“Acts of God” Contractual Clauses: What force majeure means during Covid-19

Many contracts, including leases, supply agreements, and services contracts, contain “force majeure” clauses. A force majeure clause creates a legal excuse and limits a party’s liability for non-performance under the contract in the event of extraordinary events, often enumerated in the agreement. Such events typically include “Acts of God,” earthquakes, tornados, and other environmental disasters, power outages, governmental interference, or other causes beyond the reasonable control of either party.

In the absence of a force majeure clause, both parties are generally liable for their non-performance under the contract, regardless of the circumstances. For example, if there is a contract to supply beef to a restaurant, and the beef supply is temporarily interrupted by an earthquake, the beef supplier would generally still be liable for damages to the restaurant absent an applicable force majeure clause.

In the face of the Covid-19 outbreak, many businesses are facing potential interruptions and delays. Supply chains may be temporarily interrupted, business locations may be shuttered for extended periods of time, workers may be unavailable to finish projects, and revenues to pay leases and other debts may be limited.

Is your company’s non-performance under a particular contract legally excused during this period? If a supplier fails to provide services during this period, will you have a claim for damages against them?

The attorneys at McNeelyLaw LLP are ready to review your contracts, assess any force majeure clauses, and help you evaluate/understand your legal rights and obligations during this tumultuous period. Our team has knowledge and experience drafting force majeure clauses and litigating disputes arising from their application.

Key questions under any force majeure analysis are:

• What events qualify as force majeure events under the contract? Does it specifically recognize viral outbreaks or pandemics as an excuse? Does it limit contractual non-performance to specified events, such as earthquakes or fires? Do governmental regulations, such as quarantines, qualify?
• How long does the contract excuse performance under the force majeure provision? Some force majeure clauses excuse performance for specified periods of time (e.g., 30 days). Other provisions allow the entire contract to be cancelled if a force majeure event continues for more than a period of days.
• What notice, if any, must you provide to the other party if your performance is rendered impossible by Covid-19? Some force majeure clauses have notice requirements and failure to provide the required notices can waive your claim of contractual excuse.

There is no uniform standard “Act of God” provision and the courts will generally not excuse contractual non-performance unless the specific contractual language provides for it. Each contract is different and creates unique definitions and hurdles to limit liability.

If your business needs assistance reviewing its contracts’ force majeure provisions, either to demand performance from suppliers or to provide notice of your own non-performance, the attorneys of McNeelyLaw LLP can help. Contact your attorney or any of our team members for a consultation regarding your company’s legal obligations and rights.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.