Certain Corporate Legal Issues to be Considered During the COVID-19 Pandemic

Certain Corporate Legal Issues to be Considered During the COVID-19 Pandemic

March 20, 2020
Attorneys

While we are all facing the challenges of dealing with an unprecedented health crisis, we are mindful that the coronavirus pandemic also brings into the spotlight various legal concerns. Set forth below are some of the legal issues in the corporate/commercial setting that the business community should consider now and in future contracts in order to avoid, or at least lessen, the impact upon your business. If you have any questions relating to particular issues that you are facing during this difficult time, please reach out so us. We remain here to assist you.

Contracts. Every business company needs to evaluate its existing contracts and the potential impact of the coronavirus pandemic on these agreements. There are contract provisions that infrequently arise in the usual day-to-day business world, but are now highlighted. These include items such as force majeure provisions, discussed below. Sometimes these provisions allow for adjustment of the contract terms in light of the unexpected event. Contract terms by themselves may provide that a party had the right to revise the terms or terminate the agreement upon such an event. Often, purchase agreements provide relief to a purchaser for supply chain or other delays. Carefully review notice requirements for such events. Does the purchaser have an obligation to accept a partial shipment? Does a seller have a contract obligation to allocate a particular purchaser its fair share of the product that is available? When considering the terms in a new relationship, evaluate how to address the potential for all such pandemic related risks in your agreements.

Insurance Coverage. Do you have business interruption insurance coverage? When is the last time you really looked at what it covers? Have that conversation with your agent and ask to review the actual policy language. The interruption to your business may, or may not, be covered by your business interruption policy. Business interruption coverage typically covers a loss due to physical loss that impacts your ability to stay in your physical space. However, there are already lawsuits being filed to address whether such a pandemic truly impacts your ability to occupy your space, just as a physical loss. Also note the notice requirements of your policy in order to make such a claim. When in doubt, have your policy reviewed by experienced insurance counsel. For a more detailed discussion, see “Insurance Coverage for Coronavirus Claims.” 

Force Majeure Clauses. Often, commercial agreements contain what we call “force majeure” clauses. They allow for a party to avoid performance of its obligations in events, such as war, riot, rebellion, civil disturbances, power failures, failure of telephone lines and equipment, flood, storm, fire and earthquake or other acts of God or conditions or events of nature, or any law, order, proclamation, regulation, ordinance, demand or requirement of any Governmental Authority. The intent is to allow non-performance when an event totally beyond your control prevents your performance. How does this impact upon coronavirus and pandemics more generally? These force majeure provisions need to be reviewed, because they relate to the specific terms in the agreement and the chosen governing law. If performance of the contract is prevented, hindered or delayed due to events outside the reasonable control of a party, a force majeure provision in the agreement may be relevant to the assessment of a party’s right to suspend or, in the event of prolonged force majeure, terminate the agreement. Note that it is important to review the agreement to determine if there is a notice provision for the force majeure clause and the time frame within which notice must be given.

Even if there is no force majeure provision, there are potential other avenues of relief to consider. They may not offer the broad protection of force majeure, but the legal doctrine of impracticability can also be asserted in order to seek relief from performance. Another analogous supporting doctrine is found in the Uniform Commercial Code in section 2-615 for an excuse by failure of presupposed conditions. Each contract relationship will rely upon its specific terms as well as the applicable law in the governing jurisdiction.

Bruce Ackerman
Chair, Corporate/Commercial practice
Pashman Stein Walder Hayden, P.C.
201.270.4933
backerman@pashmanstein.com