From home renovation jobs to major property development projects, California’s construction industry has been thriving. In the summer of 2019, construction employment had increased 4% over the previous summer. Growing demands for housing have led to an increase in housing developments being built and transportation projects have been going strong. After the announcement that Los Angeles will be hosting the 2028 Summer Olympics, plans for things like event venues and hotels have already gotten underway.
But when the coronavirus pandemic led to mandated shutdowns in the state of California, many construction projects were forced to come to a stop.
How Did COVID-19 Impact California Contractors & Developers?
Under the shelter-in-place order issued by Governor Gavin Newsom in March 2020, people like commercial and residential construction workers, electricians, and plumbers were allowed to continue working. Even though construction services were considered essential on a statewide level, some areas of the state placed further restrictions on construction.
In the city of Los Angeles, Mayor Garcetti allowed for “any work necessary to to build, operate, maintain or manufacture essential infrastructure, including without limitation construction of commercial, office and institutional buildings, residential buildings, and housing.” However, projects had to operate within construction site guidelines issued to help limit the spread of COVID-19. Restrictions were more strict in San Francisco, which only allowed for public works construction, housing construction projects, and other projects required for the safety, sanitation, or habitability of residences and commercial buildings. Construction projects that did not fall into those categories were forced to come to a halt.
However, even if a construction project falls into one of the allowed categories, many projects were still cancelled or work had to stop if it wasn’t possible for people to work in a way that would comply with coronavirus prevention guidelines. For example, a job site might not have a functioning sink workers could use to wash their hands or people could be working in a space too small to allow for social distancing.
COVID-19 Business Losses for Contractors & Developers
Construction projects can be extremely complex and delays can easily turn into substantial financial losses. A delay anywhere in the process can set off a chain reaction of complications that extends far down the line. For example, if a job is forced to stop at a point where components are left exposed to the elements, they could be damaged and need to be replaced by the time work is able to resume. Or when a delayed job involves multiple contractors, it’s not always as simple as calling them up and telling them when they can report to work again — there may be issues with contracts that need to be dealt with.
Even once construction projects are able to resume again, there is a chance contractors could have a difficult time getting the tools they need to get the job done. Given the impact the coronavirus pandemic has had throughout the world, there may be supply chain disruptions that affect the availability of things contractors need to use.
Very often, developers need to take out construction loans for the projects they work on. But since these loans tend to have high interest rates, delays can mean paying extra interest. In the worst case scenario, defaulting on a construction loan can put a developer’s personal assets in jeopardy.
Insurance & the Construction Industry
With all the problems that can potentially come with construction delays, construction companies often have insurance to help protect themselves from any financial losses they might incur. Business interruption insurance is intended to help cover things like employee wages, taxes, and loan payments in the event that a business is forced to temporarily close. If a business owner has an insurance policy with civil authority coverage, that is supposed to help cover losses if work needs to stop because of a government order. Contingent business interruption insurance may also be involved to protect against supply chain disruptions.
Unfortunately, with the sheer volume of business insurance claims being made in the wake of the COVID-19 outbreak, many insurance carriers have been broadly denying claims on business interruption, civil authority, and contingent business insurance policies. Typically, they try to argue that these types of insurance policies require some kind of physical property damage and coronavirus does not qualify as physical damage.
What to Do if Your Insurance Claim is Denied
Insurance carriers will gladly accept the insurance premiums you pay, but will try to deny you your benefits when you need them most. Given how complex the construction industry can be, one of the best things you can do is get a lawyer to help with your claim. Whether you’ve made a claim and been denied or are still in the process of getting ready to make a claim, a lawyer can work with you to give you the best chance of success.
The Wallace Firm is now working with California business owners to help them with their business interruption claims related to the coronavirus pandemic. Our lawyers are handling these cases on a contingency basis, so there are no upfront fees and you won’t pay anything unless we help you win your case. Contact us today for a free case evaluation.