COVID-19 and Force Majeure Clauses Under District of Columbia, Virginia and Maryland Law
Kelley Drye Client Advisory
Until the COVID-19 (new coronavirus) pandemic, the term force majeure was one not readily recognized outside of legal circles. Now, in light of the rapid spread of this disease and its ensuing consequences, businesses are scrambling to ascertain whether they can (i) cancel, suspend or delay contracts based on force majeure clauses, (ii) limit liability for breach or nonperformance thereunder and/or (iii) oppose invocation of a force majeure defense.
While each agreement’s language, the governing law and the surrounding factual circumstances will differ and require individual analysis, below we present a short primer on the law of force majeure and on alternative theories available to argue for or against nonperformance of contractual requirements. We start with some generally accepted principles, and then examine some case law in the District of Columbia, Virginia and Maryland (the “Metropolitan Area”). To read our advisory on how courts in Illinois, California, and New York have addressed force majeure clauses, click here.
What does force majeure mean? What is a force majeure contractual provision?
The term force majeure is a French term – literally meaning “superior force” – that worked its way into English law from the Code of Napoleon. Black’s Law Dictionary defines it as follows: “An event or effect that can be neither anticipated nor controlled; esp., an unexpected event that prevents someone from doing or completing something that he or she had agreed or officially planned to do.”
A force majeure clause is a provision found in a contract that, if applicable under its terms, has the effect of terminating, suspending, or limiting performance by a party of its contractual obligations when extraordinary circumstances beyond the party’s control prevent such performance. Application of a force majeure clause in certain circumstances can even entitle a party to compensation, e.g., the return of a deposit. In essence, a force majeure clause gives a person an “out” to one extent or another from contractual duties.
Do the words “force majeure” need to appear in the contract?
No. The agreement can contain a provision having the same effect as a force majeure clause without using those words. For example, a contract might contain a paragraph called “Termination for Cause” that may list events that will allow nonperformance. Thus, it is important to review each contract to determine if it enumerates force majeure events even in the absence of those talismanic words.
What are typical force majeure events/occurrences covered in contracts?
Force majeure events or occurrences may be natural or manmade. Typical force majeure clauses cover such specific matters as: acts of God; war, insurrection, or civil disturbance; natural disasters like earthquakes, fire and floods; transportation disruptions; strikes and labor disturbances or labor shortages; government shutdowns, etc. At the same time, however, force majeure clauses may also include a “catch-all” provision that triggers its consequence, for example, “or any other emergency beyond the parties’ control, making it inadvisable, illegal, or impossible to perform their obligations under this Agreement.”
It is important to note that courts historically construe force majeure clauses narrowly to limit them to their express terms only. Thus, as applicable here, if the clause specifically covers such things as epidemics, pandemics or diseases that have caused nonperformance, there obviously is an excellent argument that the new coronavirus pandemic would trigger the force majeure clause. At the same time, if a catch–all clause includes “other emergencies”, it too could very well capture a party’s inability to perform due to COVID-19, in light of the President and the Metropolitan Areas’ officials respectively having declared national and state emergencies.
A harder question surrounds the term “act of God.” What follows is a brief discussion of decisions from the local courts in the Metropolitan Area that interpret that phrase, and how that phrase might apply to cases involving COVID-19. It is important to recognize, however, that each case will turn on specific facts and context, and additional contract language that might limit application of an act of God, such as whether the act of God had to have been unforeseen.
Is the new coronavirus an “act of God”?
D.C. Case Law (examples only – not exhaustive)
The D.C. Court of Appeals has explained that an “act of God” is “the result of the direct, immediate and exclusive operation of the forces of nature, uncontrolled or uninfluenced by the 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. Examples are tempests, lightning, earthquakes, and a sudden illness or death of a person.” Watts v. Smith, 226 A. 2d 160, 162 (D.C. 1967) (emphasis added).
Based on this rationale, a federal District Court judge has held that “human interference or influence on what could otherwise be considered an act of God . . . precludes an ‘Act of God’ legal defense.” Am. Nat. Red Cross v. Vinton Roofing Co., 629 F. Supp. 2d 5, 9 (D.D.C. 2009). (emphasis added). Only last year, in reliance on Watts and Am. Nat. Red Cross in its analysis, another federal District Court judge held that whether a rodent infestation was an “act of God” as found in a lease’s force majeure clause was a factual question that a jury had to decide. According to that court, the issue “ultimately boils down to whether the infestation was out of [the tenant’s] control. If the infestation truly was out of its control, then the “act of God” language in the lease’s force majeure clause operates as an excuse. If, however, [the tenant] Whole Foods could have prevented the infestation, then the infestation was not an ‘act of God’ and the force majeure clause is inapplicable.” The Court also explained that [the tenant] “could have partially prevented the infestation but could not have stopped it entirely, in which case the store still may have needed to close for more than sixty days. In that scenario, the infestation may still constitute an ‘act of God’ depending on the degree to which [the tenant] could have prevented it.” See generally Whole Foods Market Group, Inc. v. Wical Limited Partnership, 2019 WL 5395739 (D.D.C. October 22, 2019).
Applying these cases to present circumstances, one can discern arguments on both sides depending on the specific facts involved. For example, a “sudden illness or death of a person” from COVID-19 arguably is an “act of God” that was “unexpected.” Watts. On the other hand, if a person contracted the virus from sheer negligence, and could have been expected to take, but did not take, reasonable precautionary measures such as adhering to proper social distancing to prevent the illness/death, an argument could be made that there is no “act of God” available to excuse a breach. Am. Nat. Red Cross. Similarly, a party attempting to invoke a defense to a breach based on COVID-19 as an act of God should make every effort to mitigate the nonperformance to demonstrate that notwithstanding this epidemic, s/he did everything possible to prevent the breach. Whole Foods
Virginia Case Law (examples only – not exhaustive)
As far back as 1899, the Supreme Court of Virginia declared that an “act of God” reflects “all misfortunes and accidents arising from inevitable necessity which human prudence could not foresee or prevent” and further held that “’illness’ being beyond the power of man to control or prevent, is the act of God.” Sanders v. Coleman, 97 Va. 690 (1899). In that case, even where there was no written contract, the court implied that a promise -- in that instance for marriage – need not be fulfilled if disturbed by an act of God. In a more recent case, however, a Virginia federal District Court indicated – based on law from outside Virginia – that an act of God could be covered as a force majeure event even if could be foreseen so long as the force majeure clause did not specifically require the lack of foreseeability as one of its terms to apply. U.S. v. Hampton Roads Sanitation Dep’t, 2012 WL 1109030 (E.D. Va. 2012). Thus, as applied here, even if COVID-19 could have been “foreseen” – arguably given recent epidemics such as SARS and Ebola – it might be covered as a force majeure “act of God” where unpredictability of that act of God was not a condition found in the contract for the force majeure clause to apply.
The Supreme Court of Virginia, has also explained that “the act of God [must be] the sole proximate cause of the injury” and that “all human agency is to be excluded from creating or entering into the cause of mischief, in order that it may be deemed an Act of God.” Cooper v. Horn, 448 S.E.2d 403, 425 (Va. 1994) (citations omitted). Thus, if theoretically a party could have taken but did not take steps to mitigate or prevent nonperformance due to the disease, a court might find that the defaulting party helped cause or further the injury and thereby deny enforcement of the force majeure act of God clause. For example, to ensure that a force majeure clause will be upheld where a party cancels a conference, the party probably should offer to mitigate its nonperformance by possibly offering to reschedule the conference to a future date mutually convenient for it and the host venue.
Maryland Case Law (examples only – not exhaustive)
Based on an 1858 Maryland Court of Appeals case, the Maryland Court of Special Appeals more recently stated that: an “’Act of God’ will excuse mortal man from responsibility only if God is the sole cause.” Mark Downs, Inc. v. McCormick Prop., Inc., 51 Md. App. 171, 187 (1982). Thus, “unwarranted hardship” created by a party’s own “negligent omission” will void a force majeure defense. White v. North, 121 Md. App. 196, 236 (1998), vacated on other grounds, 35 Md. 31 (1999). In the same vein, a “boiler plate” force majeure clause covering, among other things, “acts of God,” will not void a contract that a party simply found to be unprofitable. Instead, the party there was attempting to misuse the force majeure clause to its advantage, and was sanctioned. Langham-Hill Petroleum Inc. v. Southern Fuels Co., 813 F. 2d 1327 (4th Cir. 1987). [By contrast, a force majeure clause could relieve a party from liability where the party’s financial stress is directly due to a specified event in the clause such as the “inability to obtain labor and/or materials beyond the control of the Contractor.” In re Regional Bldg. Systems, Inc., 320 F. 3d 482, 485 n.5 (4th 2003).]
In short, even if COVID-19 is an act of God, a court in Maryland may not allow this force majeure defense to the extent that a party contributes to and causes failure of performance. Accordingly, a party in Maryland seeking to invoke a force majeure clause under the guise of an act of God should attempt to mitigate a breach or nonperformance of the contract at hand.
Suppose a contract does not contain a force majeure clause or an applicable catch-all provision?
Even where there is no force majeure clause or where the clause does not contain specific or catch-all language applicable to COVID-19, the doctrines of (i) frustration of purpose and (ii) impossibility of performance, may still apply to void a contract. While there are nuances between these two doctrines, for the most part their elements are “essentially the same.” Drummond Coal Sales, Inc. v. Norfolk Southern Railway Co., 2018 WL 4008993 (W.D. Va. 2018).
To apply these doctrines, a party has the burden to present evidence that the contract’s principal purpose has been substantially frustrated and/or its performance is made impracticable, without the party’s fault, by the occurrence of an event the non-occurrence of which was the basic assumption on which the contract was made. Id. For example, if because of the unanticipated and unforeseeable COVID-19 people are unable to attend an event such that it is impracticable to go forward with it (since no one or very few people will participate), the principal purpose of a contract with the host venue may be rendered so frustrated as to make it null and void. [For additional cases on these doctrines and the related doctrine of commercial impracticability, see, e.g., Harford Cty. v. Town of Bel Air, 704 A.2d 421, 431 (Md. 1998); Island Development Corp. v. District of Columbia, 933 A.2d 340 (D.C. 2007); National Ass’n of Post Masters of the U.S., v. Hyatt Regency Washington, 894 A. 2d 471 ( D.C. 2006).]
Of particular interest with respect to leases, at least in Maryland “the doctrine of frustration has been limited to cases of extreme hardship. In any event the lessee must prove that the risk of the frustrating event was not reasonably foreseeable and that the value of the leased premises was substantially or totally destroyed.” Md. Trust Co. v. Tulip Realty, 153 A. 2d 275, __ (Md. 1959) (citations and other examples omitted).
Concluding Thoughts and Practical Steps to Take
The COVID-19 pandemic is so extraordinary and unprecedented that courts examining the application of force majeure and force majeure clauses may make new law despite the above guidelines and historical principles. In particular, where a dispute will be resolved in arbitration as opposed to a court of law, an arbitrator may more liberally apply equity one way or another. The arbitrator, therefore, could well invoke or otherwise not strictly enforce a force majeure clause depending on the hardship that one or the other party is suffering, or the safety precautions that dictated a party’s particular action or inaction even if in breach of the contract.
Nonetheless, parties should carefully review their contracts to determine whether a force majeure clause is present and whether it might or might not apply. Additionally, parties should adhere to, or enforce (depending on what side they are taking), notice and deadline requirements relating to any such clauses in order to preserve whatever arguments (one way or the other) they may wish to make in the future. Yet, at the same time, parties also should be mindful that they may find themselves on both sides of the issue, and thus should take care, where possible, not to act inconsistently. In the end, parties will need to adopt and implement well-developed legal strategies.
As COVID-19 is an ongoing global epidemic, we cannot fully ascertain the extent of the disruptions to business and the economy. Continue to assess your litigation risks and contractual obligations as the COVID-19 outbreak continues. Kelley Drye will provide any updates and further information on our COVID-19 Response Resource Center as this situation develops. If you have concerns about managing your workforce or your insurance coverage in light of COVID-19, please refer to our other advisories.