Coronavirus Outbreak and Force Majeure

By Alex Mancero and Ryan Christ

The threat of a coronavirus pandemic is forcing our clients to face significant and urgent challenges of business and operational disruptions, closures of workplaces, disruptions to supply and distribution channels, and labor shortages. In order to negotiate the allocation of risk, many contractual Force Majeure (FM) provisions will include a list of examples of FM events and a list of events that are explicitly excluded from the FM provisions where the contract becomes impossible, impracticable, or onerous to perform due to events outside the affected party’s control.

Given the unexpected nature of pandemics, attention has focused on the prospect that parties to affected commercial contracts may invoke FM provisions in those contracts in order to excuse delay or non-performance. FM provisions affect commercial and real estate contracts of any kind. Clients should consider taking the following action to protect their businesses in relation to FM claims:

  • Review each of your current and prospective contracts carefully with respect to FM provisions.
  • Note whether the FM provisions define and list FM events and exclusions, and whether such events and exclusions cover pandemics, illnesses, governmental actions, or any other event that could be used in relation to the emerging threat.
  • Consider business and legal risks together with needs to invoke—or to anticipate a counterparty’s need to invoke—FM provisions such as the need to invoke in order to avoid breach of contract and the risks associated with business reputation, relationships, and insurance policies.
  • Even if no FM provisions exist, other remedies may exist, such as “frustration of purpose” claims and contract renegotiations to maintain fruitful business relationships.
  • Most importantly, start a collaborative dialogue with counsel and with counterparties, and take any steps necessary to comply with any mitigation requirements of FM provisions.

For any questions about this client advisory, please contact a member of the Sherman & Howard Corporate & Transactional Group.