Coronavirus as an Act of God: Force Majeure Clauses Explained

People and Companies affected by Covid-19 look to contract terms to avoid losses or risk as the fear of illness forces closures, cancellations, and impacts to business and employment. Many contracts have force majeure protections that release parties from obligations thanks to “acts of God” and other events beyond their control. The clauses could prove a saving grace for some amid the chaos, but lawyers must comb through contracts carefully to determine what’s covered and what’s not.

 1. What Is Force Majeure, and What does it mean for Contracts?

Answer: “Force Majeure” meaning "superior force", or "chance occurrence, unavoidable accident", is a common clause in contracts that may release both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties. Events include war, strike, riot, crime, plague, virus or something described by the legal term “act of God” (hurricane, flood, earthquake, volcanic eruption, etc.), which prevents one or both parties from fulfilling their obligations under the contract.

Most force majeure clauses are written so a party's non-performance is not excused entirely, but only suspended during the force majeure. These clauses are intended to include occurrences beyond the reasonable control of a party, and would not cover negligence or malfeasance of a party.

 2. Is Coronavirus a “Force Majeure”?

Answer: It depends on the wording of your contract.

Contracts that include force majeure describe what that means, often listing natural disasters, war and unforeseen government actions. They sometimes also include pandemics, epidemics, and broad “catch-all” language for events beyond a party’s control.

Contract terms are interpreted narrowly under U.S. law. Carefully worded contracts with explicit language about epidemics will have a better chance of getting out of obligations without penalty. But the Covid-19 pandemic could also fall under other categories of protected events. “Stay at home” orders that halt or slow an employee or company’s work could qualify as unforeseen government action under some force majeure definitions.

 3. Is it Easy to Invoke Force Majeure?

Answer: There’s more to it than saying the magic words “coronavirus” or “act of God.”

Look to the law of the state for the most part. Generally, parties must demonstrate that disruptions to their work were beyond control, and without a decent workaround. Some jurisdictions require a party to prove the problem wasn’t foreseeable—a standard that could make it tougher to invoke force majeure in contracts finalized after fear of the coronavirus outbreak became a global problem.

4. What is Everyone Doing?

Answer: Some persons, or businesses have relied on force majeure as a reason to notifying landlords they can’t pay rent. At least one health system has invoked force majeure. Efforts to use force majeure are likely to cause a wave of litigation between contract parties.

 5. Are There Other Options for Contract Relief?

Answer: Parties to contracts that lack protective force majeure language may have other ways to avoid the consequences of breaching a binding agreement.

Contract law sometimes releases parties if changed circumstances render an agreement worthless or make it impossible for a party to follow through. Existing contracts should be examined carefully to determine the rights and remedies of everyone. Better yet, carefully drafted contracts going forward would help.

For example, Coronavirus addendums to real estate contracts are spreading almost as fast as the virus itself, and often clarify everyone’s obligations if illness due to the virus hinder home inspections, home repairs, and even the closing itself (although title companies are being innovative, and conducting closings without having everyone attend).

 Call me if you need to consult with me about your rights under an existing contract, or if you have questions about how to use contract language to protect yourself going forward.