Nearly 230 lawyers saw Force Majeure and Insurance Coverage Issues During the Pandemic as it was live-streamed by the MSBA Business Law Section on April 16, 2020. The 90 minute presentation addressed legal principles and practical considerations that will guide businesses, insurers, policy-holders, and ultimately the courts, as Maryland businesses seek compensation for losses attributable to the COVID-19 pandemic.
Swata Ghandi (Saul, Ewing, Arnstein & Lehr) and Roy Niedermeyer (Paley Rothman) first discussed contractual and common law defenses that might be available to businesses that cannot meet their commitments during the emergency. They encouraged listeners to look first at the controlling contracts for the terms of any force majeure or “act of god” clauses that might excuse, discharge or suspend a party’s performance. Sample clauses were reviewed and analyzed, and several court decisions were discussed. Common requirements for success in asserting these defenses, such as foreseeability, government action, impossibility of performance, and mitigation, were also explained.
Mr. Niedermayer touched on the UCC defense of impracticability, where delay or non-delivery of goods might not constitute a breach if performance became impracticable because of compliance with a governmental order. He also addressed the common law impossibility defense, which might excuse performance when unforeseeable intervening events (a governor’s response to a pandemic, perhaps) made performance objectively impossible. The closely related common law doctrine of frustration of contract was also reviewed.
Miles & Stockbridge attorneys Alexander Creticos and Joseph Beavers discussed issues regarding potential insurance coverage for COVID-related business losses, separately addressing business interruption insurance, event cancellation insurance and several other coverages. Like force majeure clauses, coverage will depend first and foremost on the contractual language, and listeners were advised to take a close look at the terms of every available policy.
Mr. Beavers noted that most business interruption insurance contracts, including contingent, leader and civil authority policies, share a threshold requirement of physical damage to property before coverage attaches. The question whether a pandemic qualifies as physical damage, he said, is “far from settled.” Reference to analogous situations, such a government ordered shutdown due to the presence of harmful gases, asbestos or lead, might be cited by both policy-holders and insurers as these matters move through the courts.
The presence (or absence) of common policy exclusions, such as viral or pollution exclusions, raise similar issues and provide opportunities for both sides in these disputes. Other coverage issues common to each type of policy (e.g., covered occurrences, prerequisites, exclusions and loss calculations) were discussed, as were legislative initiatives to expand coverage retroactively that are starting to appear in other states.
The webinar can be viewed below.