The Legal Impact of the Covid-19 Virus

The Covid-19 virus has resulted, and will result, in the failure of parties to perform contractual obligations.  As a result, lawsuits have been and will be filed for breach of contract by parties harmed by such failures and those being sued will contend that they were legally excused from having to perform.  In fact, lawsuits are already being filed in great numbers as of late March, 2020.

It is essential that — before parties spend tens of thousands, or perhaps hundreds of thousands, of dollars in legal fees — that they ask their attorneys to determine to what extent common law and contract law principles of “force majeure” apply to their particular situation.  A detailed analysis will help the parties find the best resolution to their dispute.

The term “force majeure” means “overpowering or irresistible force.”  It is a phrase inserted into many contracts as a condition by which performance of the parties may be excused.  The term is also referred to as an “act of God” but the term is broader than that.  It not only refers to “acts of God” such as floods, fires or diseases but also “acts of man” such as war, strikes or large-scale acts of civil disobedience.

Terms used in contracts with force majeure provisions, such as “impossible” or “illegal,” have very different meanings than terms such as “commercially impracticable or “inadvisable.” Even if there is no specific force majeure provision in a contract, certain common law principles may still apply to the contract in question such as “frustration of purpose.”  (A contractual “purpose” is “frustrated” if a reasonably unforeseeable event occurs which undermines the reason the parties entered into the contract in the first place.)

One such type of contract that is seeing a lot of litigation relates to commercial insurance claims arising from “business interruptions.”  Many insurance policies have force majeure provisions that include acts of man such as “civil authority decrees.”  Whether these decrees qualify a given business with a given policy to make an insurance claim will require a careful review of the facts and law specific to the situation.  Already, many insurance companies are denying such claims and disputes are arising.

Whatever your situation, an experienced attorney and trained mediator can help and, like with most disputes, he or she will likely help you reach a more cost-effective solution than through litigation.  Please contact us if you would like to schedule a mediation or arbitration.