COVID-19 versus Contracts, Force Majeure Clause Implications

Posted by Caroline H. Beavers | Mar 27, 2020 | 0 Comments

A lot has happened in the last few weeks. One being a global slow-down of all things as a result of the COVID-19 pandemic. Such slow-down will be felt across many industries. The question remains is your current Force Majeure clause encompassing of the current pandemic? Force Majeure literally translates to “superior force.” Black's Law Dictionary, 11th edition (2019). It is defined further as “An event or effect that can be neither anticipated or controlled.” So, what exactly is a Force Majeure clause and what is it used for? Simply, these clauses allocate risk between parties to a contract when an event occurs that makes performance of the obligations impossible or impractical. 

The terminology in a contract can vary exponentially. The terms used in the Force Majeure clause of a contract is no exception. Whether you are using an AIA form agreement or have created your own contract, contractors, subcontractors, vendors and owners alike are finding themselves reading and re-reading this often glossed over clause. As the last few weeks have shown, many business owners, especially those in the construction industry are faced with a new normal, for the forceable future. Because of the declared state of emergency, it is important to review your offered contracts and your current contracts in place to manage and hedge your risks. 

You must ask does COVID-19 fall under your Force Majeure clause as currently drafted? Specifically, is it an event that would excuse performance of a contractual obligation? It depends. If a dispute arises related to delays and damages caused by the COVID-19 pandemic, the parties will need to first look to the terms of the contract. Has a narrow or broad Force Majeure clause been drafted? Different parties will benefit from such clauses and it is all about risk allocation. If the dispute cannot be resolved between the parties, other avenues must be pursued. For example, courts will also look to the terms used to define Force Majeure and what constitutes an event under the clause. Typically, a Force Majeure event is defined as circumstances not in a party's control. The defined circumstances vary from contract to contract but often included a specific and narrow list of events that would constitute such an event. For example, Acts of God, terrorism, war and acts of governmental authorities are often included in these clauses. In recent years, because of outbreaks (think SARS, MERS, H1N1), it has become prudent to include pandemics and epidemics in the Force Majeure clause. 

The information contained on this blog is intended to be general information only and not legal advice. This blog topic is not intended to be fully comprehensive. For these reasons, we suggest you seek a licensed attorney to help you review and revise your agreements to reflect the current state of affairs, as well as, to assist in current and long-term effects of the COVID-19 pandemic.

About the Author

Caroline H. Beavers

Having grown up working on a cattle and row crop farm in Arkansas, Caroline draws from those experiences to provide her clients with services that are replete with those values, including grit, tenacity, integrity and respect. Caroline also believes open and frequent communication is essential to the attorney-client relationship and works tirelessly to problem solve with and for her clients. Caroline learned early on you cannot predict the weather but you can put yourself in the best position to respond to it and Caroline strives to assist her clients when storms arise.

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