The COVID-19 Coronavirus pandemic has affected the United States economy more than any other disease or epidemic in modern times. Every single person in the United States has been affected by the public health crisis in some way. Likewise, businesses have all been impacted, too.
Some businesses have shut because of public health orders. Other companies are unable to do business normally because of disruptions to supply and distribution chains. Business interruption insurance claims have gone unfulfilled, and business owners are faced with difficult decisions.
Business Interruption Insurance Claims and COVID-19
In the wake of so much economic upset, some business owners and operators are beginning to wonder how force majeure might apply to their contracts, business agreements and business interruption insurance. Force majeure is a legal term that means an act of God got in the way of the parties fulfilling their contractual complications.
Does force majeure excuse a party from contractual non-performance because of the Coronavirus COVID-19 crisis?
Our Nevada Coronavirus business interruption attorneys explain.
How Does Force Majeure Apply to Business Interruption Claims?
As it relates to the Coronavirus COVID-19 pandemic, force majeure is the concept that a party is excused from fulfilling a contract because of an act of God. In other words, an unexpected, unforeseen event happened that is out of the party’s control. When contracts go unfulfilled because of the Coronavirus COVID-19 pandemic, force majeure is a clear defense in some cases.
In other cases, it is no excuse. Whether force majeure or act of God can be used as a contractual defense in the wake of the Coronavirus COVID-19 pandemic depends on the language of the contract itself, the ability of the parties to still perform the contract and the state law that interprets the contract. If your insurance company is refusing to pay your business interruption insurance coverage because they say force majeure applies, you must refer to the specific language in your policy to confirm that is true or not.
Can Force Majeure Be Used to Deny Your Business Interruption Claim?
An inquiry into the applicability of force majeure to nonperformance of contract in the wake of the COVID-19 Coronavirus pandemic begins with an evaluation of the contract itself. Each business insurance policy is unique. The parties have to look at the specific contract language they agreed to in order to determine if a pandemic or disease outbreak counts as force majeure.
It’s possible that the contract specifically addresses it. It’s not uncommon for a policy to state that a list of certain circumstances excuses the parties from the performance of the contract. Common examples are flood, fire, terrorism, acts by a government authority, acts of God and other events beyond a party’s control. Outbreaks and disease can be included on the list.
COVID-19 and Coronavirus as a Defense to Breach of Contract
Where a contract includes outbreaks and disease as an excuse for non-performance, the Coronavirus (COVID-19) is probably an excuse for not complying with an insurance policy. However, if the contract covers only acts of God, the answer is less clear. For example, in Elavon, Inc. v. Wachovia Bank, Nat’l Ass’n, 841 F.Supp.2d, 1298 (N.D. Ga. 2011), the court said that the financial downturn was not an act of God because it was not caused by an act of nature.
On the one hand, the Coronavirus is a force of nature. However, it was government orders that directly closed many businesses and not the pandemic itself. It remains to be seen how the courts will treat COVID-19 as an act of God in contract interpretation. The Elavon case clarifies that failing to perform on a contract because of financial difficulty or because of a change in business goals is not an excuse.
Impossibility and Impracticability As COVID-19 Contract Defenses
Each state may have a range of contractual defenses that relate to usual circumstances or circumstances that are out of a party’s control. Force majeure is one example. It is similar to the legal arguments of impossibility and impracticability.
Impossibility is the idea that unforeseen circumstances make it so that a party does not have the ability to perform a contract even if they wanted to. Impracticability is when it is very difficult for a party to fulfill their end because of events out of their control. If a party raises force majeure as a defense to nonperformance of a contract, they are wise to raise impossibility and impracticability as well. The arguments are similar but not always equal in application.
Force Majeure and Non-Performance of Contract In Nevada COVID-19 Coronavirus Cases
Since COVID-19 Coronavirus force majeure cases are left to state interpretation, it’s essential to examine what the State of Nevada laws and cases have to say about force majeure defenses. Nevada has both applicable laws and cases that weigh in on how the courts might interpret force majeure in the wake of the pandemic. The State of Nevada allows contractual force majeure defenses as well as defenses of impossibility and impracticability under the Uniform Commercial Code, applicable in the State of Nevada as Nevada Revised Statutes Chapter 104.
The current state of Nevada law says that for impossibility and impracticability to be valid statutory defenses, it must be truly impossible for the parties to continue to comply with the contract. Merely deciding that a business plan is no longer viable may not be enough. Financial difficulties may be likewise insufficient. Instead, it may be the case that performance of the contract must be truly impossible or extremely difficult because of the pandemic or because of related government orders in order to trigger defenses like force majeure, impossibility and impracticability.
Attorneys for COVID-19 Coronavirus Business Interruption Claims
If your insurance company is denying your business interruption insurance claim and using the defense of force majeure, our business interruption claims lawyers can help. We want you to have the skilled, aggressive legal representation that you deserve.
Call us today for your free, confidential case review.