COVID-19 And Force Majeure: A Word Of Caution

The insurgence of the novel COVID-19 pandemic and its ensuing effect on the domestic and global economies has required companies to consider potential remedies should they, or their counterparties, not be able to perform under contracts. One potential remedy is force majeure. Force majeure contractual clauses will receive considerable attention in the coming weeks and months as the COVID-19 pandemic continues to evolve, so it is important to understand how they are generally interpreted and applied by the courts.

Wording of the Clause

The typical force majeure clause seeks to provide relief to a party unable to meet its contractual obligations due to extraneous circumstances outside of the parties' control. The common thread amongst force majeure clauses is that of the unexpected.1 This is why a force majeure clause is also sometimes referred to as an Act of God clause.

The events typically specified in a force majeure clause can range from flood, fire, perils and dangers, to war, warlike operations, civil war, riot, civil commotion, or strikes. In most force majeure clauses, these performance-excusing circumstances are then followed by the words "or any other causes beyond our control," or similar language to that effect.2 This language is interpreted narrowly, so as to confine it to the same class or kind of occurrences as that specifically enumerated.3 Regardless of construction, however, it is generally accepted that force majeure clauses do not protect contracting parties from normal business risks, nor do they serve to reallocate contractual risks.4

Risk Allocation or Frustration?

Force majeure clauses exist to account for circumstances beyond the contracting parties' control that interfere with their ability to perform under the contract. In that sense, force majeure is a risk allocation tool; it is...