The importance of force majeure clauses during the COVID-19 pandemic

By Ross J. Bextermueller

You have probably heard the term “force majeure” used frequently over the past several months during the COVID-19 pandemic. These provisions were rarely invoked prior to the pandemic but have become the focal point due to the significant impact on the global economy and businesses’ ability to manufacture, distribute and sell their products.  A force majeure clause is a contractual provision that excuses a party’s nonperformance when acts of god or other extraordinary events make performance inadvisable, commercially impracticable, illegal or impossible. These provisions are typically towards the end of a commercial contract and have become a common boilerplate provisions. It is highly recommended that manufacturers, suppliers and service providers include some form of a force majeure provision in their commercial contracts.

The extent to which the COVID-19 pandemic and its consequences constitute a qualifying force majeure event is highly fact-specific and will depend on, among other things, the terms of the contract, the specific facts, governing law and how courts in the relevant jurisdiction interpret force majeure provisions, among other things. The easiest example of how a force majeure provision might be implicated is the recent mandated shut downs of non-essential activities. In many states, counties and cities, manufacturers of non-essential products were required to shut down operations for a designated period of time. As a result, many non-essential manufacturers failed to meet agreed upon lead times. If the manufacturer’s contract with its customer included a broad force majeure provision, its performance would likely have been excused for a designated period of time, ideally for the duration of the order. However, absent a force majeure provision, the manufacturer would likely be deemed to have breached its contract and the customer would be entitled to exercise its rights upon a breach by the manufacturer, which likely includes a right to terminate and seek damages. The manufacturer could attempt to argue impossibility of performance but this is narrowly applied and much more difficult to prove than relying on a force majeure provision included in a contract.

As we head into the fall and winter, your force majeure provisions may come back into play should we experience another spike in COVID-19 cases here in Ohio or anywhere else where your business has operations. You should review all contracts with force majeure provisions to confirm the following:

• Are quarantines, pandemics, public health emergencies or disease included as force majeure events?
• Does a civil order or order from a governmental authority constitute a force majeure event?
• Is the list of force majeure events exclusive or non-exclusive?
• Does a force majeure event specifically include any other event beyond the reasonable control of the parties or events that could not be reasonably expected to occur?
• Are you required to provide notice of a force majeure event within a certain period of time?
• Is there a time limit for how long performance is excused before a party can declare a breach?
• Is a party required to be wholly or partially unable to carry out its obligations?

The answers to the questions above will hopefully help you to better understand your rights and obligations upon the occurrence of a force majeure event and alert you to certain changes in your contracts that you might want to implement going forward.

Ross J. Bextermueller is a Partner with KMK Law. Reach Ross at 513-562-1433 or rbextermueller@kmklaw.com

KMK Law is a Goering Center corporate partner, and the Goering Center is sharing this content as part of its monthly newsletter, which features corporate partner articles.