To date, numerous lawsuits related to COVID-19 have been filed in the United States. While the more creative and frivolous claims could be dismissed during the early pleading phase, plenty of more complex, fact-based lawsuits will arise, ultimately resulting in costly and prolonged litigation for defendants.
COVID-19 has created a domino effect on the global economy, resulting in an inability of many businesses to fulfill contractual agreements with customers, vendors or suppliers. The halt in the world economy combined with stay-at-home orders affects multiple parties involved in a single project.
For instance, the inability to obtain supplies from abroad and a decrease in the labor force has delayed construction projects. A general contractor will be forced to breach a contract if it is unable to timely complete a project while a supplier will be in breach of a contract if it is unable to ship supplies for the construction project.
A force majeure provision is designed to excuse a party from its duty to perform in the event of an unforeseen and unavoidable catastrophe. However, a party relying on a force majeure provision must often demonstrate that the clause specifically refers to terms such as “pandemic,” or “communicable disease”. If not, a court will analyze whether COVID-19 falls into other categories such as “Act of God” or “governmental action” that are expressly listed in a force majeure provision.
Breaching parties must also demonstrate that the pandemic itself made performance of the contractual duty impossible, not merely more difficult or expensive. Further, these clauses typically require a breaching party to establish that adequate notice of a parties’ inability to perform was provided to the counterparty and steps were taken to mitigate the damage caused by the contractual breach.
In sum, businesses should understand the law of each state governing their contractual agreements.