Has your insurance company tried to invoke the clause of force majeure as a reason not to pay within your contract during these covid-19 times?
Do not assume that it is an instant ‘win’ for them, you may well have grounds to fight.
This is one of the most extreme clauses to appear in any contract, however, don’t hear those two words and think all is lost. Business Matters seeks to shed some light on this area of law and show you how the language of the wording could be interpreted instead in your favour.
“Please read this article and then refer to your own specific contractual wording. If in any doubt, please discuss your circumstances and case with your solicitor or insurance broker.”
What is force majeure?
A force majeure clause relieves a party from strict compliance with its contractual obligations where a force majeure event occurs. It is usual for parties to provide in a contract that such events will not make the defaulting party liable if they: prevent it from performing all or part of its contractual obligations, entitled to suspend performance of all or part of its obligations, or entitled to cancel the contract.
Due to force majeure’s extreme nature it cannot be implied into a contract for that very reason.
Sounds bad right? However, the law surrounding force majeure means that it’s not necessarily game over for you if your insurance company attempts to invoke it during these covid-19 times.
There are vast amounts of articles online regarding force majeure, debating it’s usage, yet in English law, there is no actual defined meaning or legal doctrine of force majeure which is why it is always so heavily debated.
If your agreement contains a force majeure provision, your first point of scrutiny is the precise wording of the clause itself.
The burden of proof lies with party claiming the clause. Your insurer will have to prove that an event so out of their control has rendered them unable to execute their obligations.
Let’s break the key words down:
What qualifies as an ‘event’?
Many of the contracts including force majeure will list specific events that will enable a party to invoke the use of it. This can range from natural disasters to terrorist attacks. Primarily, as case law shows, these are all documented events that occur in one singular moment.
Post-SARS saw ‘epidemic’ or ‘pandemic’ drafted into many insurance contracts, yet even if the use of the word ‘pandemic’ is stated within the list of events for the force majeure clause, don’t forget that your commercial contract will still be interpreted using common law interpretations, you may well be within your rights to claim that a global pandemic does not actually qualify as an ‘event’ when in reference to a force majeure clause.
Covid-19 was a fever, a flu, an epidemic and then a pandemic. The World Health Organisation (WHO) deemed it to be a global pandemic on the 11th March 2020, different insurance companies chose to invoke their varying levels of coverage to businesses and travel clients on many different dates, further weakening the overall affect of one singular ‘event’. Filtering their levels of cover with different dates for different clauses, has meant that you can argue that covid-19 as a pandemic did not occur within the common law interpretation of an event with relation to force majeureclauses.
An ‘epidemic’ and a ‘pandemic’ are two very different things as well so if your contract only states ‘epidemic’ or ‘plague’ then they’re unlikely to be able to rely on the clause as well after the WHO deemed covid-19 to be a pandemic.
If the terms used within your contract are all-encompassing and don’t specifically use the word ‘pandemic’, it will be even harder for your insurance company to prove that corona virus began on a specific date at a specific time, compared to the example of an earthquake or terrorist attack.
Check: does your contract state outbreak of disease, epidemic or pandemic in relation to the ‘event’ or is it an all encompassing force majeure?
Genuine failure, or likely failure, to perform
Even if the wording is vague or all-encompassing, the insurers will have to prove that covid-19 renders them unable to perform their side of the contract.
There must be a genuine failure or likely failure to perform and it must be established that COVID-19 caused the failure to perform. The simple fact of COVID-19 existing will not be enough to be able to rely upon the force majeure provision, if the impact of the outbreak did not actually cause the party’s failure to perform the obligations.
The event must prevent the affected party from performing its obligations under the contract.
The meaning of the word ‘prevent’ was considered by the courts in Tennants (Lancashire) Ltd v G.S. Wilson & Co. Ltd  AC 495 and it was concluded that if a force majeure clause provides that the relevant triggering event must ‘prevent’ performance, the relevant party must demonstrate that performance is legally or physically impossible, not just difficult or unprofitable.
Good news from the English law courts here that will make your insurance company potentially squirm – just because the occurring event might cost the party considerably more money to execute the contract, it does not render the contract void or unable to be executed.
Spend a happy hour Googling the net profits from all of the top twenty business insurers globally, as indeed we have at Business Matters, and you’ll see that even with their millions of clients, they are more than capable of executing their job in making payments, based on the fact that not everyone will make a claim. Even in the unlikely event that they can establish that the government’s lockdown constituted an ’event’ it can still be argued that with their handsome net profits, a rise in premiums, developments in online payments and working from home, the insurance companies can hardly argue that that force majeure can be relied upon by them, because they are still more than capable of paying for their liabilities under the contract. Covid-19 does not render them unable to process payments either.
Other factors within the wording
It is important to read over your clause and see if its use is contingent on any other factors. For example, does the clause require notice of the potential force majeure event to be given to you? If so, is there a specific time limit or format for the notice and does the notice need to include any specific information? Was that notice executed within the time frame to you?
Finally remember that as with all contractual clauses, the precise meaning and effect of a force majeure clause will depend on the specific wording of the clause and its interpretation. Specifically, the natural meaning of the words used, the context of the clause within the wording of the entirety of the contract as a whole and the specific information available to both parties when you entered into the contract.
If you’re business owner, please don’t lose hope if you hear this phrase being uttered to you. Act quickly and check your specific contractual wording and let us know if you’re successful in fighting it.