Does COVID-19 Excuse Force Majeure Contractual Obligations in the Coronavirus Environment?

A reality of the COVID-19 pandemic[1] is that many businesses are facing unexpected difficulties complying with their contracts. Do pandemics such as the spread of COVID-19 excuse parties from their contractual obligations? The answer is maybe, via a force majeure clause in the parties’ contract.

“Force majeure”—French for “superior force”—refers to an unexpected and uncontrollable event or effect that prevents one from honoring a contract. The term can include acts of nature, such as floods and hurricanes, and acts of people, such as strikes and wars,[2] but does not generally include mere economic hardship.[3] For example, a force majeure provision might state:

No party shall be liable or responsible to the other party, nor be deemed to have defaulted under or breached this Contract, for any failure or delay in fulfilling or performing any term of this Contract, when and to the extent such failure or delay is caused by or results from acts beyond the impacted party’s reasonable control, including, without limitation, the following force majeure events: (a) acts of God; (b) flood, fire, earthquake, or pandemic; (c) war, terrorist threats or acts, riot, or other civil unrest; (d) government order or law; (e) actions, embargoes, or blockades in effect on or after the date of this Contract; (f) action by any governmental authority; (g) national or regional emergency; (h) strikes, labor stoppages or slowdowns, or other industrial disturbances; (i) shortage of adequate power or transportation facilities; and (j) other similar events beyond the reasonable control of the impacted party.

Ultimately, the types of events that constitute force majeure depend on the contract’s specific language.[4] For example, in Gillespie v. Simpson, the Colorado Court of Appeals accepted a geothermal lessee’s argument that the government’s refusal to issue permits for the development of geothermal wells until certain regulatory actions occurred constituted a force majeure event, excusing the lessee from paying rent to the lessor. This was the case even though the lessee was actually able to pay rent—and did so—during the duration of the force majeure event. The contract defined force majeure as any action by the state that interferes with the lessee’s rights. The court reasoned that the interference was “obvious in that the lessee [wa]s deprived of an opportunity to generate income by development of the [wells] for payment of the rentals. Accordingly, it held that the lessee was entitled to a rent credit equal to the amount of rent paid during the force majeure event.[5]

All this is to say that parties should examine their existing contracts and consult with in-house or outside counsel to see if those contracts include a force majeure clause that may cover coronavirus—especially if the pandemic is impacting the parties’ contractual obligations. Parties should pay attention to any requirements that the party provide evidence of impacts or information, along with a notice that the party is invoking the force majeure clause, or that the party mitigate damages incurred as a result of the force majeure event. Going forward, parties should consider insisting that their contracts include epidemic or pandemic as a force majeure event in case performance becomes impossible due to COVID-19. Parties struggling to honor their contractual obligations might also consider a mutual solution, such as negotiating a contractual amendment to move performance to a time after the health crisis has passed.

Davis Graham & Stubbs LLP’s attorneys have experience litigating commercial contracts containing force majeure clauses. Please contact Shannon Stevenson or Gabrielle Robbie if you have further questions on this topic.

[1] World Health Organization, Coronavirus disease 2019 (COVID-19): Situation Report – 52 (March 12, 2020), https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200312-sitrep-52-covid-19.pdf?sfvrsn=e2bfc9c0_4.

[2] Black’s Law Dictionary, “FORCE MAJEURE” (11th ed. 2019).

[3] 30 Williston on Contracts § 77:31 (4th ed.).

[4] Id.

[5] 588 P.2d 890, 892 (Colo. 1978).