Is COVID-19 an Act of God And/Or Will COVID-19 Be a Defense Against Failure to Perform? Swata Gandhi

ALERT

Corporate Practice

MAY 2020 Is COVID-19 an Act of God and/or Will COVID-19 Be a Defense Against Failure to Perform? Swata Gandhi

This is the second in a series of alerts on Force Majeure and Common Law Defenses against failure to perform contracts. In our first alert, we discussed the elements of a force majeure clause and looked at how various states have interpreted force majeure clauses. We focused on how most states take a narrow view of these provisions and they adhere to the plain meaning of the force majeure provisions. This alert takes a look at one event often listed in force majeure clauses – Acts of God.

As discussed in our previous alert, some courts will excuse performance of a contract only if the event causing the breach is actually listed in the force majeure clause. Among the list of events that would most likely excuse a failure to perform under a contract due to COVID-19 would be if the force majeure provision listed pandemics, epidemic, health emergencies or government orders or regulations. While your contract may not list these events, most force majeure provisions do include an Act of God.

In this alert we look at whether it is likely that courts will find that COVID-19 is an Act of God and if such consideration will actually be a defense against performance of a contract.

In general, courts have found that an Act of God is a natural event that would not occur by the intervention of man, but proceeds from physical causes. As noted in the chart below, some states further require that the event is not reasonably preventable by human foresight, strength or care.

Is COVID-19 a natural event? According to various new sources, U.S. intelligence and national security officials are investigating the possibility that the virus originated in a lab. If the virus originated in a lab, then COVID-19 would not qualify as having arisen from a natural event. The Centers for Disease Control indicates that it came from an animal source. Does that qualify as a natural event? U.S. case law does not provide sufficient guidance on this point. When describing Acts of God, U.S. case law references hurricanes and tornadoes and similar events, but does not generally reference disease. Whether a virus from an animal source is caused by nature will ultimately be left to the courts to decide.

Assuming that the virus satisfies the definition of an Act of God it still may not excuse performance. Courts generally require that the Act of God be the sole event that causes the breach and have decided that if there is an intervening factor between the Act of God and the breach, that the Act of God will not excuse performance.

This is where the challenge is greatest for companies. For most companies, it is not the virus that is preventing performance breaches typically resulting from government orders that shut down non-essential businesses, gaps in supply chain or mandatory work- from-home orders. As a result, litigants will face the uphill battle of connecting COVID-19 as the direct and sole event that caused the breach of performance. This will likely be a high burden. Aside from beef or poultry factories

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that have become overrun by the virus, it is difficult to see a breach as the direct result of COVID-19, that qualifies as an Act of God and excuses performance. The novelty and breadth of the impact of COVID-19, however, is likely to result in a checkerboard of results which will be tailored to specific situations and circumstances.

See below for a review of cases that define an Act of God.

State Definition Application

Delaware Causes that are beyond the control of a party, and Insufficient case law to produce loss without the intervention of human determine. agency. [1]

Florida An unusual and extraordinary manifestation of Must be the sole cause. [3] the forces of nature that it could not under normal The human actor must have conditions have been anticipated or expected. [2] exercised due care prior to the intervention of the super-human cause.[4]

Illinois An event that occurs exclusively by natural causes Must be the sole cause.[6] such as could not be prevented by human care, skill and foresight.[5]

Maryland A natural event that would not occur by the Must be the immediate cause intervention of man, but proceeds from physical without which the loss would not causes.[7] have occurred.[8] Loss may be apportioned between Act of God and parties’ collaborating actions.[9]

Massachusetts A natural event that would not occur by the Must be the sole cause which intervention of man, but proceeds from physical includes an unreasonable failure causes and is not in reason preventable by human to take preventative measures foresight, strength or care. [10] Includes the obligation or rational means to ward off to prove unforeseeability and an obligation of the event. [11] diligence by the non-performing party.

Minnesota An event resulting from force of nature must be Must be the sole cause.[13] unexpected, unforeseeable and sole cause of the loss. [12]

New Jersey Natural necessity, which could not have been Must be the sole cause.[16] occasioned by the intervention of man, but proceeds from physical causes alone. [14] Must also be unforeseeable. [15]

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New York Unusual, extraordinary, sudden, unexpected, and Must be the sole cause.[18] irresistible manifestation of forces of nature, occasioned exclusively by natural causes, and could not be prevented by human, care, skill and foresight. [17]

Pennsylvania Natural force of such inevitability and irresistibleness Must be the sole cause.[21] that man cannot cope with it, either to predict it, forestall it, “or control it when it arrives to strew landscape with rack, wreckage, and ruin”. [19] The determination of Acts of God are not to be placed in the hands of juries.[20]

Washington DC Direct, immediate and exclusive operation of forces Must be the sole cause.[23] of nature, uncontrolled or uninfluenced by power of man and without human intervention, and is of such character that it could not have been prevented or avoided by foresight or prudence. [22]

1. Truax v. Philadelphia, w. & B.R Co. 3 Houst. 233 (1866)

2. Section 10 Act of God, 38 Fla. Jur. 2d Negligence

3. Id. Clyde Steamship Co. v. Burrows 36 Fla. 121

4. Am. Jur. 2nd, Act of God Section 10

5. Welfelt v. Illinois Cent R Co. 149 Ill. App. 317 (1909)

6. Id.

7. Fergusson v. Brent 12 Md. 9 (1858)

8. Id.

9. Mark Downs, Incorporated v. McCormick Properties Inc. 51 Md. App. 171 (1982)

10. Hecht v. Brown Wharf 107 N.E. 990 (1915); Bratton v. Rudnick 186 N.E. 669 (1933) wherein the court provided the following definition: the action of an irresistible physical force, or the violence of natural phenomenon, not attributable to the conduct of man, not referable to participation by man through unreasonable failure to anticipate danger or to put forth protective instrumentalities, and overpowering all preventive measures exacted by the wisdom and foresight of prudent men in the light of the warnings of experience and the observations of general climatic conditions, prevailing customs, and all other available sources of information.

11. Id.

12. Vanden Broucke v. Lyon County 301 Minn. 399 (1974)

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13. Swanson v. Fontaine 238 Minn. 460 (1953)

14. The New Brunswick Steamboat and Canal Transportation Company v. Tiers 24 N.J.L. 697 (1853)

15. Meyer Bros Hay and Grain Co. v. National Malting Co. 124 N.J. L. 321 (1940)

16. Id.

17. Tel Oil Co. Inc. v. City of Schenectady 718 N.YS.2d 410 (3d Dep’t 2000)

18. Sawicki v. GameStop Corp. 966 N.Y.S 2d 447 (2d Dep’t 2013); Prashant Enterprises Inc. v. State of New York 614 N.Y.S 2d 653 (1994)

19. Goldberg v. R. Grier Miller & Sons, Inc. 408 Pa. 1(1962)

20. Id.

21. Carlson v. A.&P. Corrugated Box Corp. 364 PA 216 (1950)

22. Watts v. Smith 226 A2d 160 (1967)

23. Id.

This alert was written by Swata Gandhi, a member of the Firm’s Corporate Practice. Swata can be reached at (410) 332-8608 or at [email protected]. This publication was prepared for information purposes only.

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