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COVID-19 And Force Majeure Clauses (NY)

March 20, 2020

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<p style="text-align: justify;">As the coronavirus COVID-19 has swept the globe and forced “business as usual” to stop nationwide while Americans shelter in place and practice social distancing, there will inevitably be an increase in contractual non-performance due to the changing circumstances.  As business entities and individuals are forced to renege upon their contractual obligations, the courts will need to immediately grapple with the interpretation and application of contractual force majeure clauses and also force majeure as an affirmative defense.</p>
<p style="text-align: justify;">A “force majeure” event is an event beyond the control of the parties that prevents contractual performance and may excuse nonperformance.  <em>Beardslee v. Inflection Energy</em>, 25 N.Y.3d 150, 154 (N.Y. 2015); <em>Kel Kim v. Cent. Mkts.</em>, 70 N.Y.2d 900, 902 (N.Y. 1987).  Typically, New York courts have narrowly construed force majeure clauses, and have only excused nonperformance if the force majeure clause specifically stated the event preventing the party’s performance.  The courts will seek to determine the parties’ intent when interpreting and applying the doctrine of force majeure.</p>
<p style="text-align: justify;">The New York State and New York City governments have enacted an assortment of regulations with regard to businesses and individuals in an effort to slow the spread of COVID-19.  Accordingly, we can anticipate that there will eventually be litigation regarding nonperformance of contractual obligations during this time.  There is New York precedent for the position that “governmental prohibitions” such as temporary restraining orders do constitute valid applications of force majeure doctrine.  <em>Reade v. Stoneybrook Realty, LLC</em>, 63 A.D.3d 433 (1<sup>st</sup> Dep’t 2009).</p>
<p style="text-align: justify;">As litigation commences and defendants become aware that they may need to mount a force majeure defenses – regardless of whether the contract actually included a force majeure clause – defense counsel will need to keep in mind the following factors which New York courts will be using to assess the viability of the force majeure defense: (1) whether a force majeure clause existed, the specific language used and events contemplated, and any indication of the drafters’ intent; (2) whether the subject event, i.e., the COVID-19 pandemic, falls within the scope of the clause and/or could have been contemplated at the time the parties entered into the contract (e.g., contracts entered into in early March 2020); and (3) whether the COVID-19 regulations made performance completely impossible, not just inconvenient or expensive.</p>
<p style="text-align: justify;">Thanks to Shira Straus for her contribution to this post.  If you have any questions or comments, please contact <a href="">Colleen Hayes</a>.</p>
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