Ill Effects OF COVID-19: Beyond the Health Toll
4 ways a company can be proactive in the face of the pandemic
With no immunity to effects of disrupted markets and a stalled economy, corporations and their law firms are feeling the impact of COVID-19 on myriad fronts. While budgets tighten, however, threats to companies increase, seeding the soil for potential legal actions that may arise even before the dust finally settles.
As some legal matters are put on hold or dropped completely, disruption and flowing (or not flowing) relief money are giving rise to new class actions and individual claims for breach of contract, workplace safety violations, improper termination and wage and hour violations, securities fraud and insider trading, and civil rights violations. More claims and investigations are expected as additional injuries and slights emerge from the wreckage. Bankruptcies and restructuring efforts are increasing too, as businesses lose their economic footing as the crisis draws out.
Proactive steps to prepare for future COVID-19 fallout
On a more positive note, however, there are opportunities for in-house counsel to be proactive in preparing for what is to come. With the real possibility that certain situations or activities resulting from the pandemic will warrant investigation or result in litigation, there are a few important, proactive steps that a company can take now that will pay off later.
1. Consider what the courts might say in the future about preservation of information related to matters that may emanate from the crisis—and take steps to be prepared.
It may be easy for some companies to discern the nature of potential litigation that will arise as a result of COVID-19; if so, it may make sense to consider if courts will later deem them to have been “reasonably anticipated” now. Preservation decisions may flow from that analysis.
For example, there may be any number of internal communications related to the pandemic that could later be considered responsive to future requests for information. External communications, too; as companies consider how to communicate with their investors and customers to keep them informed of material developments about COVID-19, they are leaving a trail of communications about material risks to their business and operations that may face scrutiny later.
As a consequence, proactive data management warrants consideration. If preservation or collection does turn out to be warranted, efforts may be stymied by the disruption of employees working remotely who may be using unapproved or non-traditional communication channels that might be challenging to retain, preserve or collect. Data maps may need to be updated, retention needs re-assessed, disposal of unneeded data addressed—combined efforts that could reduce cost and risk. A training effort or reiteration of retention policies to employees would also be helpful.
2. Assume that bad behavior could be alleged (or occurring) as a result of COVID-19.
Are you doing enough to monitor, in view of new stressors? Studies show that occurrences of fraud increase during an economic downturn. Routine monitoring practices may not be enough to reveal emerging threats and heightened vigilance may be required. At the first sign of anything suspicious, proactively conducting small, targeted investigations can be a helpful component of staying on top of employee activity, especially as it may relate to FCPA violations, white-collar crime, or discrimination, for example. Such investigations, which can be accomplished by using a combination of sampling and sophisticated search techniques to query electronic data, can ferret out suspicious communications that may provide early warning without having to carry out a full-blown investigation.
3. Engage in and encourage conversations between legal, compliance and security teams to raise the level of awareness of activities that could result in legal actions later.
Again, data security may need to be re-envisioned because of the disruption in employee location and workflow; new (or existing) weaknesses cause risk that could expose the company to any number of problems. An open dialogue to re-evaluate potential threats and available safeguards may suggest preparatory steps that could be taken before something goes haywire. It might not be a bad time to suggest the review of security policies and the revision of and re-training on data breach response plans, for example, since much may have changed since the plans were originally conceived.
4. Review the actual language in any insurance policies that relate to business interruption since individual policies may differ from COVID-19-related news blurbs on the topic.
Whether or not a company will be covered for damages attributable to COVID-19 is sure to be a topic with legs. As every lawyer knows, it’s the actual language in each policy that matters, not what the news is reporting about whether claims are viable. This is a complex situation that may be affected by emergency orders that have already recognized damage from the virus or future legislation on point. In New Jersey, for example, the state legislature is considering New Jersey Bill A-3844, which would force insurance companies to pay COVID-19 related business interruption claims, even when “viruses” are specifically excluded from those policies.
In any case, know what the policies say. If you think there is a chance to collect for negative impacts, gather whatever material you can to document the losses that you may ascribe to the crisis.
The future is real
With such major disruption, every action that could possibly mitigate downstream pain and expense is worth considering. It may be difficult to think of the future at a time like this, but there is one, and it could be less painful with steps taken now.