Parties to a contract (or, perhaps more accurately, their attorneys) often carefully craft agreements to shield themselves from every conceivable worst-case scenario. A good attorney will consider how a deal might go wrong from a multitude of perspectives before advising a client to sign the final contract. One critical measure most attorneys take in this regard is including a force majeure clause. Force majeure comes from the French, meaning “superior strength,” and refers to a type of contract clause that negates the parties’ liability for unavoidable or natural catastrophes that prevent them from fully performing under the contract. Force majeure contract exemptions acknowledge that weather disasters, acts of war, wildfires, geological events like earthquakes, and other forces beyond a party’s control may interfere with the contract’s purpose or performance.
COVID-19 and your Contracts
Earlier this year, the World Health Organization designated the Novel Coronavirus disease (COVID-19) a pandemic. As a result, many contract disputes are ripe for litigation due to various commercial disruptions caused by resulting orders from state and federal leaders. Clients or customers awaiting fulfillment of contracted services or goods will continue to bring breach of contract claims against parties who fail to perform under their contract’s terms — and defendants can only blame the pandemic.
Unsurprisingly, some issuers of contracts, including insurance policies, are invoking force majeure provisions in their agreements as they or their insureds are unable to act in accordance with the parties’ intent while most people are experiencing unprecedented disruptions in many areas of public and private life.
Arguments and Counterarguments: How Will your Force Majeure Clause be Applied?
As the world continues to grapple with the impact of COVID-19, parties who renege on contracts will increasingly file “business interruption” claims with their insurers. In today’s uncertain global climate, this strategy may or may not succeed. Litigation defense for targeted contracting parties will require analysis as to:
- whether the event (the pandemic, along with COVID-19-related disruptions) comes within the terms of the applicable force majeure clause and
- whether the risk of such a business interruption was foreseeable and preventable
Even where the answers to these questions seem favorable to the reneging party, those seeking to enforce the terms of a contract may succeed if they can show:
- that the risk could have been foreseen and mitigated or
- that performance of terms of the contract may have been impractical but was not impossible.
Unique Factors and Developing Case Law May Influence Contractual Dispute Outcomes in the Wake of COVID-19
A review of circumstances may shed light on breach of contract claims in the current epidemiological climate. For example, resources such as masks and respirators are being diverted from industrial use to medical care purposes. Construction and manufacturing industries, therefore, may be unable to complete work on time according to original contracts. Vendors and customers who are left empty-handed will then incur losses of their own, compounding delays in fulfillment of other existing contracts.
Business as usual somehow seems a distant memory right now. Parties on any side of a contract dispute will likely seek to mitigate their losses and resolve conflicts quickly and cost-effectively. The question of whether COVID-19 will be considered an unforeseeable and unavoidable circumstance allowing for an exemption in a particular contract dispute will be fundamental. Legal advisers that businesses turn to will no doubt rely heavily on customized interpretation of existing laws and changes in case law.
When fear threatens to overcome reason in relation to business decisions, the potential for continued uncertainty looms large. Be sure to consult with an experienced attorney to review your contract provisions in light of your unique situation.
Historically, courts have been unwilling to apply force majeure clauses even in the wake of world-shaking events such as the terrorist attacks of September 11, 2001. In OWBR LLC v. Clear Channel Commc’ns, Inc., the United States District Court for the District of Hawaii declined to apply a force majeure clause when the defendant claimed it was unable to perform in light of the economic conditions following that tragedy. In so doing, the court held that “a force majeure clause does not excuse performance for economic inadvisability, even when the economic conditions are the product of a force majeure event. The […] clause does not contain language that excuses performance on the basis of poor economic conditions, lower than expected attendance, or withdrawal of commitments from sponsors and participants.”
In response to this and other similar holdings across the nation, contract attorneys began to explicitly list terrorist attacks in force majeure clauses as events allowing for parties to avoid liability. See, e.g., Church Commun. Network v. Echostar Satellite L.L.C., 2006 U.S. Dist. LEXIS 107674.
Where do you stand with respect to your existing contract obligations? Are you negotiating a contract that needs a revised force majeure clause? The attorneys at Blaise & Nitschke are happy to look at your current contracts to help protect you and/or your business in these uncertain times. Call (312) 448-6602 or email us at firstname.lastname@example.org to schedule your complimentary consultation.