Coronavirus Impact on Contract Performance: Do Your Agreements Include a “Force Majeure” Clause?

March 12, 2020

The rapid world-wide spread of the Coronavirus is now resulting in drastic measures from both private and government actors to address what the World Health Organization has deemed a “pandemic.” Such measures have frequently been implemented with little warning and include directing employees to telecommute or placing restrictions on public gatherings and travel. These developments may have a significant impact on the ability of parties to an agreement to perform their contractual obligations through no fault of their own. Buried in the fine print of many agreements is a “Force Majeure” or “Act of God” clause designed to address this type of situation. “Force majeure” is a French term that translates to “superior force,” and in the context of contracts, is designed to denote unforeseen circumstances that prevent an individual or entity from performing their obligations under an agreement. Such clauses will often excuse an individual’s performance (i.e., the individual will not be penalized or held liable for failing to fulfill his or her obligations), where such performance is rendered impossible as the result of a natural disaster, public unrest, or, appropriately under current circumstances, a pandemic or outbreak.

What This Means for Providers

Providers should act now to broadly survey and categorize agreements that may be implicated by the Coronavirus outbreak and the potential impact on infrastructure and provider operations. Providers should further prioritize which agreements may prove critical in the coming months (for example, an arrangement with a ventilator servicing company may become critical to a hospital that anticipates treating an increased number of patients suffering from COVID-19). Where contract performance may be reasonably expected to be impacted by the spread of the Coronavirus, especially with respect to more “critical” arrangements, providers should review such agreements and determine whether they include a “Force Majeure” or “Act of God” clause that excuses performance in the event of an unforeseen crisis or pandemic. Providers should note that although such clauses may not specifically name a “pandemic/epidemic” as cause for excusing performance, they will often include a “catch-all” provision that contemplates disasters or crises generally. Beyond ensuring open communications with critical vendors as news of the pandemic develops, providers are strongly encouraged to act now to make arrangements with vendors and others to understand how the parties to an agreement intend to proceed if a Force Majeure contract clause is implicated. To the extent a vendor or other contracting party provides assurances that, in the event of a crisis, they will be able to perform or “act in good faith” in finding reasonable alternatives, it is recommended that the parties reduce such assurances to writing and acknowledge them by signature. These written acknowledgements should be noted and uploaded to any applicable contract database the provider may use for future reference.  

If you have any questions or need further guidance regarding vendor or other agreements and the implications of a Force Majeure/Act of God clause (or lack thereof), please contact a member of Hancock Daniel’s Corporate team.

The information contained in this advisory is for general educational purposes only. It is presented with the understanding that neither the author nor Hancock, Daniel & Johnson, P.C., is offering any legal or other professional services. Since the law in many areas is complex and can change rapidly, this information may not apply to a given factual situation and can become outdated. Individuals desiring legal advice should consult legal counsel for up-to-date and fact-specific advice. Under no circumstances will the author or Hancock, Daniel & Johnson, P.C. be liable for any direct, indirect, or consequential damages resulting from the use of this material.

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