Coronavirus (COVID-19) Outbreak: It May Be Time to Include a ‘Force Majeure’ Clause into Your Contract
As of March 14, 2020, there are over 140,000 confirmed cases of coronavirus (COVID-19), and more than 5,300 deaths related to the deadly virus, around the globe. On Friday, March 13, President Donald Trump declared a national emergency in response to the outbreak.
Note: In the U.S., there have been over 1,600 confirmed cases of coronavirus, though a Johns Hopkins professor estimated that at least 50,000 Americans are infected with COVID-19.
Business Litigation Triggered by the Coronavirus Outbreak
While the financial consequences of coronavirus are secondary to the protection of human life, they cannot be ignored by businesses in America and around the globe. Is your business prepared for unanticipated business interruptions caused by the virus outbreak? How does the COVID-19 outbreak affect business litigation in the U.S.?
Often, companies address the risk of business disruptions through contracts and insurance policies. However, most insurance providers in the U.S. counter business disruption claims, arguing that the coronavirus outbreak is a “force majeure” event.
If you are considering your options to recover damages caused by the COVID-19 outbreak or are defending your business against breach of contract claims or shareholder disputes, consult with a West Palm Beach business litigation attorney.
We have prepared some key concepts to consider to soften the economic (or legal) blow from the coronavirus outbreak.
Does a Force Majeure Clause Protect Against the Coronavirus Outbreak?
Legal and business experts are debating about the invocation and enforceability of force majeure clauses in contracts. Meanwhile, American companies are re-negotiating and re-adjusting commercial agreements, risk mitigation provisions, and employment-related issues in response to the coronavirus outbreak.
Can a business assert its rights under a force majeure clause amid the COVID-19 outbreak? Yes, but only as long as the force majeure clause is drafted correctly. In short, a force majeure clause protects both parties from the unpredictable changes that can affect a contract. The clause frees the parties’ obligation under a contract when any changes or circumstances beyond their control arise.
How to Use a Force Majeure Clause to Protect Your Business from the Coronavirus
Anyone can put a force majeure clause into a contract, but you must consider a variety of factors before asserting your rights under the clause. These factors include:
- How does the coronavirus outbreak affect your business and your ability to perform your obligations under the contract? Typically, poor performance and increased cost to perform an obligation are insufficient factors to invoke a force majeure clause.
- How does the COVID-19 outbreak affect the other party’s obligations?
- Each contractual clause, including the force majeure clause, can be interpreted differently, which is why it is vital to get legal advice.
- Your contract may also contain any specific additional obligations that require performance or mitigate damages when an unexpected event, such as a virus outbreak, interferes with your ability to perform obligations.
- Review your insurance coverage and determine whether a force majeure clause would prevent you from seeking damages via a business interruption claim.
- Keep records of the costs that your business has incurred or can anticipate due to the interruptions caused by the virus.
- Consider whether any alternative means to perform contractual obligations exist for your particular situation. In some cases, it makes more sense to adjust each party’s performance obligations to mitigate damages rather than invoke the force majeure clause.
Determine the invocation and enforceability of the force majeure clause in your contract by speaking with our West Palm Beach business litigation attorneys. Let our lawyers at Pike & Lustig, LLP, evaluate your particular circumstances. Call at 561-291-8298.