COVID-19, and state mandates to limit the viral spread, have caused widespread travel and event cancellations, supply chain interruptions, layoffs and business closures. Business-to-business agreements that require a specified level of production and delivery cannot be met without workers, drivers and staff.
For consumers, it’s often a question of whether refunds of purchases and deposits, sometimes made a year or more in advance of an event, will be returned.
The outcomes for businesses and consumers will depend in part on the language of the signed agreement between parties, said Richard Kay, the Wallace Stevens Professor of Law Emeritus, Oliver Ellsworth Research Professor at the University of Connecticut School of Law.
“It depends on the particular contract and what terms are and how it was drafted,” he said. “You can put things in like a force majeure clause that usually gives people an out if something happens that makes the contract less advantageous to them.”
A provision for force majeure in a contract generally excuses a party from performing its contractual obligations if their inability to perform is caused by an event that is outside the reasonable control of the affected party, according to Jeffrey White, a partner at Robinson + Cole LLP, who led a Coronavirus Special Topics conference call focusing on force majeure with Taylor Shea, a partner at Robinson+Cole, on March 18. The call was part of a series hosted by the U.S. Department of Commerce.
“Sometimes a contract will reference events like natural disasters or war or terrorism, also catch-all that would include acts of God and any other event that is outside of the party’s control,” said White. “In addition to listing the events that will qualify in the force majeure events, the provision will also typically provide various procedures and/or remedies that the parties will need to follow in order to actually claim force majeure events have occurred or to have it be enforceable,” he said. It’s important to check local governing laws because contract law differs across states, the country and the world, he said.
Is COVID-19 a force majeure?
The answer is maybe, said both White and Shea.
‘It depends on the contract language. Some (but probably not many) contracts will specifically include pandemics, epidemics, diseases or health crises as force majeure events. If this is the case, it is very likely that COVID-19 will qualify as a triggering event. However, the majority of contracts will not have a specific reference to pandemics or the like. In that case, you will need to evaluate whether COVID-19 qualifies under one of the events that are enumerated in your contract (e.g. an “Act of God,” a governmental action, etc.),” wrote White and Shea on their presentation handout.
The specific language included in consumer contracts for travel reservations and venue rentals will be extremely important, said Lora Rae Anderson, director of communications for the Connecticut Department of Consumer Affairs.
“The consumer’s rights depend on the contract or agreement that was initially signed,” she said. “That contract may not have contemplated this situation because it’s very new for all of us.”
She said her agency has received 69 complaints that specifically mention COVID-19 so far this year. The complaints relate to price-gouging or travel cancellations and so far none are specific to the cancellation of events, including weddings. The agency receives 3,000 to 5000 total complaints each year.
“The complaints include price-gouging on Personal Protection Equipment (PPE), hand sanitizer and travel-related concerns. However, the wedding season may not have kicked in sufficiently to produce complaints about refunds and cancellations,” she said.
Some remedies for consumers include rescheduling events, providing a buyer with a credit or negotiating a partial or full refund.
“We have advised consumers to take a look back at your contract, see what you believe you’ve been entitled to do, talk to the business and see what you can work out,” she said. “But if there is something you believe that you‘re not getting back or you feel you’re not being treated fairly, give us a call and we will try to help you out.”
Newly available federal loans and grants may provide a way for small businesses to take care of their customers, she said.
“Obviously, that is very new but it is a hope we have,” she said.
Legal action is an option open to consumers, but Anderson encouraged intermediate steps in an effort to resolve problems.
“My first thought is don’t rush to hire an attorney. We actually don’t want you to do that if it’s something maybe we can help you mediate,” she said. “I’d say that if it is a very large amount of money, something higher than $2,000 or a couple thousand dollars, then it’s your decision to go ahead and hire an attorney, but that’s what our consumer representatives are here for.”
For businesses, force majeure provisions are a two-way street — a business can make or receive a claim.
Shea said that to qualify as force majeure, an event must satisfy three criteria.
First, it must be beyond the reasonable control of the affected party. “COVID-19 is likely to meet this initial criteria,” she said.
Second, the “causation threshold” of the contract must be met, meaning that the inability of the party to perform must have been “prevented or impeded or hindered by the specific event. “Just because there’s a pandemic does not mean that a party can simply cite it and not perform,” she said.
Third, the affected party must have taken all reasonable steps to avoid or mitigate the event or the consequences. “This means the party that invokes the force majeure provision has taken all reasonable efforts to minimize the damage caused by the non-performance — not heroic or extraordinary measures,” she said.
White emphasized that a provision of force majeure is about business performance. White said that the pandemic itself will not serve as a reason to allow a business to fail to fulfill its contractual obligations.
“If you can still perform, COVID-19 doesn’t let you out,” he said. “You’ll start to see companies try to get out of contracts that were not profitable for them or they were not able to perform and they’re going to use COVID-19 as an excuse. Force majeure does not let you out of a deal just because it makes it less profitable.”
Taking cues from the past
White said the business community is looking at various ways of reducing the impacts of work disruption from incidents of force majeure.
“A lot of companies are looking at their business interruption insurance to see if that could fill in some of the gaps,” he said, adding that many companies will likely include express contractual language about pandemics and much more robust force majeure clauses going forward.
Kay said that when writing provisions for force majeure, attorneys take cues from what has happened in the past.
“In California, fires are going to make themselves into contract drafting and that hadn’t been a consideration five years ago,” he said. “We now have this pandemic stuck in our consciousness. We’ll use language that will cover the greatest number of cases. We might say ‘the presence of disease.’”
Anderson said the remedies for consumers could be slowed by the impact of COVID-19 on businesses.
“It’s also important to remember the business owners are individuals who have been affected by COVID-19 so that response may not be able to come quickly or immediately. We want to ensure that good businesses stay in business and they can work well with their customers. We want to make sure [consumers] get some money back or some credit if they can,” she said. “The bottom line is that every situation is different but please reach out to us.”
Complaints to the Dept. of Consumer Affairs can sent to: firstname.lastname@example.org