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Contract Issues Arising from the COVID-19 Pandemic

WEINER LAWInsightsContract Issues Arising from the COVID-19 Pandemic
Client Update: COVID-19 Information
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For almost all private companies and public entities, the COVID-19 pandemic presents a myriad of challenges.  One of the key areas affected is the entity’s roster of contracts.  Most of the business conducted by a private or public enterprise involves contracts in one sense or another.  The question is the extent to which those contracts have been affected by the pandemic, on both a business level and a legal level.

COVID Contract Blog Post

Commercially, we are all trying to cope either with fulfilling our obligations or having our counterparties fulfill theirs, including customers, clients, contractors, vendors, insurers and more.  Some of the agreements at issue may be large enough to affect the entire business, especially at this vulnerable time. The question is the extent to which the pandemic eliminates, reduces or triggers the legal obligations of either you or your counterparty to perform.  This is a complicated and fact-specific analysis for each contract.  Doctrines such as force majeure, impossibility, and impracticability of performance apply, along with other principles.

The starting points are (1) the wording, nature and history of your agreement, (2) the effect of State and national executive orders and other governmental actions, some of them industry-specific; (2) whose State’s law applies, and (3) how a court would view the pandemic in terms of affecting the overall economy, your industry, or your specific business (or your counterparty’s).  The analysis is different depending on whether your contract has a force majeure provision excusing or suspending performance in certain events such as “Acts of God”, or similar clause.  If there is such a clause, something as simple as the “Acts of God” examples given in that clause could help inform the outcome.  Monetary obligations may be viewed differently than other types of obligation.  Other questions arise, such as whether, if the contract is affected by the pandemic, performance is excused, limited, delayed, and so forth.

On the insurance side, issues such as business interruption coverage may be affected by other factors:  the wording of the policy, a court’s view of the pandemic as a matter specifically affecting one’s insured property, legislation being considered to enhance the chances of business interruption coverage, the constitutionality of such legislative efforts, and more.

In the public sphere, the considerations are even more complex, and involve more specific legislation, some emergency legislation, and a number of Executive Orders, as well as other principles affecting both public entities and their vendors, some of whom are unable to perform because their services have been rendered moot by school and other public sector closures.

You may benefit by having any potentially affected contract examined by counsel.  If you need assistance, please call your usual point of contact with the firm or if you do not have a point of contact, you can inquire with Clark Alpert, Esq. as to agreements in the private sphere, or Stephen Edelstein, Esq. as to agreements involving public entities.

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