As we discussed in Part One of this blog post, “force majeure” clauses are commonplace in business contracts, and virtually every force-majeure clause includes express provision for some or all natural disasters, along with civic, bureaucratic, and military disruptions.
But the pandemic has caused many disruptions that cannot be attributed to an act of government; as the nation reopens, it is likely that those disruptions will continue for some time. One of a two common catch-all provisions in force-majeure clauses may extend to cover a pandemic.
First, while at first blush language to the effect that a force majeure shall consist of one of various enumerated events or “other such similar acts, conditions, or events,” and “without limitation,” might seem to bring a pandemic within its scope. Such language is generally interpreted narrowly, however. In general, only events of the same class or type as the enumerated events will be considered.[i] Some force-majeure clauses may enumerate events reasonably similar to a pandemic or epidemic, and so may fall within a “without limitation” provision. But it is likely this issue would be contested.
Second, and perhaps more intuitively, there is an argument that virtually all disruptions stemming from the coronavirus outbreak fall within a typical force-majeure clause’s “Act of God” provision—the second type of catch-all. The weight given to these provisions varies by jurisdiction. For example, California is generally more lenient when considering whether a given event was an Act of God. Indeed, the California Civil Code states that “no man is responsible for that which no man can control.”[ii] In Washington, courts may consider unspecified natural disasters as Acts of God.[iii] ) A pandemic is, in some sense, a type of natural disaster. But Washington courts require that an Act of God be the proximate cause of any nonperformance or breach; given the complex and sometimes attenuated impact of a pandemic, it may be difficult to prove that a given breach was caused by the pandemic.
Another key concept in the interpretation and application of force-majeure clauses is foreseeability. A force majeure clause may encompass both foreseeable and unforeseeable events, but again, the impact of this factor varies from jurisdiction to jurisdiction. In New York, courts require that the occurrence a given force-majeure event be unforeseeable at the time the contract was drafted.[iv] The inclusion of an event (like a fire) in the enumerated list may show that the parties foresaw the type of event, but the parties may nonetheless dispute whether a given instance of that type of even was in fact foreseeable.[v] In other states, such as Florida, even regular and foreseeable events like hurricanes will be considered a force-majeure in the proper circumstances.
Washington takes a moderate approach to this issue, excusing performance under a force-majeure clause where “performance is rendered impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.”[vi] Thus, while the fact that an event was unforeseeable may support the conclusion that it was a force majeure, it is not dispositive.
It is debatable whether COVID-19 was foreseeable—or perhaps more accurately, it is debatable precisely when the virus’s impact on society became foreseeable. At one extreme, one might argue that a pandemic is nearly always foreseeable; the past decade has seen several near-miss incidents with other viruses. And it is certainly arguable that, from the early months of 2020, it was foreseeable that the coronavirus would be globally disruptive. Sensitivity to various jurisdictions’ approach to the foreseeability issue—and the presence or absence of contract language regarding foreseeability—will be an important factor in considering where to litigate cases where coronavirus may be considered a force majeure.
In summary, whether a force-majeure covers disruptions from the pandemic is a nuanced issue that will depend a great deal on the circumstances, the language of the contract, and the jurisdiction.
— Patrick D. Moore
[i] See, e.g. Team Mktg. USA Corp. v. Power Pact, LLC, 839 N.Y.S.2d 242, 246 (2007); Peterson v. Noots, 255 F. 875, 879 (9th Cir. 1919).
[ii] Cal. Civil Code § 3526.
[iii] See, e.g., Tope v. King Cty., 189 Wash. 463, 473, (1937).
[iv] Kel Kim Corp. v. Central Markets, Inc., 524 N.Y.S.2d 384, 385 (1987).
[v] See, e.g., Phibro Energy, Inc. v. Empresa De Polimeros De Sines Sarl, 720 F. Supp. 312, 319 (S.D.N.Y. 1989).
[vi] TransAlta Centralia Generation LLC v. Sicklesteel Cranes, Inc., 134 Wn. App. 819, 821 (2006) (quoting Black’s Law Dictionary 674 (8th ed.2004).)