Force Majeure, Covid-19, Contract Enforcement and Avoidance
Contractual language is a key factor for Insurance Coverage claims, enforcement or avoidance of contractual agreements, and the tsunami of litigation to follow.
Exego Intelligence Contract Analytics Platform Can Assist in Identifying Relevant Clauses.
“Force Majeure,” a common, but infrequently invoked contractual clause, is now relevant to almost every societal and contractual obligation, deeply affected by the COVID-19 pandemic.
“Force Majeure” limits the liability of parties from damages caused by extraordinary and unforeseen events beyond their control. These events can be “man-made” (i.e. war, labor strikes, or riots) or caused by “Acts of God,” such as floods, tsunamis, earthquakes, and volcanic eruptions. It is currently up for debate if epidemics or pandemics are an Act of God. In general, Force Majeure clauses in the United States have not included the terms “disease or pandemic.” These clauses are likely to change soon.
Why Is Review of Most Contractual Agreements Necessary?
The global COVID-19 crisis will require the review of most contractual agreements to identify a party’s rights and obligations in the global supply chain process. Delay and the inability to comply with contracts, including lowered production, failure to fulfill outstanding orders, pay rent or mortgages, interruptions of services, will be the key factors that must be addressed.
Most organizations will face the daunting task of locating and then searching almost all existing contracts for language addressing Force Majeure related issues, in order to determine how to react to failures to comply with contractual agreements.
Updating The Force Majeure Clause
Our company, Planet Data Solutions recently received an updated draft of the Force Majeure Clause, from a major law firm client (the new language highlighted):
“Neither Party shall be held responsible or incur any liability for any delay or failure in performance of any part of this Agreement to the extent that such delay or failure results from causes beyond its control, including fire, flood, explosion, war, disease or medical outbreak or epidemic, labor dispute, embargo, government requirement, civil or military authority, natural disasters, or other similar types of situations”.
A large percentage of existing contracts will be affected by the COVID-19 pandemic. The impossibility or inability of contractual performance will have profound financial and legal ramifications worldwide. Every company counsel will be searching through existing contracts to locate language releasing the organization or assessing liability, or to see if the party’s performance or payment obligations are excused due to Force Majeure related terminology.
There are a wide variety of clause headings and textual terms that have been used to address Force Majeure issues, including terms such as “Force Majeure,” “Acts of God,” natural hazards, biological hazards, extraordinary events and “Business Interruption” clauses.
How Do We Find Relevant Contracts and Contract Language?
Finding relevant contracts and contract language is now further complicated by government mandates that all but essential businesses have their employees work from home. Many companies will be hindered by not having ready access to their contracts, thus wasting valuable time attempting to identify and retrieve this information from disparate company locations.
Those mandates may strengthen a party’s Force Majeure claim under the general language of that clause in their contracts, even in the absence of the “disease or medical outbreak or epidemic” language.
How to Locate and Search Contracts Across A Broad Spectrum of our Operations?
Companies need the ability to locate and search contracts across a broad spectrum of their operations. They need to gather this information from a potentially diverse universe of servers and other data storage sources for insurance, litigation, payment and business intelligence purposes. Importantly, contracts not created on the company’s, Contract Management System (“CMS”), but that were received from numerous third parties in electronic, PDF, or paper formats require integration into a complete and accurate search and analysis solution.
Identifying Specific Language, Comparing at The Clause Level, and Utilizing Textual and Conceptual Similarity Methodologies
Planet Data’s Exego Intelligence contracts analytics platform offers a comprehensive tool to address these pressing issues. Exego Intelligence enables our clients to identity and analyze existing contracts that reside throughout the organization via a secure, Web based application. Importantly, specific language can be identified and compared at the clause level, utilizing both textual and conceptual similarity methodologies.
Conceptual similarity identification of contract language is a critical function in enabling a more complete identification and analysis of clauses that may have highly similar meaning but different text descriptions.
Force Majeure issues have suddenly catapulted to the front page of the media, without specifically referring to the term Force Majeure. For example, the cancellation or postponement of major league sports and the Summer Olympics has affected numerous businesses, such as media contracts and the billions of dollars of related advertising, travel and housing contracts. It is difficult to imagine many organizations that will not be affected by the current tsunami of anticipated negotiations and litigation related to COVID-19.
April 2 , 2020
Howard J. Reissner, Esq.
CEO – Planet Data