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COVID-19: Business Interruption Insurance Coverage and Force Majeure Clauses

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By: Stephen Zaharias, William Reddington, Pierre Chabot, and Kathleen Peahl

April 20, 2020

The COVID-19 public health emergency has ravaged the United States economy and has caused major disruptions for businesses, large and small, throughout the country and here in New Hampshire. Many business owners are trying to recoup the massive losses that have been caused by partial or total government shutdowns, quarantines, and the like. In addition, the abrupt shift in our national economy has made it very difficult for companies to comply with contractual obligations that predate the pandemic and the economic harms it has wrought. This publication will examine two of the most-asked-about forms of relief that organizations may be able to avail themselves of, namely business interruption insurance and contractual defenses related to the concept of “force majeure,” or “acts of God.” This publication will try to explain these concepts in general terms, but it is no substitute for legal advice; please talk to your lawyer if you are in a situation where you must try to take advantage of either of these.

Business Interruption Insurance

Business interruption insurance is becoming a hot topic in the news, in politics, and in courtrooms as many businesses are seeking relief under their policies for lost income due to the COVID-19 public health emergency. For example, some businesses, including restaurants, have filed suit to attempt to force their insurers to cover their business losses during the time that they have been ordered to close by civil authorities due to the coronavirus.[1] Litigation over business interruption insurance policies in the context of the COVID-19 crisis will likely continue and even increase in the future, especially given that President Trump has started to weigh in on the matter. Recently, President Trump stated that unless a business interruption insurance policy specifically excludes pandemics, the insurer should provide coverage.[2] His comments were immediately met with pushback from the insurance industry and lawmakers concerned with retroactively rewriting insurance policies and placing risk on insurers for which they had not calculated or priced.[3] Thus, this issue will likely continue to garner attention in the upcoming weeks and months, and it is a topic that your business may want to explore. 

Business interruption (or business income coverage) insurance typically covers some kinds of losses in the event of a business slowdown or temporary suspension of normal operations of a business. Generally, this insurance helps replace lost income and can cover certain operating expenses (such as payroll costs) if business is halted for some reason, such as due to a fire, storm or other natural disaster. Such insurance may require physical damage to property or real estate before there is coverage.[4]

However, each policy will have unique terms and conditions. Thus, it is vital that a business review its insurance policies to determine whether it has this type of insurance and to determine exactly what it covers and what it excludes. Such coverage can typically be found as a separate rider, or perhaps even included in a commercial general liability policy.[5]

If an entity has business interruption insurance, then a thorough review of the specific language of the policy will be necessary to determine whether any lost business and income resulting from the COVID-19 pandemic (and the affiliated governmental orders that have shut down non-essential businesses and ordered people to stay at home) may be covered. For example, the policy may explicitly state that it covers business losses resulting from an epidemic, pandemic, or communicable disease. The policy might also state that it covers business losses resulting from government-issued closures. There could also be rather general language pertaining to covered risks that could be broad enough to apply to the current crisis we are facing. If so, then your policy may cover COVID-19 related losses.[6]   

When there is ambiguous language in an insurance policy such that there are multiple reasonable interpretations concerning coverage, the ambiguity will be construed against the insurer under New Hampshire law.[7] That said, if the policy language is clear, a court will not “perform amazing feats of linguistic gymnastics to find a purported ambiguity simply to construe the policy against the insurer and create coverage where it is clear that none was intended.”[8] Nonetheless, the rule about construing ambiguous provisions against the insurer could benefit businesses during this crisis, particularly if the insurance policy at issue does not explicitly cover epidemics, pandemics, or the like.   

Even if a business interruption policy arguably provides coverage for losses during the COVID-19 crisis, there could be certain conditions or exclusions in your policy that nonetheless bar coverage, thus highlighting the importance of thoroughly reviewing your particular policy. For example, as noted above, it is typical for such policies to require that the business interruption result from a physical loss, a requirement that may be difficult to overcome during these times when there is generally no physical damage to businesses, but rather only a loss of revenue. If you confront a decline in revenue because people have a general fear of becoming infected with coronavirus while out in public, that would likely not qualify as a physical loss triggering coverage; however, if your business was say, a restaurant, and it became contaminated by someone with COVID-19, there could arguably be a physical loss resulting from the virus (thereby triggering coverage) at least for the period of time necessary to disinfect the premises.[9]

It is important to carefully review the specific language of your policy, and the facts and circumstances surrounding your specific business, to evaluate whether COVID-19-related business losses could be covered by your policy. You should consult with counsel if you have questions.   

Force Majeure Clauses and Related Common-Law Defenses to Contractual Performance

A force majeure clause is a contractual provision that excuses one party’s (or both parties’) performance obligations under a contract when events or other circumstances arise beyond either parties’ control that make performance of the contract impossible or impractical.[10]  Not every contract includes a force majeure clause. Additionally, each force majeure clause is unique, but, generally, they enumerate specific events that will excuse performance (such as floods, fires, earthquakes, hurricanes, explosions, war, acts of terrorism, strikes and labor disputes) and may also include a catch-all provision (such as “acts of God”).

If a contract contains a force majeure clause, then it is certainly possible that the clause could be triggered by the COVID-19 public health emergency, excusing a party’s performance during these times. However, the particular language of the clause and the factual circumstances at issue would need to be analyzed carefully. If the clause explicitly lists epidemics or pandemics as a reason to excuse performance, the COVID-19 crisis would almost surely qualify, especially given that the World Health Organization declared COVID-19 a pandemic and the United States government has declared the outbreak a national emergency.[11]

If the clause does not specifically refer to epidemics or pandemics, it could still contain other applicable language. For example, the clause might specifically refer to certain governmental actions as force majeure events, such as government-issued closures of businesses, in which case the recent stay-at-home orders and orders shutting down non-essential businesses issued by state governors – like those from Governor Sununu in New Hampshire – could suffice. Other applicable language may include “outbreak of communicable disease,” “public health emergency,” or some variation thereof. If so, then it is possible that the coronavirus crisis could qualify as a force majeure event, thereby excusing performance.

New Hampshire’s Supreme Court has never ruled on the question of whether force majeure clauses should be interpreted broadly or narrowly. However, New Hampshire courts generally interpret contract language according to its plain language and “reasonable meaning considering the circumstances and the context in which the agreement was negotiated, and reading the document as a whole.”[12] Thus, although it would be beneficial to have an explicit force majeure clause that clearly covers the pandemic at issue, so long as a sufficient phrase or word is included in the clause that can be reasonably read to include the COVID-19 crisis, that should be adequate. 

If a force majeure clause does not enumerate pandemics or other specific events that could be reasonably construed to include the coronavirus crisis, it is still possible that the clause could be triggered due to recent events via a broad catch-all phrase in the force majeure clause, such as “act of God” or other similar phrase. An “act of God” is typically construed as an extraordinary circumstance – something beyond the control of the parties – that renders performance of the contractual obligation impossible.[13] Typically, an “act of God” is thought of as something like a storm that destroys a business or the subject of the contract, thereby making it impossible to perform, but it can be construed more broadly than that.[14] It is unclear  whether a New Hampshire court would construe the COVID-19 pandemic as an “act of God” for purposes of invoking a force majeure clause, but it is possible.

Also note that there may be limitations to the application of a force majeure clause due to certain provisions of the CARES Act. For example, the CARES Act provides that educational institutions that receive funds under the Education Stabilization Fund, “shall, to the greatest extent practicable, continue to pay its employees and contractors during the period of any disruptions or closures related to coronavirus.”[15] These and other similar restrictions on certain organizations that receive funding via the CARES Act (whether local governments, nonprofits, public school systems, etc.) may inhibit their ability to excuse performance, despite the existence of a force majeure clause. Thus, as always, consult with counsel about your particular situation for guidance.  

Even if a contract does not contain a force majeure clause or if that clause cannot reasonably be read to cover the COVID-19 crisis, businesses may still be able to plead certain common law defenses to potentially excuse performance of contracts during this time. For example, the doctrines of impossibility, frustration of purpose (or commercial frustration), and efficient breach could possibly be invoked by a business during these times. 

In New Hampshire, the doctrine of impossibility of performance excuses contractual performance only when there is a complete and permanent impossibility.[16] Under this doctrine, the mere fact that performance would lose value to one party is not grounds for claiming the doctrine.[17]

Applied to today’s coronavirus crisis, it is certainly possible that performance could be excused under the impossibility doctrine, depending upon the circumstances. For example, due to the Governor’s stay-at-home orders, contractual performance in certain scenarios may be impossible to complete (absent illegally violating a government order). However, it is important to note the distinction between performance that has become simply more difficult and performance that has truly become impossible. The impossibility doctrine only excuses the latter.

New Hampshire also recognizes the doctrine of commercial frustration, which excuses performance under a contract when, even if performance is possible, “supervening events have essentially destroyed the purpose for which the contract was made.”[18] “Under the doctrine, a contract is to be considered subject to the implied condition that the parties shall be excused in case, before breach, the state of things constituting the fundamental basis of the contract ceases to exist without default of either of the parties.”[19] An example of such a scenario might be if a party signed a commercial lease to rent a building, but before moving in, a tornado destroyed the building; under these circumstances, it would still be possible for the tenant to pay the landlord rent pursuant to the lease, but the tenant would likely be excused from that obligation because the underlying basis of the contract (the existence of the building) ceased to exist.  It is important to note the doctrine does not excuse performance because the deal lost value on account of a supervening event, nor does it allow a party to simply withdraw from a poor bargain.[20]

Notably, for the commercial frustration doctrine to apply, the supervening event must occur before the party seeking to excuse performance otherwise breaches the contract.[21] Thus, the party claiming the benefit of the doctrine cannot “already be in breach of contract at the time of the events giving rise to the application of the doctrine.”[22]

Accordingly, given the rather broad contours of the commercial frustration doctrine, it is possible that such could be invoked to excuse performance during the COVID-19 outbreak. However, this is a fact-intensive inquiry that will likely require analysis from counsel. 

Another concept that could apply during these difficult times is that of an efficient breach. “An efficient breach of contract occurs when a party breaches a contract, recognizing that even after it pays damages for its breach, it will still be in a better position than as if it had performed the contract.”[23] Stated differently, an efficient breach occurs when it is economically beneficial to breach the contract and pay damages resulting from the breach, rather than continue performance under the contract.

Given the COVID-19 crisis, some businesses may be in position where an efficient breach benefits them, and so this concept is potentially worth exploring. However, an efficient breach should only be used as a last resort, and only if the decision is economically beneficial and no other options (including those discussed above) exist. Thus, a party contemplating an efficient breach should give careful consideration before taking such action and should seek legal advice. This is especially so where there could be several pitfalls or other unforeseen consequences that could occur, should an organization seek to breach a contract or otherwise seek to excuse its performance under a contract. 

Seek Counsel

            This publication is meant to serve as a summary of some opportunities for relief that businesses and other organizations may have with respect to business interruption insurance and excused contract performance due to the COVID-19 public health emergency. This publication does not constitute a complete list of all potential legal options your business or organization may have, as each case, insurance policy, and contract is unique. If you have questions regarding your particular situation, the attorneys at Wadleigh, Starr & Peters, PLLC are here to assist you.


[1] See https://www.insurancejournal.com/news/national/2020/03/19/561638.htm.

[2] See https://www.insurancejournal.com/news/national/2020/04/14/564744.htm.

[3] Id.

[4] See https://www.nh.gov/insurance/consumers/faq-business-interruption-insurance-coronavirus.htm.

[5] See https://www.americanactionforum.org/insight/coronavirus-and-business-interruption-insurance-coverage/.

[6] Note, however, that the less specific your policy is about covering pandemics and/or government issued closures, the less likely it is that an insurance company will agree to provide coverage for business losses resulting from the coronavirus crisis. 

[7] See, e.g., Colony Ins. Co. v. Dover Indoor Climbing Gym, 158 N.H. 628, 630 (2009).

[8] Id. (quotation omitted). 

[9] See https://www.nh.gov/insurance/consumers/faq-business-interruption-insurance-coronavirus.htm

[10] See Black’s Law Dictionary (11th ed. 2019) (defining force majeure clauses).

[11] See https://www.whitehouse.gov/presidential-actions/proclamation-declaring-national-emergency-concerning-novel-coronavirus-disease-covid-19-outbreak/.

[12] Lawyers Title Ins. Corp. v. Groff, 148 N.H. 333, 336-37 (2002).

[13] See e.g., Blake v. Niles, 13 N.H. 459, 461 (1843); Goddard v. Berlin Mills Co., 82 N.H. 225, 227 (1926).

[14] See Black’s Law Dictionary (11th ed. 2019) (defining “act of God”). 

[15] Emergency Appropriations for Coronavirus Health Response and Agency Operations, Education Stabilization Fund, at p. 765 of the CARES Act.

[16] Perry v. Champlain Oil Co., 99 N.H. 451, 453 (1955).

[17] Id.

[18] Gen. Linen Servs., Inc. v. Smirnioudis, 153 N.H. 441, 443 (2006) (quotation omitted).

[19] Id. (quotation and emphasis omitted). 

[20] Perry v. Champlain Oil Co., 101 N.H. 97, 99 (1957).

[21] Gen. Linen Servs., Inc., 153 N.H. at 443.  

[22] Id. (quotation omitted).

[23] Joseph Finn Co., Inc. v Precision Products Corp, No. 07-C-0273, 2010 WL 5559091 (N.H. Super. Ct. Apr. 08, 2010).