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Was Your Business Prepared for the Riots? You Can and Should Be Ready for A Crisis

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Maryland Construction Network - June 4, 2015

By: Jennifer M. Horn & Jason C. Tomasulo

Early estimates suggest that the damage to Maryland businesses due to the riots is approaching nearly $9 million, not including the impact of lost profits or lost time. Many business owners were left assessing the damages, some without any recourse. If your project was affected by a riot, what can you do? Or, what should you have done? How can you protect your company’s assets and property in order to minimize the impacts of future crises? The best answer involves putting systems in place pre-crisis to maximize protection for your business during and post-crisis.

Pre-Crisis Protections
To prepare your business for a crisis, whether it be fire, flood, accidents at a jobsite, or, as recently experienced, damage to property as a result of rioting, it is essential that key systems are put in place in advance. Some are obvious – such as jobsite security and comprehensive insurance policies for asset protection. But perhaps less obvious is the designation of a crisis management team. This team involves key personnel and owners of the company, insurance professionals, legal counsel, and, if necessary industry experts. While some may not consider including legal counsel on their team, legal counsel can help train and/or designate a company spokesperson to manage the crisis, assist in formulating the public relations message, assess company document retention and storage policies, and evaluate available legal options. The benefits of crisis management training for key personnel cannot be overstated. 

Considerations During a Crisis & Post-Crisis Response
During a crisis, the well-being and safety of all employees is of paramount concern. Then, an assessment is necessary of damage to property, including company data, resources, equipment, and inventory. In addition, the company’s public relations response, presented by the company’s designated crisis manager, must be focused and accurate. A company must consider the possible legal impact of public statements and internal memoranda issued by the company to its employees. Legal counsel can assist with the company’s public response and assist with internal and external communications. Legal counsel can also review relevant contracts and relevant insurance policies to address potential remedies for the damages incurred, and advise if there is a the need for industry experts.

Evaluating Remedies
To address the lost time on the job, most contracts have a no fault provision for time extensions called a force majeure clause. This clause provides that a contractor is entitled to a time extension for certain causes beyond the contractor's control, such as acts of God, acts or threats of terrorism, and often, riots. Check your contract to see if a riot is identified as a basis for additional time. Even if it is not expressly stated, it may be covered by a general catch-all provision (“or other causes beyond the contractor’s control”). If a riot is covered by your force majeure provision, you need to comply with the notice and claim provisions in the contract to assert your right to a time extension.

With regard to recouping damages suffered due to a riot, it is likely that such damages are covered by insurance. On most construction projects, builder’s risk or “all risk” insurance is available for property damage to the project and other defined losses, including damages due to stolen materials and damage to equipment. However, certain exclusions, such as the “war” exclusion, may apply that would prevent coverage. It is important to carefully review your insurance policies with the assistance of counsel to evaluate your available options. Builder’s risk policies typically include a deductible, so you must also consider the cost of the deductible versus the amount of damages for which you are seeking coverage. A construction project owner could also explore whether there are federal, state, or local funds available for disaster relief, and whether it qualifies for such funds. 

Because the facts of each case are different, you should consult an attorney for legal advice regarding your specific crisis situation and potential remedies. 

Jennifer M. Horn is a Partner in the Construction Practice Group. She can be reached at (215) 564-1700 and jhorn@cohenseglias.comJason C. Tomasulo is Senior Counsel in the Firm’s Construction Practice Group. He can be reached at (215) 564-1700 and jtomasulo@cohenseglias.com.

Previously published in the June 2015 issue of Maryland Construction Network.