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COVID-19’s Impact on Force Majeure

3/17/2020

I.             When There Is A Force Majeure Clause

Force Majeure is equivalent to an affirmative defense.   A party relying on a Force Majeure clause to excuse its nonperformance bears the burden of proving that the cause of nonperformance qualifies as a force majeure event as defined in and contemplated by the Force Majeure clause in question.   Whether relief is likely depends on how closely the cause of nonperformance fits one of the causes identified and contemplated in the Force Majeure clause.

a.            When the Force Majeure Clause Specifically Contemplates the Cause of Nonperformance

A Force Majeure clause is most likely to excuse nonperformance when the reason for such nonperformance is contemplated by one of the specifically-enumerated events identified in the clause.  In the case of nonperformance due to the Outbreak (or circumstances arising from the Outbreak), any Force Majeure clause that contemplates “pandemic”, “epidemic”, “public health emergency”, or the like would arguably offer protection to the nonperforming party.  To the extent any nonperformance is caused by government-ordered closures and government instituted social distancing policies, a Force Majeure clause that contemplates “governmental action” or the like would arguably offer protection as well.

b.            When the Force Majeure Clause Does Not Specifically Contemplate the Cause of Nonperformance

Many Force Majeure clauses do not specifically mention an excusable cause of nonperformance that would readily apparently apply to the Outbreak, but such clauses may still contain generic “catch all” terms and phrases such as “acts of God” or “other circumstances beyond [a party]’s reasonable control”.

Several states, including Massachusetts, have generally found that “acts of God” do not excuse nonperformance due to contagious disease (e.g. flu, diphtheria, smallpox),  even in the event of a closure due to public health concerns, whether or not such closure is government-ordered (and, thus, beyond either party’s control)  (however, as discussed in Section I.a., above, governmental action could constitute Force Majeure if specifically so identified in a Force Majeure clause).  A common point of emphasis in these cases appears to be that the other party is still ready and willing to perform, and therefore performance has not been rendered impossible (notwithstanding that performance could theoretically be illegal due to the government-ordered closures; but see discussion in Section II, below), even though circumstances have made one party unable or unwilling to accommodate the other party’s performance, however prudent or necessary for the public good (or legally required) such inability or unwillingness to accommodate the other party’s performance may be.  The term “acts of God”, thus, is closely intertwined with and analogous to the old common law doctrine of impossibility of performance and is strictly and narrowly construed and applied.  Nevertheless, depending on how the circumstances surrounding the Outbreak develop, there may yet be a narrow possibility in applying “acts of God” to the Outbreak – if governmental action continues to place further restrictions on individuals’ ability to travel, congregate, leave their homes, etc., thus making it truly impossible for both parties to perform, such circumstances would be distinguishable from those in the cases cited above.

There is no clear case law guidance on whether a catch all phrase like “other circumstances beyond [a party]’s reasonable control” would apply to the Outbreak under Massachusetts or New Hampshire law.  Although there does not appear to be any Massachusetts or New Hampshire case law on how narrowly or broadly a Force Majeure clause is to be construed, courts in these two states generally do not interpret contracts to “suppose a meaning which the parties have not expressed, and which it is certain they did not entertain.”   A catch all phrase could theoretically prevent courts from drawing a negative inference about the lack of mention of a particular circumstance of Force Majeure where certain other circumstances are explicitly enumerated, but how broadly a Massachusetts or New Hampshire court would apply such catch all phrase is unclear.   Several other states have specifically found that Force Majeure clauses should be narrowly construed and limited to specifically-identified events or events of the same nature or class as those specifically identified,  so the likelihood of relief would likely depend in part on whether the specifically identified and enumerated circumstances of Force Majeure include circumstances that are similar or analogous to (but do not perfectly or precisely describe) the circumstances surrounding the Outbreak.

Absent a clearly applicable Force Majeure clause, the analysis should move on to other principles of contract law.

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