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Force Majeure and COVID-19: The “Act of God” Contract Clause

Careful contract drafting can save a company’s future when an “act of God” or other extraordinary circumstance, like the COVID-19 pandemic, makes performance impossible. A force majeure contract clause, specifically, can be a powerful tool for excusing non-performance, or delayed performance, of contractual obligations. This common contract provision relieves a party from fulfilling its contractual obligation when circumstances beyond their control occur. It is typically invoked in the wake of natural disasters, but can also apply to civil unrest, war, labor strikes, and other categories of unforeseen events.  

While a force majeure clause must be present in your contract in order to be leveraged, its mere existence doesn’t mean that either party is automatically excused from their obligations. The specific language used in a force majeure clause controls whether it is applicable and the party relying on the clause bears the burden of proving its application. 

That said, in reality, you can attempt to renegotiate any contract. If you would like to cancel or propose changes to an existing contract due to COVID-19, sending a Force Majeure Notice can be a good first step to start the conversation.  You can also ask a lawyer to negotiate on your behalf.

Force Majeure Notice

Invoke the force majeure clause to renegotiate or terminate your contract.

How broadly are force majeure clauses interpreted?

Courts tend to narrowly interpret force majeure clauses. For example, California courts explain that the trigger for force majeure is not necessarily the mere presence of an “act of God,” but whether non-performance could have been foreseen and mitigated (or if it was truly impossible) under the circumstances.

Under a force majeure clause, economic downturns (or increases in expenses) alone are not usually considered acts of God and will not excuse performance. The key to having the clause upheld is for a party’s obligation to have become impossible or impracticable due to increased, unforeseeable, excessive, unreasonable, and/or unbargained-for expense. More importantly, the force majeure event should not have been caused by the actions or negligence of the party seeking relief from their obligations. 

Does the contract language specifically need to reference a pandemic? 

Many force majeure clauses include a list of specific events that are considered unforeseeable and beyond either parties’ control. If “pandemic,” “epidemic,” or “outbreak of disease” is mentioned in your contract’s force majeure clause, a court will likely consider the coronavirus pandemic as a qualifying event. If the clause doesn’t include this language, look for other broad phrases such as “act of God,” or “national emergencies” to try and assert the clause. Generally, courts interpret force majeure clauses under a narrow point of view and try to adhere to what is exactly written. 

What if the contract was signed after the start of the COVID-19 pandemic? 

If the contract was entered into after March 11th, when the World Health Organization declared a global pandemic or when your state issued stay-at-home or shelter-in-place order, COVID-19 may not qualify as a force majeure event since the resulting downturn and/or supply chain interruptions could be deemed foreseeable. If you have questions about the specific details of your contract, ask a lawyer

How direct should the connection be between COVID-19 and the impossibility to perform my obligations?

The more direct the connection, the more compelling your argument. For example, if you are a vendor who staffs events, and such staffing requires a large number of people to be together in the same place at the same time, you could make a strong argument that the contract’s force majeure clause excuses performance given CDC guidelines for social distancing. In the context of statewide shelter-in-place or stay-at-home orders, this is an especially compelling argument if the clause lists governmental action as a qualifying force majeure event.

Ask a lawyer

A properly drafted contract can go a long way toward protecting you when the unexpected happens. If you have questions about renegotiating your existing contracts or drafting new agreements in light of COVID-19, talk to a lawyer. For access to free legal documents and legal advice to help you protect your business, visit the Rocket Lawyer Coronavirus Legal Center

Stuart Hays

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