Act of God and Force Majeure: Legal Defenses to COVID-19 Pandemic?Friday, March 20, 2020
Many contracts contain standard “Act of God” or “Force Majeure” provisions. What do these terms mean? Often people scoff at legal “boilerplate”. But will these provisions quietly become your savior in the COVID-19 Pandemic crisis? Let the lawyers at Maitland & English Law Firm help you navigate these uncharted waters.
With little warning citizens around the world are suddenly overwhelmed by the COVID-19 Pandemic crisis. Business owners, landlords, tenants, investors, and all citizens are grappling with an economic and medical disaster none of us could have projected just a few days ago. From a legal perspective, what defenses are available?
What is Force Majeure?
Force Majeure, or “superior force”, is a legal term which encompasses events that are beyond the control of parties to a contract. These unforeseeable man-made circumstances, such as war, strikes, riots, or other government-action, prevent parties from performing, or fulfilling their obligations under a contractual agreement. A reasonable interpretation would be the COVID-19 Pandemic qualifies under these circumstances. Thus, it is important to review your contracts to see what terminology has been provided.
What if my Contract Contains a “Force Majeure” Provision?
In theory, if your agreement contains such a provision, your obligations to perform under the contract may be excused. Or it may excuse the other party. Even if not excused, it is possible that performance by either party may be postponed until the event has passed. The key component is the explicit language used in your contract to define the examples of superior, outside forces that were unforeseeable at the time of drafting. Thus, negligence or malfeasance by one of the parties does not trigger this exception to performance, but does the COVID-19 pandemic? The answer is it depends on your specific contract and situation. Did the COVID-19 virus prevent your performance of the contract? Or did the governmental actions to suppress the Pandemic? Did you or your employees get sick? Or did you simply lose your income due to others’ illnesses?
What is an Act of God?
An “Act of God” is a natural event or action that occurs outside of human control. For example, a hurricane, severe flood, or tornado, commonly constitute an Act of God. In some instances, an Act of God can discharge the obligations of a contracting party, so long as the events were unforeseeable and unavoidable. In other contracts, such as insurance transactions, language may explicitly state that the assumption of the risk was on the contracting party, and thus the defense is null and void.
While certainly the terms of your contracts are the starting point, the next consideration is the language of your insurance policies. Do you have “Business Interruption” insurance? Is it limited by “Governmental Acts” “Communicable Diseases” or “Natural Disasters”? We certainly have action by governmental or health authorities in response to the COVID-19 Pandemic. Does that trigger or prevent your insurance coverage? Was there additional or more expansive coverage available when you purchased your insurance? Were you made aware of those options? These issues have suddenly become very important.
What Should I Do Now?
You should not delay in determining the parameters of your specific situation. The sooner you understand your options, the better you can address the challenges of the COVID-19 Pandemic crisis. It may be the difference between you or your business economically surviving these uncertain times. Insurance coverage and contractual obligations will assuredly turn on these issues.
Schedule a FREE Consult
Please contact us at Maitland & English Law Firm to help you with these issues. As a service to our community, we are providing FREE initial legal consults for all COVID-19 related issues. We can meet with you by telephone, video conference or, if necessary, in-person. You can schedule a conference 24/7 at www.MaitlandLaw.com or call 919-265-0800 during business hours. We can also help business owners understand emergency options like the SBA’s expanded Disaster Loan Program: https://disasterloan.sba.gov/ela/Information/Index
Thanks, and Stay Safe! Remember, “You may be isolated, but you are not alone.”