Is Coronavirus Covered by Your Contract’s Force Majeure Provisions?March 18, 2020 | Walter J. Gumersell | Stella Lellos | Samantha R. Barbere | |
Part of the commitment to entering into a contract includes an agreement between parties to perform contractual obligations on a timely basis, with limited exceptions. Contracts frequently include a provision titled “force majeure,” which translates literally from French to mean “superior force.”
Force majeure provisions, generally part of the boilerplate section of a contract and infrequently the subject of tremendous negotiation, generally excuse contractual non-performance caused by unavoidable or natural catastrophes that are beyond the control of either contracting party. With the outbreak of coronavirus disease 2019 (COVID-19), the typically innocuous force majeure provision is receiving a lot of attention. Is COVID-19 a “superior force” sufficient to shield a breach for non-performance?
Force majeure clauses are usually drafted to include an exclusive list of events that trigger invocation. Sometimes referred to as “Acts of God,” triggering events frequently include, natural disasters such as floods, tornadoes, earthquakes and hurricanes and acts of people such as terrorism, riots, strikes, wars and medical epidemics. Force majeure provisions are contract-specific, and deciphering the scope of each clause requires a careful reading of its language.
The World Health Organization (WHO) declared COVID-19 a pandemic. There would be little question that a force majeure clause specifically including pandemics, medical epidemics or other viral outbreaks will be a defense to a claim of a breach of contract.
If a force majeure provision does not explicitly include pandemics, would COVID-19 be a defense for non-performance? Force majeure provisions that include references to “acts of government” could be interpreted to include government directives such as prohibiting assembly of more than 50 people and curbing business at certain social venues. However, clauses that do not explicitly provide for similar language will likely be insufficient to constitute force majeure. Historically, courts have given a plain reading to the contract and focused on whether the event was enumerated in the list of triggering events. Thus, provisions that are silent on pandemics or acts of government may be insufficient to invoke a force majeure defense based on COVID-19. It is hard to predict whether the heightened level of government intervention, including the restrictions on travel and the various official orders instructing businesses to close, will impact the courts’ historic pattern of strict interpretation.
For now, companies should be reviewing their existing contracts to determine whether they contain force majeure clauses. If so, look to see whether the language of the provision makes any reference to nonperformance resulting from pandemics, medical epidemics, other viral outbreaks or acts of government. If your contract references one of the aforementioned situations, the force majeure provision may be triggered. Businesses should examine the clause for any formal notice requirements and ensure that they are complying with such requirements.
Moving forward, companies should ensure that their contracts include a provision contemplating force majeure events. Specifically, all clauses should include “pandemics, medical epidemics or other viral outbreaks” as qualifying force majeure events. Furthermore, each provision should outline exactly what happens in the event performance becomes impossible due to a force majeure event.
The attorneys in Rivkin Radler’s Corporate Practice Group are here to assist and protect you and your company during this uncertain period. We will continue to closely monitor the legal and business implications associated with the COVID-19 pandemic and will provide updates as necessary.
- Walter J. Gumersell
- Stella Lellos
- Samantha R. Barbere