Force Majeure Contract Provisions Amid the COVID-19 Pandemic

Force Majeure Contract Provisions Amid the COVID-19 Pandemic

As COVID-19 puts pressure on companies trying to comply with their contractual obligations, it is time to take a look at the provision that might excuse performance: the Force Majeure provision.  This provision works to excuse parties from performing their obligations when an unforeseen event occurs.  COVID-19 may fall right into the description of that unforeseen event, but whether a party can take advantage of performance excusal depends on the Force Majeure provision itself.  Given the ever-changing landscape around COVID-19,organizations may want to consider the following to understand what terms come into play for a Force Majeure event:

1.     Review Your Force Majeure Provision

What events are covered?

Look at the events listed in the Force Majeure provision.  Most Force Majeure provisions state that Force Majeure events occur when the event is “beyond the party’s control.”  If an organization is claiming Force Majeure, it should be prepared to make the argument that federal and state mandates pursuant to COVID-19 are beyond its control.  If specific events are listed in the provision, organizations should review whether the event aligns with COVID-19.  For example, “acts of God,” public health emergencies, epidemics, or pandemics maybe listed. It is worth noting in light of the COVID-19 pandemic that a virus/bacteria may be excluded if it is a contract for health-related services.

Are any events carved out?

Review whether any specific events are carved out of the provision.  Savvy contract drafters will carve out certain events that are more likely to impact performance for the specific services being provided to ensure the performance is not excused.

How is the event triggered?

The occurrence of Force Majeure events does not necessarily trigger the provision.  Some provisions may require formal declarations from federal or state entities declaring emergencies.  Organizations should evaluate whether the Force Majeure provision has any such prerequisites for excusing performance.

It is also possible that reactions to COVID-19 will greatly frustrate an organization’s performance,rather than making it so impossible that the performance is excused under a Force Majeure provision.  In these cases, there is no clear-cut answer of how to handle, so the parties will need to work together to come up with solutions that make complying with contractual obligations easier.

2.     Review Requirements for Claiming Force Majeure

The contract may include specific deadlines and notice requirements for claiming Force Majeure. Organizations should review the requirements for making such a claim to avoid missing the relevant window of time.

3.     Consider Contracts Being Currently Negotiated

If an organization is in the middle of negotiations for an agreement, it should review the Force Majeure provision and consider adjusting to contemplate complications arising from COVID-19.  The organization can also consider adding additional termination rights or longer periods for cure to combat further fallout from the virus.

Our Beckage Team continues to closely monitor the legal and business implications associated with the COVID-19 pandemic.  It is critical that companies align with experienced counsel to proactively assess their existing contractual obligations and the obligations of their counterparts.  The Beckage Team can help assess liability coverage, using their expertise to help map out a nuanced cyber liability insurance plan for your business in the event coverage is needed.  

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