Impact of Coronavirus (COVID-19) on Force Majeure Contract Clauses

The Coronavirus pandemic has interfered with the ability of businesses across the country to continue normal operations. In many cases, it prevented them from honoring contractual obligations. In a matter of weeks, the Coronavirus pandemic transformed from a foreign whisper to a crisis of biblical proportions crashing into the shores of America.

At federal, state, and city levels, extreme precautions and restrictions intended to stem the spread of the virus have the ability of companies to uphold their prior contractual agreements is being jeopardized. Still, there is a chance their non-performance of contractual obligations is not a breach of contract.

A common contract clause is “Force Majeure.” This clause excuses the obligation of performance due to unforeseen circumstances. Usually, a Force Majeure clause will include:

1. a statement that certain events will excuse a party’s contractual obligations,
2. a list of such events which will excuse a party’s contractual obligation, and
3. the obligations to the party seeking to be excused of its contractual obligation due to a “Force Majeure Event” (non-performance often requires proper notice to the other parties).

Force Majeure Events often have societal or industry-altering effects that are generally unforeseen when the parties sign a contract.

Many companies may be parties to contracts where they, or their counterparties, are seeking to excuse their obligations because of the impacts of COVID-19. If you are a party seeking to excuse your contractual obligations due to COVID-19, or if a counterparty in an agreement with your party is seeking to excuse their obligations due to COVID-19, the following information is of direct pertinence. The applicability of a Force Majeure provision is contract-specific, and the bar is high for an event to qualify as a Force Majeure Event. In considering the applicability of Force Majeure, courts analyze if the event qualifies as force majeure under the contract in question, if the risk of non-performance was foreseeable and able to be mitigated, and if performance is genuinely impossible in this case. The court’s inquiry focuses on whether the event pushing a party to non-performance is specifically listed as a qualifying Force Majeure Event in the contract clause.

However, the Coronavirus pandemic is somewhat of an unprecedented and certainly unforeseeable circumstance. Therefore, WHO’s classification of COVID-19 as a “pandemic” will trigger Force Majeure for agreements that specifically account for “pandemics.” However, a pandemic declaration alone does not automatically trigger Force Majeure, given the courts’ focus on whether the type of event is specified in the Force Majeure Clause. Yet, recent government regulations intended to stop the spread of COVID-19 could make it easier to invoke Force Majeure due to contractual language around government rules.

As the Coronavirus pandemic continues to develop, businesses should take proactive steps to ensure they meet existing contractual obligations and investigate whether their counterparties are doing the same. If your company suspects that COVID-19 will result in your own or your counterparties’ inability to perform contractual obligations, you should contact The Jacobs Law! We provide a variety of services, from flat fee consultations to review your contract and the circumstances. Additionally, we can assist in pursuing a breach of contract or defending against a breach of contract claim. 

Please schedule a consultation with The Jacobs Law today by calling 800-652-4783 or email us at ContactUs@TheJacobsLaw.com.