The language has been fairly standard in most commercial contracts for a long time. In what laypeople might consider the fine print, the force majeure clause has been having its day in court over the last couple of years due to the Covid-19 pandemic. We take a look at this clause and whether your contracts are vulnerable because of it.
What Is a Force Majeure Clause?
Even if you don’t know what it is, it’s probably in the contracts your business has with vendors, suppliers, tenants, and service providers. Before Covid, it was often overlooked as a farfetched list of very unlikely disasters. The wording is something like the following:
- Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any obligation under this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including but not limited to fire, floods, embargoes, war, acts of war, insurrections, riots, strikes, lockouts or other labor disturbances, or natural disasters.
In simple terms, the clause releases the parties from the contract if an uncontrollable and unexpected event occurs. So, does a global pandemic count? That’s what many courts have been asked to decide over the past couple of years.
Does This Apply to a Pandemic?
This is the crux of the issue. In existing contracts, you will not see “pandemic” listed as an example of a potential disaster, but judges have already ruled on cases across the country in favor of litigants who claim that a pandemic either falls under the catch-all “causes beyond the reasonable control of the affected party” or as a “natural disaster.” Will we start to see pandemic listed specifically in force majeure clauses going forward? Probably!
However, the real sticking point in these clauses is not so much whether the event occurred but whether a party is in default by not fulfilling the obligation of the contract because of it. This is why the specific wording of the clause is so important. In one example in 2020, Florida’s Lynn University’s motion to dismiss a lawsuit was denied because their force majeure clause stated there will be “no refund of tuition…in the event the operation of the University is suspended at any time as a result of [a force majeure] event.” The student sued for a tuition refund because the university went online, not because they suspended operation. The court ruled that he could go forward with his suit.
What Does This Mean for Your Business?
Of course, the Covid-19 pandemic isn’t the only disaster businesses in New Jersey have had to cope with in recent years. Hurricanes Sandy and Irene brought about force majeure claims, as have fires and other site-specific disasters. The key takeaway here is that, in light of the pandemic, you should review the force majeure language in your contracts with an experienced business lawyer. If you were unable to uphold your end of a contract due to Covid, or have had others default on your contracts and claim force majeure, you need to talk to an attorney. Contact Steinberg Law at 908-685-0600 to find out how we can help.