GALLAGHER KRICH APC
“Force Majeure” occurs when an emergency that is unforeseeable at the time of the contract makes the performance of the contract objectively impossible.
Sometimes, a contract contains the Force Majeure clause (“FMC”). Literally “force majeure” translates from French as a “superior force.” According to Black’s Law Dictionary, force majeure is defined as “An event or effect that can be neither anticipated nor controlled”. Force majeure clauses allocate risk between the contracting parties if performance becomes impossible or impracticable because of an unforeseen event.
When do current events actually become categorized as Force Majeure?
The Coronavirus outbreak was localized to Wuhan, China and not reported as an international concern until December 2019. By that point, Coronavirus had become international news but the scope of government closures was not then known and the virus was then limited to only 5 cases in the US. At the time, the CDC only issued a warning to avoid all non-essential travel to China. Travel inside the US was not in any way limited at that time.
In March 2020 Federal, State and Local Governments began to implement serious restrictions on business and social gatherings. The World Health Organization (WHO) has declared a pandemic. There is a travel ban from Europe to the United States. The NBA has suspended its season and the NCAA has canceled all spring sports. Social gatherings have been limited to 10 people or less and bars, breweries and wineries are closed until further notice while restaurants are at 50% capacity to allow for social distancing.
At this point, it has become objectively reasonable to cancel large events as mass gatherings of more than 10 people may increase disease transmission due to the possibility of the exponential growth of the COVID-19 virus. If you have more than 10 people anticipated to attend an event or have international event attendees, the best practice would be to postpone the event until further notice, likely July 2020 as of this writing.
The travel industry is going to suffer losses broadly. However, they should have insurance such as business interruption insurance to guard against this type of loss. Employers should also review California’s paid sick leave laws. (See Healthy Workplace Healthy Family Act of 2014(HWHFA), California Labor Code 245).
How does Force Majeure work for California Contracts during a pandemic? Do outstanding balances for canceled events still need to be paid?
Parties must also mitigate damages by avoiding foreseeable future damages flowing from the event causing loss. Liquidated damages must be reasonable to cover loss actually sustained not a penalty or a windfall for one party to profit. Therefore, businesses who have scheduled an event should review existing contracts to determine if a force majeure clause was written into the agreement in which case current circumstances strongly suggest that a Force Majeure clause could be invoked to suspend performance such as paying the outstanding balance for a canceled or likely to be canceled event, obtaining a refund of any refundable portions of a contract and reviewing “liquidated damages” assessed to determine if insurance covers all or part of a loss or if the losses claimed have actually been suffered by the other party and whether documentary evidence supports losses alleged to have been caused by canceling event contracts.
Steps to Take:
- Review all current contracts for the existence of a Force Majeure clause.
- Request evidence of all applicable insurance that may be referenced in contracts with hotels, event managers, venues, etc., including business interruption policies in force.
- Request Documents that allow you to breakdown the actual cost of any deductible needed to cover the loss.
If attempts to informally resolve cancellations are unsuccessful, please call us at (858) 926-5797. The attorneys at Gallagher Krich APC can help advise you on best practices, including incorporating a force majeure clause into future contracts.
We can also help resolve any presently outstanding issues with an event venue, suppliers, vendors or other business partners affected by this serious, continuing emergency.