COVID-19 CONSIDERATIONS: CANCELLATION, POSTPONEMENT, AND TERMINATION Presented by: Lauren Karagozian ESQ., M.B.A, ARM, CRIS SVP, Contractual Risk Practice Leader • Cancellation of events, Disruption of supply chains, reduced labor, and inability to fund because of loss of STATE OF THE business • Uncertainty regarding length of time of ECONOMY restrictions and disruptions CONTRACTUAL OBLIGATIONS

• Important to review current when making future business decisions • Identify contracts which can be terminated or amended without repercussions • Necessary to carefully negotiate future contracts to align with risk management approach of the organization knowing the pandemic could effect business in the future

PREPARE | RETURN | EVALUATE | PROTECT 2 KEY CONTRACTUAL PROVISIONS

• Clauses • Cancellation/Termination Provisions • Payment/Fee Provisions • Liquidated Provisions • Limitation of Liability Provisions • Indemnification Obligations • Performance Obligations • Amendment Provisions

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Definition of Force Majeure Event • Exhaustive list vs. specific events outlined • “Acts of God” unless otherwise defined are not interpreted to include public health emergencies Severity of a Force Majeure Event • Standard of severity for assessing whether the circumstances rise to the level of a Force Majeure Event ― “Illegal or impossible” vs. “inadvisable or commercially impracticable” Cancellation vs. Reschedule • Ability to cancel vs. the requirement to try and reschedule for a later time Conditions of Termination • Requirement of a written notice of cancellation

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Cancellation/Termination provisions are typically utilized when there is not a Force Majeure Provision Cancellation/Termination is triggered by the inability of a party to fulfil their obligations under the contract • Termination of a contract may entitle a party to claim damages against the counterparty. • Damages are equated to the position the party would have been had the contract been performed Conditions to Termination must be followed to have a valid termination • Timing of the Termination • Written Notice

PREPARE | RETURN | EVALUATE | PROTECT 5 PAYMENT, FEE, AND LIQUIDATED DAMAGES PROVISIONS

Payment and Fee Provisions • Security deposits and down payments • Event Agreements • Venue to maintain a security deposit to secure contract. Often this is non-refundable regardless of the termination or cancellation • Force Majeure clauses may supersede; however it will need to be clear in the contract which is the governing provision Liquidated Damages Provisions • Many contracts may have Liquidated Damages provisions in the event of cancellation or delay in completing services. • In understanding penalties, organizations will need to review Force Majeure provisions and determine if all fines and penalties are waived in the occurrence of a Force Majeure event

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Limitation of Liability • Limit damages of each party to a certain amount • Limitation of Liability provisions often are “notwithstanding” other provisions of the agreement and aim to ensure a party’s exposure is consistent with the commercial benefits of that party under the agreement Limitation of Liability provisions may limit particular types of damages • Indirect, special or consequential losses • A waiver of consequential losses may prevent a party from being responsible for things such as loss of profits, revenue, and use

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Indemnification obligations shift the risk of losses, damages, claims, etc. to another party The effect on ability to recover damages through an will rely on the structure and scope of the indemnity • If the indemnity is limited to negligent acts or omissions of the indemnifying party, it would likely not be triggered because of COVID-19. • may trigger liability if “breach of contract” is included within the scope of the indemnity • Failure to meet contractual obligations as a result of COVID-19 may create losses to the indemnified party and if the indemnity includes breach of contract and the Force Majeure provision does not supersede, then the indemnified party may be able to mitigate or recover losses under the indemnity provision of the agreement

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Performance • Options for alternative methods of performance. • Meet contractual obligations with different means and methods than specifically outlined in the contract Amendment • Ability to amend the agreement if there is agreement between the parties • A formal contractual provision does not need to be added to the agreement to have the ability to amend in the future • An amendment to an agreement may be made at any time during the term of the agreement and then it would be formalized by an appropriate contractual document

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Carefully Review contracts before deciding whether to terminate, cancel, or postpone due to COVID-19. • Understand any penalties • Understand other contractual alternatives • Specific language needs to be reviewed carefully • Discussion with the other party may lead to an amendment and reasonable outcome for both parties Understand how your organization will want to allow handle cancellations, terminations, rescheduling, or delay due to pandemics and epidemics in future agreements • Review Force Majeure clauses • Align other provisions in the agreement to the intent of the Force Majeure, such as payment, liquated damages, limitations of liability, and indemnification obligations.

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