Without a vaccine to contain the Coronavirus, we are seeing its impact on local and global economies. Major sporting events have been cancelled or taken place in empty stadiums, tourist attractions all over the world are closed until further notice, and festivals and conferences that inject millions of dollars into local economies will not be taking place.

On March 6, the City of Austin announced it was cancelling South by Southwest. SXSW injected $356 million into the Austin economy in 2019—but it will likely not survive 2020. While SXSW had lots of liability insurance (terrorism, weather, injury, property destruction), it did not purchase the additional rider insurance needed to cover infectious disease.

As a rule, cancellation insurance policies exclude infectious disease coverage. It has also been documented that most, if not all, insurance companies have exempted coronavirus since mid-January. For those that have coverage, payouts will require a force majeure event to trigger coverage.

A force majeure event occurs when unforeseeable circumstances, such as a natural catastrophe, prevents parties from fulfilling their contractual duties. Last month, the Chinese government issued over 3,000 force majeure certificates to protect businesses. While China has made considerable progress in fighting Coronavirus outbreaks, its ripple effects on the global stage are still unfolding.

Since late January, the Chinese government has implemented lockdowns and quarantines that have forced companies to shut stores and factories in China. As a result, suppliers are not fulfilling contracts, and are therefore threating businesses—small and large—all over the world.

We will be seeing many assertions of force majeure in the coming weeks and months in response to the delay of deliveries of goods and services, travel restrictions, and cancellations. Businesses should take proactive steps now to evaluate the impact a global pandemic could have on their operations and plan accordingly to potentially mitigate or avoid disruption in the near future.

Aliant’s corporate lawyers have drafted thousands of contractual agreements, and most incorporate a force majeure clause. It is somewhat rare to see these clauses invoked but it has happened in the past and we have experience in helping our clients protect their interests in these trying circumstances. Please call us if you have questions regarding the force majeure clauses in your contractual agreements.