COVID-19 and Force Majeure


As the COVID-19 pandemic continues, clients may need to familiarize themselves with an oft-overlooked contractual provision – the “force majeure” clause.  This update will discuss force majeure events and force majeure clauses and explain contractual parties’ obligations if a force majeure event occurs.[1]

What is a force majeure event, and what is a force majeure clause?

During a business contract (whether a contract for the sale of goods or services or a contract leasing personal or real property), it is possible that unforeseen events will occur that preclude one or both parties from completing their portion of the contract.  Simple examples of these types of events are wars or meteor strikes.

Many parties will include a force majeure clause in a contract to define the parties’ responsibilities to each other if certain events occur. Although many force majeure clauses may be very similar, do not assume that all force majeure clauses are identical.

What if you think a force majeure event has occurred?

If you think a force majeure event has occurred, you will need to ask the following series of questions:

Question 1:  Does the contract contain a force majeure clause?

Although many contracts will contain force majeure clauses, simple or informal contracts may not.  If the contract does not contain a force majeure clause, a court will determine whether the event was foreseeable when the contract was signed – courts are more likely to require performance after foreseeable events. 

Question 2: Which state’s law applies?

The next question is which state’s law governs the contract – this will usually be specified within the contract itself, but bear in mind that each state will have unique laws governing force majeure cases.[2]  Iowa’s laws and court rulings regarding force majeure tend to focus on what the parties agreed to when they executed the contract, and what the parties could have foreseen when the contract was executed.[3]

Question 3: Is the event-in-question a force majeure event?

The party must then determine whether the event-in-question is a force majeure event according to the terms of the contract – sometimes, an event may be included within a “catch-all” term.[4]  Typically, more-general event lists will be viewed as more likely to also cover events which aren’t explicitly listed.

Question 4: How does the event impact the contract?

The party must then determine how the force majeure event has impacted that party’s ability to perform the contract – can the contract not be fulfilled, or can it not be fulfilled in a timely manner?  This will depend on the words used to trigger the force majeure clause, such as “prevents”, “hinders”, “impairs”, or “makes impossible”.[5] 

Question 5: What duties are owed when a force majeure event occurs?

Usually, parties’ duties to one another under a force majeure event are spelled out within the contract itself.  Typical items include notice requirements (usually with a notice deadline) and the requirement that the party claiming performance is impossible must try to “mitigate” the effects of the force majeure event.

Conclusion

Force majeure clauses are a commonly-used, but frequently-overlooked, feature of a contract which helps parties to define their responsibilities to each other should a particular event occur – for example, the COVID-19 pandemic, which may qualify as a force majeure event.

If you have questions about the impact of force majeure clauses on current or impending contracts or leases, please contact Karl Sigwarth at (319) 358-5568 or ksigwarth@bradleyriley.com.


[1] Please note that this newsletter provides general coverage of its subject area, is intended as educational material, and does not constitute rendering legal advice.  We encourage clients or prospective clients in search of legal advice to discuss the details of their particular matter with an attorney.

[2] Typical state laws which could govern a contract sited in Iowa will be Iowa, Illinois, Delaware, or New York; however, another state’s law could be specified.

[3] E.g., Pillsbury Co., Inc. v. Wells Dairy, Inc., 752 N.W.2d 430, 440 (Iowa 2008).

[4] Conversely, it is also possible for the parties to negotiate a list of terms which are explicitly not force majeure events.  A common excluded event is a “change in economic circumstances” by the parties.

[5] Note that each of these words would describe a different level of interference with contractual performance.