Force Majeure – COVID-19: Foreseeable or Unforeseeable?
Last updated: March 18, 2020
Just a little over a month ago, on February 11, 2020, the World Health Organization (WHO) announced a name for the new coronavirus illness: COVID-19. A month later, on March 11, 2020, the WHO characterized COVID-19 as a pandemic.
In the week since the WHO’s announcement that COVID-19 is a pandemic, we have seen restrictions on travel, limitations on gatherings, as well as schools, businesses, and non-essential governmental operations shut down physical offices, moving toward remote work when and where possible. At the local, state, and federal levels, we are seeing an unprecedented response from our government officials in an effort to change the course of this pandemic. On social media #socialdistancing and #flattenthecurve are trending. But what does this mean for you and your business? Will COVID-19 affect your ability, directly or indirectly, to force your vendors and suppliers to perform? What if your supply of goods or workers is interrupted and your performance schedule is shifted or remains up in the air? These are all questions that are facing many of our clients.
If these are questions that you have for your business, we strongly recommend discussing with your attorney. The question of what defenses may be available to excuse nonperformance or delayed performance, through force majeure contractual clauses or other mechanism, such as statutory or common law excusable nonperformance, are largely facts and circumstances driven. An attorney will work with you to gather the necessary information in order to evaluate your situation. For example: Do you have a written contract? If you have a written contract, your attorney will likely need to review the entire agreement, because we need to see not only whether it has a force majeure clause, but other key terms like choice of law, notice requirements, and term and termination provisions. What is the nature of the services or goods that are the subject of the agreement, and how is the current pandemic affecting your or your vendor/supplier/service provider’s ability to perform? How are you working to mitigate losses? Will your business interruption or disruption insurance cover what we are experiencing, or is a viral outbreak excluded from coverage?
Just because you have a force majeure clause in a contract, and it lists epidemic or a pandemic as a possible force majeure event, that does not mean that COVID-19 will automatically excuse nonperformance or delayed performance. Similarly, if you have a force majeure clause that does not specifically list an epidemic or pandemic as a triggering event, if your contract is silent to such events, or if you have no written contract at all, that does not mean that there is no excuse for nonperformance or delayed performance as a result of this pandemic. Particularly when a contract is silent as to force majeure, courts will look at the whether the events were foreseeable or unforeseeable when you entered into the contract, and whether performance is impractical or impossible, all of which can turn on facts and circumstances that are unique to you and your situation.
While writing this news alert, all levels of government are working to address the stresses this pandemic places on our economy, and we can anticipate additional assistance and guidance may be forthcoming. If you have questions or issues regarding what the current pandemic can mean for your business, Gentry Locke attorneys are available to assist. We have implemented our business continuity plan and continue to maintain full operations during this evolving situation, all while we continue to monitor updates from our government officials. Continue to check www.gentrylocke.com for updates to this news alert.