Are Your Contract Obligations Excused Because of COVID-19 Related Events? It Depends
Throughout Connecticut, particularly in Fairfield and New Haven Counties, businesses are dealing with widespread travel and event cancellations, supply chain interruptions, facility shutdowns, and layoffs due to the COVID-19 pandemic. Connecticut mandates implemented to limit the spread of the virus are affecting business-to-business agreements. In light of this, many businesses need to determine whether they still have an obligation to perform under their contracts or whether there is a permissible defense in light of COVID-19. A possible defense to performing a contract is an existing force majeure clause.
Force majeure clauses are contractual provisions excusing one or both parties from their performance obligations when circumstances that are beyond the parties’ control make performance impractical or impossible. Depending on the construction of the specific contract, a force majeure clause may list specific events that constitute a force majeure or the clause may be vague to include anything out of the parties’ control. Typical force majeure events listed in contracts include:
- Acts of God, such as severe acts of nature or weather including earthquakes, floods, fire, or hurricanes;
- War and acts of terrorism, nuclear emergency, blockade, embargo, riots, and epidemics;
- Acts of governmental authorities in changing laws or restrictions or restraints imposed by law; and
- Strikes and labor disputes
Connecticut courts require the party claiming force majeure to show that the event was not foreseeable and directly caused the failure to meet its contractual obligation. A pandemic resulting in mandated closures is arguably not within the normal risk of doing business. However, if a contract provides an exclusive list of force majeure events, and the list does not include a pandemic or health crisis, it may be hard to argue that COVID-19 qualifies as a force majeure. However, it may be possible to argue that the mandated closures are an unforeseeable change in governing law that does trigger a force majeure clause.
Ultimately, whether a party is excused from performance obligations pursuant to a force majeure clause will be determined on a case-by-case basis. If your business obligations have become impractical as a result of COVID-19 related events, or if another party to your contract is struggling to perform, please contact Jim Verrillo at email@example.com to discuss your particular case.
This article was co-authored by legal intern, Alyssa Ferreone. Alyssa is not yet admitted to the practice of law.