Force Majeure Provisions – Ensuring Your Company Is Prepared in Times of Crisis
As we have witnessed this past week, the coronavirus, or COVID-19, has caused the government and many businesses to take drastic steps, imposing extreme containment measures and shifting resources in order to continue ongoing operations. Such a widespread disruption to the economy may ultimately lead to contractual disputes as lack of supplies, diminished workforce and uncertainty will no doubt greatly impact business relationships.
Now, more than ever, companies may look to their contractual force majeure clauses to determine their respective rights as this pandemic continues. A force majeure clause is a provision which excuses a party’s performance of its obligations under the contract when certain unforeseeable events beyond its control arise, making the party’s performance impracticable or impossible. These unforeseeable events are called “force majeure” or “Acts of God.” Florida law recognizes and upholds these clauses only if an event is not foreseeable, could not have been avoided, and is the sole and proximate cause of the nonperformance. Florida Power Corp. v. City of Tallahassee, 18 So. 2d 671, 675 (Fla. 1944).
Determining whether a crisis is included within a contract’s force majeure clause will almost certainly depend on the specific language in the provision. Typical events covered under force majeure clauses include natural disasters such as floods, earthquakes, fires, and hurricanes. Other clauses include war, terrorist attacks, labor strikes, or material shortages.
Generally, if the event impacting the contract is not specified in the force majeure provision, a party is not excused from performance. See S&B/BIBB Hines PB 3 Joint Venture v. Progress Energy Florida, Inc., 365 Fed.Appx. 202 (Fla. 11th Cir. 2010) (applying Florida law). Further, at least one Florida court has held that nonperformance due to economic hardship alone is not enough to fall within a force majeure provision. Valencia Center, Inc. v. Publix Super Markets, Inc., 464 So. 2d 1267 (Fla. 3d DCA 1985).
Applying this standard to the present crisis, if a force majeure clause does not include epidemics, pandemics or quarantines, a party may have a difficult time claiming that they are excused from their contractual duties and obligations due to impossibility or impracticability. Now may be a good time to re-review and update your company’s force majeure contractual provisions to specify conditions such as pandemics, emergency declarations by the World Health Organization or the President, and mandated curfews or quarantines.
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