With Hurricane Florence blowing into the Carolinas today, this storm is a good reminder about the importance of force majeure provisions in contracts. For those that are in the way of hurricane (including as far inland as Atlanta where we are based and expect to see some tropical storm effects), please follow the local authorities’ directives and be safe!
Does your company understand the implications for the “force majeure” provisions in its contract? “Force majeure” refers to matters that are an extraordinary event or circumstance beyond the control of the parties (sometimes referenced as an “act of God”) that may include weather related disasters such as hurricanes, floods, blizzards or other matters beyond their control such as war, strikes, etc. The definition and scope may be expanded or limited as the parties agree. When a force majeure event occurs, the parties are typically excused from performance during the force majeure event.
Force majeure provisions are typically found in the “boiler plate” (sometimes referred to as “miscellaneous”) section at the end of a contract. “Boiler plate” provisions of contracts (such as force majeure, governing law and venue, etc.) are not always given the same degree of attention or negotiation as other provisions of an agreement – and they should.
I have no doubt that in the aftermath of Hurricane Florence, many companies will scramble to analyze their contracts for its provisions on matters like force majeure. Why should your company pay attention to the force majeure provision in each of its agreements? Many force majeure provisions require the customer to continue paying the vendor – even during the force majeure event! Is this realistic to expect your company to continue paying for service it is not receiving? Is this provision negotiable with the provider?
Once Hurricane Florence passes, whatever damage it leaves behind will have many companies reviewing their contracts to determine whether they are protected by their contract’s force majeure provision. Side note: those same companies will certainly be reviewing their insurance policies for scope of coverage with the hopes they are adequately protected from the damages.
Points to consider:
- If your company is a service provider, is your company protected against loss of revenue in an event beyond your control?
- If your company is the purchaser of services, does your company have to continue making payments even if the service is down?
- Is your company entitled to any form of payment and/or service credits during the down-time?
Force majeure can be very fact dependent. Even with an events such as Hurricane Florence and all of the flooding last year in Texas after the hurricane there, the parties can dispute whether the damages were caused directly by the storm (and fall under the contract’s force majeure provisions), or whether the damages were caused by something else (e.g., negligence by a landlord in failing to maintain a roof that collapsed under the weight of standing water), and taking the position the force majeure provision does not apply (and thus, there is no excuse from payment or performance under the contract).
The best time to evaluate your force majeure provisions is when your company is negotiating the contract. The next best time to evaluate the force majeure provisions is before you need them.
Has your company experienced losses that were not covered by force majeure provisions?
LAWYERLY DISCLAIMER: none of the foregoing items from the list should be deemed exhaustive, nor should this post be construed as legal advice.