Are Losses due to COVID-19 Covered by Business Interruption Insurance?

Business interruption insurance, or business income insurance, is commercial property insurance designed to cover a business’s loss of income due to a moratorium on its operations. Business interruption insurance is typically triggered when the policyholder suffers physical loss or damage to property specifically covered under the policy. The question, which has been raised many times before (e.g. SARS, rotavirus, etc.), is whether these policies cover business losses suffered as a result of a pandemic such as COVID-19.

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    There are many benefits to having your own terms and conditions and incorporating them into each and every transaction to which you are a party. They can set forth and confirm key pieces to the business arrangement, reduce the chances of litigation, and encourage compliance with all applicable laws and regulations.

    By using a standard set of terms and conditions which govern your business’s contractual engagements, your company will benefit from the consistency and reduce time and money spent on negotiating each and every contract. The added level of certainty will enable your company to predict potential pitfalls and plan around them, or prepare to weather them should they arise.

    Reducing the chance of disputes and potential litigation not only protects against stressful distractions, it prevents your company spending “good money” chasing “bad”. Clarity and simplicity are important to any successful contractual relationship. Terms and conditions address far more of the legal landmines than a simple purchase order, and can protect your interests in the event your company’s expectations are not met.

    Modern business transactions necessitate a keen focus on compliance with all laws and regulations. Protecting against your company’s risk exposure and financial interests are not the only areas of concern. Formal terms and conditions support compliance with labor, eCommerce, electronic signature, and other laws and regulations easier and more transparent. With modern technology comes new laws and regulations, and it’s more important than ever to designate which party is responsible for compliance with which legal requirement.

    The effectiveness of your terms and conditions is determined by the mechanics of their use. When and how your written purchase terms and conditions are introduced can affect whether they prevail in any “battle of the forms.” It is therefore critical that both the details of your terms and conditions, as well as your processes for their use, are carefully reviewed with legal counsel to optimize their value.

Effective Terms and Conditions of Purchase

Every purchase order establishes a legally binding agreement between your company and its third-party vendors, contractors, and suppliers. The problem is that each party often has its own idea of what that agreement really is. Having effective terms and conditions of purchase ensures that your understanding of the agreement is what governs the contractual relationship with your company.

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    Over time, these types of policies have largely been limited to cover certain circumstances which are enumerated in the policies’ declaration pages. It’s important for businesses to review its insurance policies with their respective agents and determine whether, and to what extent, insurance coverage is available to combat the losses being suffered by businesses across the country.

    While you’re at it, investigate whether similar types of insurance products are included in your current coverage or whether your business would benefit from adding similar types of insurance for future unforeseeable interruptions to your business’s operations. Extra expense insurance and contingent business interruption insurance, for example, are often paired with business interruption insurance policies. Extra expense insurance provides coverage for additional costs and expenses in excess of ordinary operating expenses a business might incur in order to continue operating during and following a covered circumstance. Contingent business interruption insurance covers lost profits resulting from an interruption in business operations due to an interruption of a customer’s or supplier’s business. Many commercial contracts include a force majeure clause, which lets a party to a contract off the hook for nonperformance during “an act of God.” A force majeure clause can even be argued to exist in contracts that are silent on the issue.

    While this is a tough time for many businesses, it’s also a good time to revisit your business’s insurance coverage and see how insurance may help weather the storm.

Effective Terms and Conditions of Sale: How to Win the “Battle of the Forms”

When goods are sold in the United States via the exchange of preprinted or boilerplate form documents by both the seller and buyer, the answers to these two questions are tenuous at best. And while the UCC sought to simplify the search for the answers, the result has proven to be nothing but more confusion. The good news is that having effective terms and conditions of sale and maintaining strict sales procedures can help a seller avoid falling victim to the “Battle of the Forms.”

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    Consider the following scenario. The parties agree on certain necessary terms, such as price, quantity, and delivery. The buyer sends the seller a purchase order form with boilerplate terms and conditions on the back. The seller returns its acknowledgement form, promising to ship the goods shown on the purchase order. Seller’s own boilerplate terms and conditions are on the back of its acknowledgment form, which are drastically different from buyer’s terms and conditions and include certain additional terms not addressed in buyer’s form. Neither party signs anything, but the seller ships the goods and the buyer accepts them.

    If this scenario sounds familiar, your company is vulnerable to the unforgiving nature of the UCC, which is unashamedly pro-buyer. First, either a contract will be deemed to have been established based on the “dickered terms” (or the negotiated essential business terms such as product description, price, quantity, and delivery) plus any additional terms which do not materially alter the agreement, or alternatively, if the essential business terms are wholly different, no contract will be deemed to have been created whatsoever. Second, the UCC will fill in any gaps, including any areas where the respective terms and conditions are different or collectively silent. [Mike –is this true even if the UCC determines that no contract has been created; does the UCC fill in the essential business terms in such a case?]

    To avoid the pro-buyer UCC gap fillers governing your company’s transactions, your sales terms and conditions should include specific references and disclosures and your company’s sales department must be warned to expressly reject buyers’ terms and conditions upon receipt. One, without the other, will be insufficient. The best way to navigate the UCC’s murky waters is to consult with your legal advisors to establish a holistic legal and operational approach to avoiding them altogether.

    Section 2-207 of the Uniform Commercial Code (“UCC), which has been generally adopted in most states, was created in hopes of answering two common questions in the commercial arena:

    (1) Has a contract been established when parties exchange forms containing conflicting terms and no document has been signed?

    (2) If so, what are the terms governing the contract?

FAQs – Paycheck Protection Program

The CARES Act is lengthy and written in legalese. The SBA guidelines and Interim Final Rules can be confusing. To add a little simplicity to the fast-paced and complex world of the Paycheck Protection Program (PPP), here are answers to some of the most frequently asked questions from the first few days of the Paycheck Protection Program application window.

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    How Do I Benefit From Loan Forgiveness?

    Borrowers under the PPP can request forgiveness of the principal portion of the loan for the 8 week period after receiving the loan proceeds which covers:

    • Payroll costs;
    • Interest on a mortgage;
    • Rent, and;
    • Utilities.

    However, 4/3 (or 133.3%) of the amount of payroll made during the 8 weeks following the loan’s origination date will serve as the maximum amount of loan forgiveness a borrower can receive. In other words, no more than 25% of the amount to be forgiven can have been used for non-payroll expenses. Remember, the purpose of the PPP is to help employers keep its employees employed and paid, so the more you used the proceeds for payroll costs, the more the government will forgive the loan.

    Loan forgiveness will be reduced pro-rata if you reduce your FTE headcount. It will also be reduced if you decrease wages by more than 25% for any employee that made less than $100,000 in 2019, and you may receive forgiveness for additional wages paid to tipped workers.

    Will I Be Taxed on the Forgiven Amount?

    No. But be careful, because penalties may apply if you misreport information on your application.

    Can I Still Qualify If I Don’t Have Employees?

    Yes. The CARES Act states: “…individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible. Applicants who fall in this category will need to provide documentation such as “payroll tax filings reported to the Internal Revenue Service, Forms 1099-MISC, and income and expenses from the sole proprietorship, as determined by the [SBA] Administrator and the [Treasury] Secretary.”

    Do Foreign Employees Count Towards the 500-Employee-Max?

    No. According to the SBA’s Interim Final Rule [], “An entity generally is eligible for the PPP if it, combined with its affiliates, … has 500 or fewer employees whose principal place of residence is in the United States…”

    Who Is the “Owner” on the Application?

    The application requests that you name each person or entity owning 20%+ of the applicant-entity. Learning as we go, some lenders have provided more feedback. There is also an unwritten 50%+ requirement, meaning that the applicant must list (a) each person or entity owning 20%+ of the applicant-entity and (b) owners which, in the aggregate, represent not less than 50% of the collective ownership of the applicant-entity.

    For example, if the applicant has 8 owners, 2 of which each own 20% and 6 of which each own 10%, the application must list (a) the 2 owners owning 20% and (b) at least 1 of the owners owning 10%.

    Do Independent Contractors Count as Employees?

    No. They can apply for a PPP loan on their own, however.

    How Much Money Can I Borrow?

    In short, you can borrow up to 2.5 times the average monthly payroll for the 12 months preceding the date the loan is made, up to $10 million.

    Seasonal businesses can apply to borrow 2.5 times their payroll for either the 12-week period beginning February 15, 2019 and ending May 10, 2019, or the period of March 1, 2019 through June 30, 2019.

    Newer businesses which were not in business for the time period beginning on February 15, 2019 and ending on June 30, 2019, can use their average total monthly payroll costs incurred from January 1, 2020 to February 29, 2020 and multiply that figure by 2.5.

    For these purposes, payroll does not include salary in excess of $100,000 per employee. It also excludes qualified sick leave pay under the Families First Coronavirus Response Act (FFCRA).

    How Can These Funds Be Used?

    A borrower can use the loan proceeds for:

    • Payroll costs;
    • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
    • Employee salaries, commissions, or similar compensations;
    • Payments of interest on any mortgage obligation (but not to pay principal or to prepay a mortgage)
    • Rent (including rent under a lease agreement);
    • Utilities;
    • Interest on any other debt obligations that were incurred before the covered period;
    • Refinancing an SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020

    Note that the applicant must certify in its application that, if approved, the funds will be used only for these expenses.

    What Does Payroll Include?

    The CARES Act states that payroll includes:

    • Salary, wages, commissions, or similar compensation;
    • Payment of cash tips or equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate);
    • Payment for vacation, parental, family, medical, or sick leave;
    • Allowance for dismissal or separation;
    • Payment required for the provisions of employee benefits including insurance premiums;
    • Payment of State or local tax assessed on the compensation of employees, and;
    • For sole proprietors or independent contractors, wages, commission, income, or income from net earnings from self-employment, or similar compensation.

    How Do I Document Payroll?

    Payroll processor records, payroll tax filings, or Form 1099-MISC will work. For sole proprietorships, income and expense reports are appropriate.

    What If PPP Loan Funds Are Misused?

    The SBA will require repayment of any misused amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability, including fraud charges. If one of your shareholders, members, or partners uses funds for unauthorized purposes, that person or entity will be subject to liability owed to the SBA.

    How Quickly Can I Get a PPP Loan?

    Too soon to tell. The legislation is designed to allow for PPP loans to be processed more easily and to enable lenders to approve and fund the loans more quickly. Typical SBA 7(a) loans can take a couple of weeks to a couple of months. The relaxed standards of the PPP process will be counterbalanced by a rush of borrowers and the lenders’ learning curve of the new rules.

    When Do I Have to Repay It?

    PPP loans have a 2 year term, and there is no prepayment penalty.

    What Is the Interest Rate? Are There Any Fees?

    The interest rate is 1%, no matter which lender makes the loan. The standard SBA 7(a) loan fees are waived.

    Do I Have to Guarantee Repayment of the Loan? Do I Have to Provide Collateral?

    No. There is no personal guarantee required. As long as the loan proceeds are used for covered purposes, these are non-recourse loans. Unlike typical SBA loans, which require collateral for loans in excess of $25,000, the collateral requirement is waived.

    When Do I Have to Begin Making Payments?

    Although interest will accrue right away, payments may be deferred for 6-12 months.

    Are Employees Outside the United States Counted as Employees for PPP Purposes?

    This one is hazy. The rules are confusing and the interpretations are constantly changing. But, the SBA’s Interim Final Rule ( indicates that an entity is generally eligible for a PPP loan if it, combined with its affiliates, has 500 or fewer employees whose principal place of residence is in the United States. Although this language conflicts with typical SBA protocol, it seems that foreign employees are not required to be counted under the affiliation rules.

    By this same token, however, foreign employees’ payroll cannot be counted toward a loan’s forgiveness calculation.

CARES ACT – The Paycheck Protection Program and its Newest Guidelines

The Paycheck Protection Program (PPP) aims to provide aid to millions of Americans employed by small businesses by authorizing $349 billion available to promote job retention and relieve certain business expenses expected to become more strenuous on companies during the COVID-19 emergency. Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.

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    More specifically, funds under the PPP will enable businesses to pay up to 8 weeks of payroll costs, including benefits. The funds can also be used to pay interest on mortgages, rent, and utilities.


    PPP funds are provided as a loan which will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities, provided at least 75% of the forgiven amount was used for payroll. Additionally, loan payments will be deferred for 6 months, and may be extended up to 1 year. No collateral or personal guaranteed are required, and neither the government nor lenders will charge any loan fees to small businesses.


    Forgiveness of the loan amounts will be based on the employer maintaining or quickly rehiring employees and maintaining salary levels. If changes were made to a business’s FTE headcount between February 15, 2020 and March 26, 2020, employers must bring back furloughed employees by June 30, 2020. If the FTE headcount declines, or if wages or salaries decrease, the forgiveness amounts will be adjusted accordingly.


    Small businesses with 500 or fewer employees are eligible. This includes nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors.


    April 3, 2020 marks the first date small businesses and sole proprietorships can apply for PPP funding. On April 10, 2020, independent contractors and self-employed individuals can apply. There is a cap on available funding, so submit applications as soon as possible.


    Employers may apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. All loans will have the same terms regardless of the lender or the borrower. A list of participating lenders, as well as additional information and full loan terms can be found at