Contract Killers: Coronavirus and “Act of God” Provisions

March 20, 2020
Post by Nicholas J. Krob

Businesses everywhere, like the individuals that comprise them, are facing an uncertain future in the wake of the coronavirus disease 2019 (“COVID-19”). As each new day brings unprecedented governmental regulations and market disruptions, businesses are increasingly finding themselves unable to fulfill, or enforce, contractual obligations. And with such inability often comes, at least eventually, litigation.

In one of the first of what is likely to be many lawsuits to stem from COVID-19 interruptions, tech giant Qualtrics sued the booking agent for the rock band The Killers, SME Entertainment Group. Qualtrics, who had booked The Killers to perform at its annual X4 user summit, claimed the band and SME were insisting on full payment despite Qualtrics having postponed the conference due to COVID-19. Though the parties have since settled their dispute, it provides an interesting insight into the sorts of contractual issues arising due to COVID-19 and a preview of what is to come.  

Notably, the basis of Qualtric’s claim was that it had a right to cancel the contract (and thus not be obligated to pay SME/The Killers) on account of COVID-19. Such a position typically stems from what is known as a “force majeure” clause.

While each one is different, force majeure clauses (often referred to as “act of God” provisions) are typically intended to excuse contractual nonperformance when caused by unforeseen events beyond the control of either party that render performance impossible (or, in some cases, impracticable). The critical question then is whether the matter at hand (here, COVID-19) constitutes such an event. If so, courts will normally look then to whether the risk of nonperformance was foreseeable and whether performance was truly impossible/impracticable.

As many force majeure clauses may fail to explicitly list “pandemics” (or even “epidemics” or other “viral outbreaks”) as force majeure events, courts are sure to be faced with an influx of litigation regarding contract breaches caused by COVID-19 in the coming years.

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