in these property damage policies. Some cases rely on the theory that the property is contaminated as a result of the virus. Some argue that under an “all-risk” policy closures due to orders of civil authorities are covered by the policy’s broad language.

States vs. Insurance Carriers

Not waiting for a decision in these pending cases, Travelers Insurance has filed a declaratory judgment action seeking an order that losses from temporary closures due to governmental actions taken to slow the spread of the pandemic did not result in property damage and was not covered by the Business Income loss provisions of its policy.

And numerous states, including Pennsylvania, have pending legislation to retroactively require insurance carriers to honor these claims (especially for small business owners) with compensation to the carriers coming from other funds.

This is still an ongoing fight, with points of law from prior litigation supporting both sides of the argument. How various courts decide the issue may determine whether business owners have valid claims under the terms of their own policies. It may still come down to the language in a specific type of policy and what exclusions are spelled out. But the approach initially taken of turning down all claims may not hold up. The courts may “deny” the carriers’ claims; an irony not lost on many.

As this is still an evolving issue, you may want stay in touch with your broker or counsel if you have business interruption insurance and you have losses due to state mandated closures. If you have questions regarding your coverage and whether or not you are covered, please contact Joel D. Rosen or one of the business attorneys here at High Swartz at 610.275.0700.

Feeling sick about your business during these uncertain times? Doylestown Attorney Donald Petrille offers a to-do list for small business owners that can help position themselves for what lies ahead.

The COVID-19 virus biggest casualty so far has been our small business community. Washington is working on a number of measures to give our small businesses some form of relief while business are in a forced shutdown in the name of public health. The Families First Coronavirus Response Act was initiated to help many businesses address their needs. Employment law attorney Jim Shrimp talks about it in more detail here. And if you feel the need to speak with a small business lawyer near you in Montgomery and Bucks Counties, we’re always available.

What can small businesses do right now to mitigate their issues?

We understand that small business often work on very thin margins, and they require a dynamic community to thrive. Entrepreneurs and business owners need to take action where they can. Below are several items our clients can do to mitigate the effects of the current economic environment on their businesses:

Contact you lender. Most lenders are working to create relief programs to keep their borrowers in business. Communication is always the best option when you face uncertainty.

Contact your insurance agent. Many of our clients have some form of business interruption insurance. This may be a time when it is effective. Some may even have force majeure clauses. These clauses can protect business owners from various events out of their control like a pandemic or tornado. Attorney Thomas Rees goes into fuller detail here.

Review your marketing plan. The current operating restrictions will not be in place forever. How can you position your business to grow and take advantage of pent-up demand once restrictions start to ease? Keeping your employees, clients, and customers informed should be your main priority. Take a look at your marketing expenses. A good rule of thumb is that if a marketing endeavor can’t be analyzed and reported, you never know if it’s worth your time and money. What parts of your marketing plan fall under that category?

Review your IT infrastructure. This may be an opportunity to review how you business receives and delivers services. There may be an opportunity to reduce overhead in the long term by changing your business model now.

Explore Relief Funds. The Commonwealth Financing Authority and Pennsylvania Industrial Development Authority has identified new relief programs for small businesses.

Plan for the long term. See what operations and financial products you can restructure. Review and improve your staff capabilities. No one can predict what business will be like after this event. But it’s certain that this event will end and people will need certain services more than others. Successful business plans will address those needs.

Stay Informed. Go to sites such as SBA.gov and your state and federal legislators’ websites to get up to date information on the resources available to help your business through this uncertain time.

Talk to a Small Business Lawyer Near You Today

We know the future is uncertain. Together, we can get through this unique time and help each other prosper! If you are in need of legal services relating to what your small business game plan should be at this time, contact our law offices in Doylestown and Norristown. Call 610-275-0700 or email Don Petrille at dpetrille@highswartz.com.

Anyone who starts or relocates a business goes through exciting and challenging times.  It is understandable that the business owner’s primary focus  is getting established and meeting customer needs.  It stands to reason that a business plan will include big picture items such as marketing strategy and customer satisfaction, which in turn may lead to profits and success.

But there are many other issues to consider, some of which even experienced business owners overlook.  An important part of the original due diligence process and planning period should be attention to the local rules and regulations.  If proper attention is not given to local regulations, the business can have difficulty down the road.  That is why it is important for any person contemplating a change in business location or starting a business to consult not only an experienced financial professional but an experienced municipal attorney.

Three important areas of local regulations are taxation, zoning and land use.  This blog will deal with tax issues.  Zoning and land use issues arise earlier in the process, when a business buys or leases land.  Local ordinances may include additional protections beyond federal or state law (e.g., LGBT), but the pattern of regulation is similar to the federal or state regulations.

But taxation can be a trap for the unwary.  When choosing a business location, business organizers often consult with accountants and financial planners who are familiar with federal and state taxes.  These businesses assume that their consultants are familiar with local tax laws.  But this may not be a correct assumption.  The business owner needs to ask whether there are local taxes or registration requirements to be concerned about.  The answer may be yes and should be answered as soon as possible and before the doors open for business.

Pennsylvania is unique in that it consists of 67 individual counties and 2,500 municipalities – cities, townships and boroughs, each with their own ordinances and regulations.  Allegheny County, containing Pittsburgh, has 130 municipalities!  The four suburban Philadelphia counties contain 238 municipalities, ranging from Chester County’s 73 down to Delaware County’s 49.

Of the Commonwealth’s 2,500 plus municipalities and over 500 school districts, 90% impose Earned Income Tax and 80% impose a Local Services Tax (formerly Occupational Privilege Tax or Municipal and Emergency Services Tax).  These taxes are paid by employees but must be collected and remitted by the employer or the employer may be responsible for penalty, interest and perhaps fines.  The passage of Act 32 of 2008 providing for Central Tax Collection Committees on the County level made the payment, collection and disbursement of Earned Income Tax easier for all parties.  But even this statute requires employers  to collect the taxes from employees and quarterly remit the taxes to the correct county, failure to do so will result in interest and possibly penalty imposed on the employer.

It is at least as important that each business know the registration and tax requirements of any municipality in which it does business.   Failure to register a business when required and remit Business Privilege and Mercantile License Tax (business taxes) can result in penalty and interest assessments by the municipality.  These taxes are often overlooked when starting a new business or moving an existing business because less than 10% of all municipalities in Pennsylvania impose Business Taxes.  The taxes are self reporting, and the responsibility for filing and reporting falls on each business.  It is imperative when moving or starting a business, especially in southeastern Pennsylvania, to consult with an experienced municipal attorney who can guide you through the process of making sure you are properly registered and ready to pay any taxes the way they should be paid to avoid any unnecessary penalty and interest.  This will help you keep your focus on the reason you are in business to begin with – your success and the satisfaction of your customers.

At High Swartz, our business and corporate law attorneys provide businesses of all types and sizes with efficient and precise commercial law solutions. For more information or if you have any questions, please contact Kathleen M. Thomas at 215-345-8888 or kthomas@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

For small business owners, the growth of a startup business can cause you to overlook the legal minutiae that come along the way.  It is not unusual to see small businesses that started out using form contracts or invoices that may have done the trick at the time, but ten or more years later they remain unchanged, without any new terms or conditions to accommodate the growth of the business.  The business may have started selling goods or services in a relatively small, local area, then before they know it, especially in the digital age, they are selling goods or services across State borders.  But have they considered whether those initial contract forms sufficiently address the needs of the expanded business?  Or whether the contracts and business practices comply with the laws of the jurisdiction in which they are selling?  As an example of unexpected issues that may arise, below are summaries of two interesting decisions that the Pennsylvania Courts have issued this year.

In February, the Pennsylvania Supreme Court issued a decision in Danganan v. Guardian Protection Services,[1] in which a customer (Danganan) purchased a home security system and services from Guardian Protection Services, a Pennsylvania business, for his residence in Washington, D.C.  The service contract had an initial term of three years.  Before the three years expired, Danganan moved and sold his residence in D.C., but Guardian continued to bill him and collect for the remainder due under the contract.  Danganan sued Guardian in Pennsylvania and asserted a claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), which allows consumers to pursue triple damages and attorney’s fees for deceptive business practices.  Guardian tried to get the UTPCPL claim dismissed, arguing that the law did not apply to non-Pennsylvania residents or transactions outside of Pennsylvania.  Ultimately the case was submitted to the Pennsylvania Supreme Court, which determined that a non-Pennsylvania resident may bring suit under the UTPCPL against a Pennsylvania business based on transactions that occurred out-of-state.

This decision should remind Pennsylvania business owners to confirm that its consumer contracts for transactions both inside and outside of Pennsylvania are compliant with the provisions of the UTPCPL and any regulations emanating from that law.  For those newer businesses still filling out those initial forms from the startup days, it is time to have a qualified attorney take a look and make any necessary revisions to properly protect the business.

In addition, in June the Pennsylvania Superior Court issued a decision in Webb-Benjamin, LLC v. International Rug Group, LLC,[2] which involved a dispute over a commission payment.  Webb-Benjamin, a Pennsylvania company, entered into a contract with International Rug Group, a Connecticut company, to provide services for a furniture sale in Canada.  Before the furniture sale ended, the two parties decided to terminate their contract but agreed that Webb-Benjamin would be paid its final commission at the end of the Canadian furniture sale.  Shortly after the termination, but before the end of the sale, International Rug registered to do business in Pennsylvania.  When International Rug failed to pay the commission, Webb-Benjamin sued in Pennsylvania to collect.  International Rug attempted to get the case dismissed on the grounds that the Pennsylvania Courts had no jurisdiction over the Connecticut company.  The Pennsylvania Superior Court disagreed and ruled that when an out-of-state company registers to do business in Pennsylvania, it consents to the jurisdiction of the Pennsylvania Courts, even for disputes that arose before the company’s registration.

This decision is pertinent to both Pennsylvania businesses and out-of-state companies that do business in Pennsylvania.  For Pennsylvania companies, the case may provide a basis to sue in Pennsylvania for disputes with out-of-state companies.  For non-Pennsylvania companies, the case points out another factor to consider when deciding to register to do business in Pennsylvania.

For all companies, these cases are a reminder to: (1) research the legal requirements for expanding the company’s business into other States, and (2) always have an attorney review the company’s contracts and transaction documents to assure that they include provisions that will best allow the company to grow and avoid undesired consequences.

Decisions made and actions taken during the process of business formation will have a significant effect on the owner’s exposure to personal and professional liability and the company’s profitability. At High Swartz LLP our attorneys have extensive experience in a wide range of industries, and provide investors, entrepreneurs and businesses in transition with sophisticated legal counsel designed to protect and promote the new and restructured businesses. As your counsel, we will help you make the right decisions and will implement necessary legal measures on your behalf, allowing you to focus on business management. For more information or if you have any questions, please contact Mark R. Fischer, Jr. at 610-275-0700 or mfischer@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances.  The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

[1] 179 A.3d 9 (Pa. 2018).

[2] 2018 WL 3153602 (2018 PA Super 187).