Conoravirus Update: Is COVD-19 a Force Majeure Event that Excuses Contract Performance?

Is COVID-19 a Force Majeure Event that Excuses Contract Performance?

Since the government shutdown of non-essential businesses and other business interruptions due to the coronavirus, many companies are wondering whether they are excused from performing under their contracts. Force majeure provisions are contract-specific, but generally excuse a party’s performance when extraordinary events prevent a party from meeting its contractual obligations. Force majeure provisions are often limited to excusing performance when it becomes “impossible,” such that there are no alternative ways to successfully perform.

Depending on the breadth of the force majeure clause in your contract, you may be able to suspend or even terminate your performance. It is common for force majeure clauses to excuse performance due to a list of specific events, and many contracts include epidemics or pandemics as a qualifying event. But force majeure provisions often include catch-all language that excuses performance for any other reason, of a like nature, that is outside the party’s control. The presence and threat of COVID-19 is likely a qualifying force majeure event under many commercial contracts, because it is outside a party’s control, unforeseeable, and renders contract performance impossible.

Your contract likely contains specific notice requirements to claim a force majeure event. Generally, notice requirements should be strictly followed to maximize and preserve your force majeure defense.

There are risks to declaring force majeure. If there is no contractual basis to suspend performance or terminate for a COVID-19 related force majeure event, your actions may be considered a breach of contract or a repudiatory breach of contract, such that the other party could pursue damages against you. In addition, you should consider any alternative methods of performance to determine if your performance is truly impossible. And as always, you should take steps to mitigate the damage of your non-performance to the other party and any third party beneficiaries.

You should read your contract language carefully before making the decision to suspend or excuse your performance and/or terminate your contract.

Call us, Chase Alvord at 206-667-0240 or Lauren Hillemann at 206-667-0242, if you would like advice regarding the effect of the coronavirus on your contract performance and the scope of your force majeure clause. Take care and stay safe.

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