Contract Force Majeure Clauses and the Coronavirus

In the wake of the Coronavirus (COVID-19), many businesses are anticipating or have already experienced disruption due to the domino effect of illness or potential illness, contamination, quarantines, closures, precautions and government action.

As a result of interruptions and apprehension, businesses are taking a second look at the clause in their contracts entitled force majeure.

A force majeure clause provides an exception to the fulfillment of the parties’ obligations under a contract in the event of a crisis outside of the control of the parties. Examples of scenarios often included in force majeure clauses are: labor disputes, riots, war, acts of nature and acts of God.

The pressing question, in light of the Coronavirus, is whether businesses can use a force majeure clause now to avoid contractual obligations?

The initial answer lies in the clause language itself.

Contract force majeure clauses may include references to public health, national, state or local emergencies or epidemics. This kind of language could be used to support the application of a force majeure clause to excuse contract performance.

However, many contracts only contain a generic reference to force majeure without definition. Without a definition, a generic force majeure clause may not be useable to blunt contractual obligations since a judge might consider it too vague to be enforceable.

Likewise, force majeure clauses that contain a brief list of events and then add a catchall “and all similar events” to the end of the clause may also not be of use. Such a clause could be limited to events that are similar in nature to the events already listed in the clause.

Beyond the language of the clause, New York courts, apply force majeure clauses reluctantly. Generally, the party invoking the clause has the burden to prove:

(i) the occurrence of the force majeure event;

(ii) failure to perform is due to circumstances out of that party’s control; and

(iii) that there was nothing it could have done, within reason, to avoid or mitigate the event, and/or that such event was unforeseeable.

To invoke a force majeure clause, the contract may dictate the timing and method of how to do that. Failure to follow such dictates can also make such a clause unenforceable.

In light of these challenges, parties should review their contracts force majeure clauses both to learn the limitations and applicable procedures and to use updated language in future contracts.

Parties should also check insurance policies to determine what, if any, recourse they have to mitigate the impact of the Coronavirus.

For more information about this article or other issues, please contact us, The Bachman Law Firm PLLC at judith@thebachmanlawfirm.com or 845-639-3210.