Business Monday

Opinion: Force majeure contract clauses may alleviate coronavirus losses

cjuste@miamiherald.com

South Florida is already feeling the economic brunt of event cancellations or postponements due to the coronavirus (COVID-19), including the eMerge Americas conference, Calle Ocho Festival and the Ultra Music Festival. Gov. DeSantis declared a state of emergency in Florida. The State Department has warned older consumers against traveling by cruise ship during the outbreak.

While economic considerations are of course secondary to the protection of human health, they are important to the success of a business and should not be ignored. Companies often ameliorate the risk for unanticipated business interruptions through their contracts and insurance policies. Whether you are considering recovery options or are defending against breach of contract claims, there are some important concepts to consider.

Greenberg Traurig is advising clients on numerous legal issues relating to COVID-19 and its effects, such as the invocation and enforceability of force majeure clauses in contracts, negotiating commercial agreements in light of world events, and risk mitigation, among other issues.

Force Majeure Clauses

A force majeure clause is a contract provision excusing a party’s performance of its obligations under a contract when certain circumstances beyond its control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. These clauses are common in contracts and are a valuable resource in determining how to navigate performance when there are issues affecting performance that are outside the parties’ control.

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However, not all clauses are alike. In general, force majeure clauses afford parties the opportunity to draw a road map of the implications to the parties if the remote or unplanned catastrophe occurs. This may allow for decision making in times of uncertainty, informed underwriting, and proactive crisis planning.

Insurance

There are myriad issues relating to insurance for COVID-19. While there is form language in many policies, manuscript language may affect the general coverage grants.

First, consider business interruption coverage, which is typically provided if there is a direct physical loss, such as a fire, flood or earthquake. In certain cases, the policy may require that a loss is designated. In the case of COVID-19, a direct physical loss may not be readily apparent, although there are situations that could trigger a physical loss if a factory or other workplace becomes contaminated, and therefore unusable, due to COVID-19. Business interruption coverage could also apply if a supplier suffers a shutdown due to COVID-19.

As brokers or insurers may be reluctant to acknowledge coverage, it may be necessary to have a specialist closely examine policies to see if they may be applicable.

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Note the following when evaluating your rights under a force majeure clause:

  1. Understand and evaluate individual facts and circumstances that the outbreak may have on your business and ability to perform your obligations under a contract. Consider the other party’s obligations, and whether they may be adversely affected. Poor performance (such as decreased anticipated attendance at a conference) or increased costs may not be sufficient basis to invoke a force majeure clause.
  2. Monitor the situation. Timing may be an important element in successfully avoiding contractual liability based on a force majeure clause. While conditions today may not allow for the invocation of a force majeure clause, if the crisis worsens and additional U.S. government or World Health Organization declarations add significant restrictions on travel or force event cancellations, it’s more likely a force majeure invocation would prevail.
  3. Each contractual clause governing performance is different and can be interpreted differently depending on the law that governs, so it is important to receive counsel. Be mindful of any notice provisions under the contract, and of specific obligations you have to compel performance or mitigate damages should COVID-19 interfere with your business.
  4. Keep detailed records that include the scope of the interruption to your business, all costs you have or anticipate and be aware of the other party’s costs.
  5. Review your insurance coverages. Understand whether you carry business interruption insurance or other relevant insurance.
  6. Consider whether there are alternative means to perform contractual obligations.
  7. Consider business solutions to legal issues, such as a mutual agreement to move your event to a time after the crisis.

Jaret L. Davis is co-managing shareholder of Greenberg Traurig’s Miami office and corporate shareholder who represents companies in a variety of industries. Alan N. Sutin is chair of Greenberg Traurig’s technology, media & telecommunications practice and senior chair of the global intellectual property & technology practice.

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