Coronavirus – Legal Implications

Existing Contracts. Any business that relies on suppliers with international operations should look at their existing customers agreements and determine whether there are clauses that could provide protection in the event of an interruption in supply. Some contracts may have provisions that excuse delayed performance. In addition, many contracts could include “force majeure” clauses. A force majeure event would be any action that generally prevents a party from being able to perform under the contract that is beyond the reasonable control or not reasonably foreseeable at the time of the contract. Even if the contract does have a force majeure clause, a party still needs to pay close attention to whether notification requirements have to be met in order to rely upon such provision. Depending on the contract, the failure to send a notice could constitute a waiver under such provision.

Future Contracts. Many contracts contain provisions with strict deadlines. Because of the uncertainty related with your supply chain, you should negotiate language that sets a more flexible schedule.

Alternative Means of Performance. Relying on force majeure may be challenging. As a result, a party should consider whether there is an alternative way to comply with the terms of the agreement. Furthermore, are there other means to mitigate the damages that would be sustained? In the event of litigation due to a breach of contract, it is critical that you take all reasonable action to minimize damages.

Insurance Coverage. You should inquire as to whether you have existing liability or business interruption insurance coverage. From time-to-time, some businesses will acquire such coverage, which could cover losses in the event there is an interruption in your business activities. You should review any insurance policies to determine the grounds with which you have obtained the benefit of such insurance coverage. Moreover, similar with force majeure, you should consider the notice requirements and ensure that you do not waive any rights under the policy due to a late notice.  

Certainly, everyone should consider the health ramifications of a potential pandemic of Coronavirus. Moreover, business owners should also look at their business operations and begin to plan for potential interruptions of their business and/or determine their contractual rights. Finally, any business owner should consult with an attorney to further evaluate their potential risks and rights under existing contracts.

If you have any questions about this article or have any questions relating to the legal implications due to the Coronavirus, please contact attorney Theodore M. McGinn at (847) 705-7555 or tmcginn@lavellelaw.com.