News & Insights
In light of state and local municipalities issuing “Stay-at-Home” Orders throughout North Carolina and the rest of the country in response to COVID-19, businesses of all sizes are feeling the impact of COVID-19. Given this, the pandemic is likely to continue interfering with many businesses’ ability to maintain operations and fulfill contractual obligations for the foreseeable future. Businesses should review their contracts to see whether COVID-19 may trigger contractual force majeure clauses – a mechanism that allows a party to excuse its contractual non-performance when an “act of God” or other extraordinary event prevents that party from fulfilling its contractual obligation.
When determining whether a force majeure applies, courts generally look to: (1) whether the event qualifies as force majeure under the contract, (2) whether the risk of nonperformance was foreseeable and able to be mitigated and (3) whether performance is truly impossible.
Can a Party Use COVID-19 to Invoke and Force Majeure Clause?
Whether a party to a contract can successfully invoke that contract’s force majeure clause based on the COVID-19 pandemic will typically depend on the actual language of the given clause. Courts generally interpret force majeure clauses narrowly, meaning that the more specific a clause is, the more likely it will apply to a given scenario. Broad language in a clause like “act of god” may arguably cover COVID-19, whereas a clause that explicitly lists “pandemics” or uses similar language will more likely apply to the current situation.
However, whether the event itself qualifies as a force majeure is just one consideration in determining whether the clause will excuse a party’s performance. The party seeking to use the clause to excuse its non-performance is also under an obligation to mitigate any foreseeable risk of nonperformance. This means that if a party thinks it may need to rely on a force majeure clause, it needs to properly notify the other party and mitigate any damages resulting from non- performance. It is important to remember that even though an event may trigger a force majeure clause, the clause applies only to performance made impossible to perform – not simply performance that is more burdensome to perform.
In short, determining whether a COVID-19 Pandemic will trigger a force majeure clause will depend on individual circumstances, including the terms of the contract and the actions of the parties. If you or your business is concerned about liability arising out of your inability to perform contractual obligations, you should consult with legal counsel who can review your contract and analyze what options you have to minimize this risk.
Should you have any questions or concerns about whether COVID-19 could trigger a force majeure clause in your contract, or if you have any other questions about what the COVID-19 outbreak means for your business, please contact Nathan Duggins at Nduggins@tuggleduggins.com or (336) 271-5246, Alan Felts at Afelts@tuggleduggins.com or (336) 271-5215, or Matt Hoyt at Mhoyt@tuggleduggins.com or (336) 271-5203. Please also follow our Twitter account @TuggleDuggins at https://twitter.com/TuggleDuggins for continuing, up-to-date information related to navigating the law during the COVID-19 outbreak.
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