With the spread of COVID-19 to the U.S., many insurers are preparing for possible COVID-19 related first party property claims by reviewing what coverages and exclusions might be applicable to such claims. While any claim is dependent on the specific terms of the policy issued to each insured, insurance companies should consider certain coverages and exclusions as a checklist. Partners Karen Karabinos and Eric Mull will address a coverage provision or exclusion each day. Today’s focus is on force majeure.
As we navigate through these uncertain times, with COVID-19 continuing to force event cancellations and business closures, many insureds are looking to the “Act of God” provision of their insurance policies to assess their losses and potential remedies.
The term force majeure, which originates in Napoleonic law, is used to describe a “superior force” event. According to Black’s Law Dictionary, force majeure is defined as “[a]n event or effect that can be neither anticipated nor controlled.” In the context of a contract, though reasonable minds can disagree as to definition, force majeure is a clause which excuses a party’s performance of its contractual obligations where an unforeseen superseding event renders performance impossible or impractical under the circumstances. Any relief permitted under a force majeure provision is governed by state law and strictly construed by state courts.
Though force majeure provisions are generally standard, boilerplate language in contracts, including insurance contracts, there is strikingly limited legal authority, including in Georgia, on the application of this concept to pandemics, such as COVID-19.
As COVID-19 spreads throughout the country, companies are pressing to know whether COVID-19 rises to the level of a force majeure event and whether their insurance policies provide coverage for losses resulting from business interruption related to the pandemic. Though the viability of such claims depends on the terms of the specific insurance policy, research suggests that the trend, based on prior viral epidemics, has been against coverage for business interruptions.
The determination of whether a force majeure provision is triggered requires a two-step analysis. First, does the insurance contract specifically reference words such as epidemic or pandemic? Second, does the insurance contract speak to government mandates (i.e. “shelter in place orders,” mandatory quarantines, and forced business closures). Under either scenario, a force majeure provision may capture such triggering events under “Acts of God” or through language “circumstances beyond the parties’ control.” For example, COVID-19’s classification as a “pandemic” by the World Health Organization might trigger a force majeure clause that accounts for “pandemics,” while on the other hand, force majeure clauses that do not expressly reference pandemics, epidemics, or the like are likely insufficient to enforce a force majeure clause due to COVID-19. As with the other issues discussed in our prior analysis, if a force majeure clause covers COVID-19, the insured will also need to establish that they took steps to mitigate the damage and that performance was impossible.