SDV Insights

Some of the hot topics dominating the construction industry today include the impacts of COVID-19, government testing and vaccine mandates, cyber security, and the evolving role of general counsel. This article provides a summary review of those topics.

a. The Economic Impact of COVID-19 for Project Owners
Project owners have been placed in a precarious position because courts across the country have almost unanimously ruled that insurance carriers are not liable for COVID-19-related business income losses.¹  While project owners have sought alternative ways to mitigate losses resulting from COVID-19, many of these efforts have been negated by the exponential increase in materials costs.²  Thus, it remains unclear what, if any, solutions project owners have at their disposal.

For example, early communication with downstream parties was a semi-effective way for project owners to minimize the impact government shutdown orders had on existing and planned projects. However, increased construction costs, which are only expected to rise for the foreseeable future, have further constrained these contractual relationships. As a result, some project owners now have contractors absorb increased building costs, holding the contractors to their initial proposals. Another solution to mitigate rising costs may be storing excess materials, such as lumber, onsite; however, the challenge with storing materials on site is identifying what type of loss and resulting claim would arise if those stored materials become damaged. In other words, there appears to be no effective risk transfer vehicle for stored materials.

b. Potential Impacts of COVID-19 Testing and Vaccine Mandates
A major concern held by industry leaders is the impact that COVID-19 testing and vaccine mandates may have on the construction industry. Requiring vaccines could result in many construction laborers being ineligible to work, worsening an already tight labor market. Recent surveys reveal that on average, only 50% of construction laborers are fully vaccinated.³ The concern is well-founded, considering the federal government’s recent failed attempt to impose a national testing and vaccine mandate through OSHA’s emergency temporary standard (EST) for employers with 100 employees or more.⁴

On November 6, 2021, the Fifth Circuit Court of Appeals issued a stay, preventing the ETS from taking into effect.⁵ Several days later, the Judicial Panel on Multidistrict Litigation held a lottery and issued an order naming the Sixth Circuit Court of Appeals as the court for which all other circuits would transfer their cases challenging the ETS.⁶ On December 16, 2021, the Sixth Circuit, in a 2-1 decision, granted OSHA’s motion to dissolve the Fifth Circuit’s stay, reviving the ETS.⁷ Immediately thereafter, several consolidated emergency applications for a writ to stay the Sixth Circuit’s order were filed with the Supreme Court.⁸ On December 22, 2021, the Supreme Court issued an order scheduling oral argument on January 7, 2022.⁹ Following oral argument, the Supreme Court issued a 6-3 decision finding the OSHA vaccine mandate was unlawful since the mandate exceeds the Secretary for the Department of Labor’s statutorily conferred authority.¹⁰ Additionally, on January 21, 2022 , the United States District Court for the Southern District of Texas issued a preliminary injunction enjoining President Biden’s vaccine mandate for federal workers.¹¹

At present, construction industry leaders can momentarily breathe from the concerns and hardships that a nationwide vaccine mandate would impose on the construction industry. Yet, it remains unseen whether individual states will try to impose vaccine mandates similar to OSHA’s ETS.

c. Privacy and Cyber Security
The proliferation of strict privacy laws across all 50 states has created impossible standards for owners and contractors to meet, which, in turn, has increased the complexity of insurance policies containing cyber liability coverage. This has become a major issue considering the recent exponential increase in cyber-attacks. One question confronting construction industry leaders is whether policyholders should pay ransomware attack demands. In general, it is recommended that organizations and individuals should not pay ransomware attackers because doing so creates an easy target for future attacks.¹² However, if payment is made, that payment will likely be heavily contested by insurers.¹³ For example, insurers may rely on a war endorsement in their policies to avoid coverage for ransomware payments to foreign organizations or nations.

d. The Role of General Counsel: Now and in the future
Over the past few decades, the general counsel role has transformed from an inactive role to an active organizational role. Currently, attorneys serving as general counsel are often viewed as trusted business leaders and good lawyers. In the future, attorneys serving as general counsel will likely be considered as business partners and strategy experts. A few “best practices” for current and aspiring general counsel candidates include:

1. Know as much about your business as possible to quickly resolve issues.
2. View risk management holistically.
3. Point out the problems that matter and the proper mitigation measures to be taken.

e. Summary
Overall, the construction industry, like many other industries, is rapidly evolving to meet market demands, thus resulting in changes to existing construction industry norms. Some of those notable changes include: (1) building in increased costs to proposals due to material shortages induced by COVID-19 and storing materials on site; (2) anticipating and complying with COVID-19 mandates while maintaining a sufficient labor force; (3) implementing safeguards to protect construction industry leaders from cyber-attacks; and (4) viewing general counsel as trusted business partners and strategy experts.

For more information, please do not hesitate to contact Melanie A. McDonald at MMcdonald@sdvlaw.com.

*Special thanks to Kyle Rudolph, Law Clerk, for contributing to this blog post.
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¹See, e.g., DZ Jewelry, LLC v. Certain Underwriters at Lloyds London, 525 F.Supp.3d 793 (S.D. Tex. 2021) (finding insured failed to sufficiently allege its store suffered “direct physical loss of or damage to property” because of COVID-19); Pappy’s Barber Shops, Inc. v. Farmers Grp., Inc., 487 F.Supp.3d 397 (S.D. Cal. 2020) (“Most courts have rejected these claims, finding the government orders did not constitute direct physical or damage to property.”) (citing Malaube, LLC v. Greenwich Ins. Co., No. 20-22615-CIV, 2020 WL 5051581 (S.D. Fla. Aug. 25, 2020) (recommending dismissal of complaint seeking coverage for loss of business income because of COVID-19)).
²See, e.g., Bureau of Labor Statistics, U.S. Department of Labor, Producer Prices for Lumber up 89.7 Percent for the Year Ended April 2021, THE ECONOMICS DAILY (May 20, 2021), https://www.bls.gov/opub/ted/2021/producer-prices-for-lumber-up-89-7-percent-for-the-year-ended-april-2021.htm.
³COVID-19 Vaccination in Construction, THE CENTER FOR CONSTRUCTION RESEARCH AND TRAINING (Feb. 27, 2022), https://www.cpwr.com/research/data-center/data-dashboards/covid-19-vaccination-dashboard/.
⁴See 86 Fed. Reg. 61, 402 (Nov. 5, 2021) (to be codified at 29 C.F.R. pts. 1910, 1915, 1917, 1918, 1926, and 1928).
⁵See BST Holdings, L.L.C. v. OSHA, 17 F.4th 604 (5th Cir. 2021).
⁶In re: Occupations Safety and Health Administration, Interim Final Rule: COVID-19 Vaccination and Testing; Emergency Temporary Standard, 86 Fed. Reg. 61402, Issued on November 4, 2021, MCP No. 165 (Nov. 16, 2021).
⁷See In re: MCP No. 165, Nos. 21-7000 et. al., 2021 WL 5989357 (6th Cir. Dec. 17, 2021).
⁸Nat’l Fed’n of Indep. Bus. v. OSHA, No. 21A244, 2021 WL 6061696 (U.S. Dec. 22, 2021); Ohio v. OSHA, No. 21A247, 2021 WL 6061696 (U.S. Dec. 22, 2021).
⁹Id.
¹⁰Nat’l Fed’n of Indep. Bus. v. OSHA, 142 S.Ct. 661, 666 (2022) (“Although Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly. Requiring the vaccination of 84 million Americans, selected simply because they work for employers with more than 100 employees, certainly falls in the latter category.”).
¹¹Feds for Med. Freedom v. Biden, No. 3:21-cv-356, 2022 WL 188329, at *8 (S.D. Tex. Jan. 21, 2022), appeal docketed 25 F.4th 354 (9th Cir. 2022) (”IT IS ORDERED that Appellant’s opposed motion to stay the injunction pending appeal is CARRIED WITH THE CASE.”) (emphasis in original).
¹²See Federal Bureau of Investigation, Common Scams and Safety: Ransomware, https://www.fbi.gov/scams-and-safety/common-scams-and-crimes/ransomware (last visited November 23, 2021) (“The FBI does not support paying a ransom in response to a ransomware attack.”).
¹³See, e.g., Answer & Counterclaims to Complaint, Boardriders, Inc. v. Great Am. Ins. Co., No. 8:21-cv-01260-JLS-JDE (S.D. Cal. Sept. 27, 2021), ECF No. 23.