Commonly included but rarely invoked, the standard force majeure clause has taken on a life of its own during the COVID-19 crisis. Industries as diverse as construction, sports and wedding planning have seen previously on-track projects come to a screeching halt. The crisis has given contracting parties a chance to evaluate the strength of their standard force majeure clauses.
Generally, a force majeure clause excuses one or both parties from performing under a contract due to the occurrence of an event beyond their control. A party’s right to force majeure relief is controlled almost exclusively by the language of the contract. The common law in many jurisdictions has very little to say about force majeure issues. Thus, it may be essential that the language of any force majeure clause be carefully parsed when attempting to invoke—or prevent the other party from invoking—its protections.
Force majeure clauses can expressly or implicitly cover any number of unforeseen acts. Among the most common are:
- Fire
- Flood
- Earthquake
- War
- Environmental disasters
- Unforeseen change in relevant law
- Pandemic or epidemic
Many force majeure clauses use the term “Act of God” as a term of art. While some contracts define this term, many leave its meaning up to interpretation. Many force majeure clauses also include a catch-all phrase, such as “any other cause beyond the parties’ reasonable control” that would make performance impossible or impracticable.
The COVID-19 crisis may likely be covered by contracts expressly including “pandemic or epidemic” language—the World Health Organization declared COVID-19 a global pandemic on March 11. The crisis may also excuse performance of contracts containing provisions regarding unforeseen government action, as various jurisdictions’ “stay-at-home” or “shelter-in-place” orders make the completion of certain kinds of work impossible. Whether COVID-19 qualifies as an “Act of God” is likely to be a subject of some debate and skillful lawyering; it may be useful to look to statutes using that term in the state whose law controls for a potentially controlling definition.
Many jurisdictions construe force majeure clauses narrowly. In these jurisdictions a court will generally only excuse performance if the particular event unambiguously falls within the ambit of the contract language. Other jurisdictions interpret these clauses using normal contract principles, while many others, such as Arizona, do not yet have a well-developed body of force majeure law.
Whether performance is excused by a force majeure clause often turns on whether the intervening event was “foreseeable.” Thus, while the COVID-19 pandemic may likely excuse performance under an appropriately worded force majeure clause entered in December 2019 or earlier, if parties agreed to the same clause in mid-February of 2020 or later, it may become a much muddier factual issue. Complex questions of foreseeability may arise. This is particularly true if the contract contemplates international performance or supply chain issues.
In addition to analyzing whether COVID-19 is a covered force majeure event, parties may want to be on the lookout for any notice procedures required for invoking force majeure protection. Parties should also be mindful that a force majeure event does not obviate a party’s duty to mitigate damages.
Moving forward, parties may need to creatively craft force majeure clauses that will encompass as-yet-unforeseeable disruptions due to the coronavirus. While currently enforceable shelter-in-place orders cannot generally be force majeure events for newly-entered contracts, it remains to be seen what other disruptions to daily work and life may lie ahead. You may want to consider writing force majeure clauses in the age of the novel coronavirus with a careful eye toward the uncertain future.
