LIEB BLOG

Legal Analysts

Friday, April 24, 2020

New Brewery Law: Increased Limits for On-Premises Sale

alcohol and beverage control law , brewery
New Brewery Law: Increased Limits for On-Premises Sale
On April 17, 2020, Governor Cuomo signed Senate Bill S7186, which relates to allowing restaurant-brewers to sell up to 250 barrels of product without a wholesaler, but what does the new law really mean for breweries?

Historically, breweries which sold beer on-premises were limited to making and selling only 250 barrels. To incentivize breweries to invest in their own product, the NYS Legislature increased the limit to 2,000 barrels through Senate Bill S5427. However, they inadvertently removed the language allowing a brewery to sell limited quantities without the use of a wholesaler or a person licensed to sell any beverage for purposes of resale.

Through Senate Bill S7186, Section 64-c of the ABC law was recently amended to clarify that breweries are allowed to sell 2000 barrels per year and up to 250 of those barrels may be sold on-premises without any additional licenses. Any number of barrels over 250, however, must be sold and distributed to other retailers through a wholesaler.

Thus, the new brewery law clarifies that breweries are allowed to sell limited quantities of their product in their own premises and they are also allowed to sell and distribute the rest of their product into other bars, restaurants, and retailers through a wholesaler, and thus allowing them to invest in and grow their businesses.


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New SBA Guidance on Paycheck Protection Program and Good Faith Certifications

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New SBA Guidance on Paycheck Protection Program and Good Faith Certifications
On April 23, 2020, the U.S. Small Business Administration issued new guidance on the Paycheck Protection Program under the CARES Act, specifically concerning the SBA’s position on good faith certifications and limiting PPP funding to public companies.

All applicants and recipients of PPP funds should pay close attention to Question 31 of the SBA Guidance: 
31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere..., borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith (emphasis added).

While the SBA Guidance specifically mentions public companies and their good faith certifications, it is important to note that the good faith certification is required for ALL borrowers. This means that all borrowers should be prepared to demonstrate their basis for their good faith certification. Thus, to mitigate exposure, borrowers are urged to contact their counsel to prepare a paper trail of their loan application process, which should include at the very least any proof that the application is indeed necessary and the basis for all amounts stated on the application (e.g. payroll, projected losses, operating expenses).

For a further discussion on disclosure, listen to the podcast HERE.


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Wednesday, April 22, 2020

Does Your Commercial Insurance Policy Cover Business Interruption Due to COVID-19?

business interruption insurance , coronavirus
Does Your Commercial Insurance Policy Cover Business Interruption Due to COVID-19?
Business owners looking to their commercial policies for business interruption and loss of income coverage due to COVID-19 have likely run into a giant roadblock - an exclusion of loss due to virus or bacteria. Many insurers added these special endorsements to commercial policies after the SARS outbreak in the early 2000s, and yours probably looks something like this:

We will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease.

These virus exclusions have led practitioners like myself scratching our heads for novel legal theories to find coverage where coverage is expressly denied. The New York State Assembly has taken notice and is trying to solve this problem for us with ASSEMBLY BILL A10226A. 


What Does The Bill Do?
The stated purpose of the bill is to "hold harmless businesses who currently hold business interruption insurance, for losses sustained as a result of the current COVID-19 health emergency, but for which no such coverage is currently offered." It accomplishes this by construing all policies insuring against loss of use and occupancy and business interruption "to include among the covered perils under that policy, coverage for business interruption during a period of a declared state emergency due to the coronavirus disease 2019 (COVID-19) pandemic." It also declares all virus exclusions null and void, and extends this special coverage for the duration of New York's declared state emergency. The new law would only apply to insureds with less than 250 full-time employees. 

To offset the costs, the bill allows insurers paying claims to apply for reimbursement from the Department of Financial Services who will collect funding for the reimbursements from other insurers, thus spreading the cost amongst all insurers except life and health  (a cost which presumably will be passed onto insureds as a surcharge). 

Most importantly, the bill is retroactive - deemed effective March 7, 2020 and applying to policies in effect on that date. 


What Should You Do Right Now?
Business owners should have their full policy examined to see: (1) if they have business interruption coverage; and (2) whether there is a virus exemption. While other exemptions may preclude coverage, these are the threshold questions. Retaining an attorney to evaluate your policy and to submit a claim is often a good investment because claims can be denied if the wrong language or explanation for your loss is given to your insurer, or if the claim is submitted in an untimely or improper manner. Talking yourself out of a covered claim because you didn't know what was covered and what wasn't is an avoidable mistake.

If your insurer denies coverage that you think you are entitled to, hiring an attorney to pursue a claim against your insurer is an appropriate next step. Federal Courts are still accepting new filings, and the Department of Financial Services is still accepting complaints from insureds.  

Policy holders with virus exemptions should contact their local assemblymember and/or state senator to express support for the proposed legislation. The New York State Senate website even lets you voice your support for the bill digitally clicking the check mark on the right side of THIS WEBSITE.

Keep your eye on our blog for status updates on this bill. If it passes and you benefit from its changes, it may make sense to submit a claim, in which case you should hire an attorney who can give you the best shot at meeting eligibility requirements. 


Is This Even Constitutional?
Expect insurers to push back on this bill because it will create, in their minds, an unfunded liability that was not bargained for when they set insurance premiums for policies in effect on March 7, 2020. Article 1 of the United States Constitution provides that "No State shall... pass any... Law impairing the Obligation of Contracts". The Fifth and Fourteenth Amendments to the United States Constitution prohibit the taking of  property without due process of law. In the past insurers have turned to both arguments when objecting to legislation that retroactively imposed new obligations. 

Long story short, the United States Supreme Court has held that the constitution permits contractual interference pursuant to a balancing test that evaluates (1) the extent of the interference, (2) the historic regulation of the industry affected by the law, (3) the legitimate public purpose for the law, and (4) whether the law is appropriate given the stated public purpose, with special deference given to laws addressing emergencies. Home Building & Loan Association v. Blaisdell, 290 US 398 (1934); Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 US 400 (1983). Litigation is inevitable and it appears that the Assembly has specifically drafted this bill with previous case law in mind.

The New York Court of Appeals has addressed retroactive insurance coverage changes in two important decisions. 

In Health Insurance Association of America v. Harnett, 44 NY2d 302 (1978), the Court of Appeals struck down legislation that required retroactive coverage for maternity care in health insurance policies, but it did so on the narrow ground that those policies were forced renewal, where the insurer could not unilaterally cancel or refuse to renew a policy after its period expired, and therefore they did not consent to the change in the substance of the policy. The Court of Appeals did recognize that the legislation could work in other circumstances, stating "while there was a genuine, identifiable public purpose to be served by the enactment of [the law], the predicament which spawned the legislation had not risen to the magnitude of a crisis which warranted overriding the terms of the agreements entered into by the parties". Contrasting the holding in Harnett, commercial policies affected by this bill are not automatically renewable and can be cancelled by the insurer. Further, the Assembly bill specifically references the fact that COVID-19 is a state emergency, giving the legislation the emergency gravitas called for. 

In American Economy Insurance Co. v. State of New York, 30 NY3d 136 (2017), the Court of Appeals upheld legislation that insurers argued retroactively imposed unfunded workers' compensation liability. The legislation did away with a special fund that was used to pay for workers' compensation claims that were closed but unexpectedly reopened many years later. This holding was on the narrow ground that the legislation did not change the actual legal enforceability of the contract between insurer and insured, only how the liability was paid for (i.e. passing the cost of the claim from the fund directly to the insurers). Here, the Assembly bill creates a type of fund that pays for the coverage imposed by retroactive changes, a provision that presumably is intended to bring the bill closer to what is permitted by American Economy Insurance Co., and further away from what is forbidden by American Economy Insurance Co., which cautions against the changing of contractual obligations between insurer and insured. 

Other state courts have attempted similar legislation. In Harleysville Mutual Insurance Co. v. State of South Carolina, 401 S.C. 15 (2012), the South Carolina Supreme Court struck down a law that retroactively changed the definition of an "occurrence" because it altered the contractual relationship between insurer and insured without addressing a pressing emergency. In Vesta Fire Insurance Corp. v. State of Florida, 141 F3d 1427 (11th Cir. 1998) legislation was permitted that limited property insurance cancellations in the wake of Hurricane Andrew. Likewise, in State of Louisiana v. All Property & Casualty Insurance Carries Authorized and Licensed to Do Business in State, 937 So2d 313 (La. 2006) the Louisiana Supreme Court upheld legislation that extended the filing deadline for claims, and the statute of limitations for insurers suing their insurers, in the wake of Hurricanes Katrina and Rita. 

So, is the proposed legislation constitutional? There are good arguments for both sides. On one hand, COVID-19 is undoubtedly an emergency and the proposed legislation serves a legitimate and pressing public purpose. The bill even attempts to fund the new liability imposed. On the other hand, the bill substantially changes the rights and obligations bargained for when the insurer issued policies in effect on March 7, 2020. It takes a specific exclusion and renders it null and void. This ham-fisted approach may prove too much - an axe when a scalpel would be more appropriate. 

Regardless, business owners need relief now. Being legally correct and receiving your insurance payout 5 years from now after a drawn out legal battle does nothing to help pay your mortgage or payroll right now. While this bill is a good idea, and if passed will bring new benefits to many business that would  not have received them otherwise, it's not a silver bullet that brings the relief business owners need immediately. It should be viewed as one arrow in the quiver and applied in conjunction with other relief programs such as the Paycheck Protection Program. 

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Friday, April 17, 2020

Cuomo Extends Deadlines for Condominium Filing Requirements

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Cuomo Extends Deadlines for Condominium Filing Requirements
Governor Cuomo has signed Executive Order 202.18 which extends deadlines for condominium offering plans, offering breathing room to developers. The deadlines for the following requirements have been tolled:

  • Requirement of filing an offering statement or prospective within 15 months of date of issue of the letter from the attorney general stating that the offering statement or prospectus has been accepted for filing is tolled until May 16, 2020 (see Section 352-eeee(2)(a) of the General Business Law);
  • Filing fees required at the time of submission and filing of each offering statement or prospectus also suspended until May 16, 2020 but payment must still be made to the department of law by August 14, 2020 (see Section 352-e(7)(a) of the General Business Law);
  • Requirement of Sponsor’s preparation of a budget for the first year of condominium operation is tolled until May 16, 2020. However, the Sponsor must update the first year of operation, as necessary, within 30 days from expiration of Executive Order. The Sponsor shall not be required to offer rescission, to the extent the first year’s budget for operation does not increase by 25% or more during the pendency of the state of disaster emergency (see 13 NYCRR §§ 18.3(g)(1), 20.3(h)(1), 23.3(h)(1)); and
  • Rule requiring a sponsor to offer rescission if the first closing of a unit does not occur within first year of operation is tolled until May 16, 2020, but the sponsor must update the first year of operation, as necessary, by June 15, 2020 (see 13 NYCRR § 20.3(o)(12)).

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Monday, April 13, 2020

Employer Alert - Executive Order on Essential Businesses

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Employer Alert - Executive Order on Essential Businesses
On April 12, employers were ordered to provide their staff with face coverings.

The Executive Order 202.16 provides:
For all essential businesses or entities, any employees who are present in the workplace shall be provided and shall wear face coverings when in direct contact with customers or members of the public. Businesses must provide, at their expense, such face coverings for their employees. This provision may be enforced by local governments or local law enforcement as if it were an order pursuant to section 12 or 12-b of the Public Health Law.  This requirement shall be effective Wednesday, April 15 at 8 p.m.
Employers must get their face coverings now!!!

Interestingly, the order does not require a specific type of face covering so it's conceivable that even a homemade option would satisfy the requirement. However, try to get N95 masks if you can - safety first. 



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