Commentary

How the Coronavirus Outbreak Could Impact Contract Performance

Given growing concerns over the spread of the Coronavirus, businesses should review their contracts to determine the possible impact an outbreak could have on their business.

Many commercial contracts contain a “force majeure” or “act of God” provision, which generally allows a party to be excused from performance under the contract in the event of certain circumstances beyond the parties’ control.  Typical circumstances would include weather events (such as, hurricanes, tornadoes, or floods), fires, labor strikes, and often, illness.

The application of a force majeure clause depends on the specific language in the clause and the facts and circumstances of each particular situation.  Note that a force majeure clause often does not excuse a party’s performance in its entirety, but merely suspends its obligations.  Virginia courts have historically interpreted force majeure clauses narrowly by excusing performance only in limited situations and/or applying the clause strictly to the listed events.

If a contract does not include a force majeure provision, Virginia case law does recognize excusing a party’s contractual obligations if performance is rendered impossible by an “act of God.”  An act of God is generally interpreted to include circumstances that are beyond the party’s control and could not be foreseen or prevented.  Arguably, “illness” – the spread of the coronavirus in particular – being beyond the power of a person to control or prevent, could be considered an act of God.  In addition, defenses to contract performance may be available based on “impossibility of performance,” depending on the circumstances surrounding the contract.

Each contract clause governing performance is different and can be interpreted differently, so it is important for businesses to review their specific contracts with an attorney.  Business owners should also consider reviewing their insurance policies to understand whether certain types of insurance, such as business interruption insurance, may provide some recovery for businesses adversely affected by the coronavirus.  ThompsonMcMullan is available to advise its clients on legal issues that may arise as a result of the coronavirus, such as contract enforceability, insurance matters, and employment matters.

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