Coronavirus and Its Legal Impact on Businesses

Coronavirus and Its Legal Impact on Businesses

The COVID-19 pandemic is an unprecedented global event that none of us could have imagined just a month or two ago. The state of California has never ordered a complete lockdown to combat a public health emergency. Many other states have followed suit, and the federal government also has implemented social distancing guidelines that are likely to be in place for the foreseeable future.

If you are a California business owner, there is no doubt that your business and your personal life has been impacted in some way by the coronavirus pandemic. Restaurants, bars, nightclubs, schools, and all other businesses and organizations that facilitate the gathering of people have been shut down. This could mean the inability to do business, difficulty paying rent or vendors, the lack of need for supplies from various vendors, and a variety of other problems.

If your business has contractual obligations, you may have unexpectedly found that you are unable to perform such obligations because of the coronavirus outbreak. The impact of COVD-19 on businesses is resulting in contract disputes across the state.

Does the Force Majeure Doctrine Apply to Nonperformance of Contracts related to the Coronavirus?

Force majeure is a legal doctrine that protects parties from events that would be considered outside of a normal business risk. If a contract has a force majeure clause that specifies unusual risks that would excuse a party’s nonperformance, then that clause can be invoked when an event occurs that is covered within the contract.

The problem is that many contracts do not have a specific force majeure clause. If they do, it may cover events like earthquakes, fires, and mudslides, but it may be silent on a major viral outbreak. So, what can a business do if its contract does not specifically cover an event like the COVID-19 pandemic?

There are other legal doctrines that are separate but related to force majeure that could possibly excuse a party’s nonperformance. For example, California courts have held that an “impossibility” or “frustration of purpose” defense could be valid if there is an event that is:

  • Unforeseeable
  • Outside of the parties’ control
  • Renders performance of the contract impossible or impractical

It is very important to note that, because the COVD-19 outbreak is an unprecedented event, we do not yet know how the courts will apply force majeure and similar doctrines to contract disputes that result from this pandemic. Every business is unique, every contract is different, and there is specific language within each contract that needs to be examined carefully.

If you are facing a contract dispute that is related to COVID-19, it is best to have an experienced business contract attorney review your situation. At Garmo & Garmo, we can analyze your contract and advise you on the best legal strategy to deal with a nonperformance issue caused by the current pandemic.

The most desired result for all parties involved with these unfortunate contractual disputes is compromise, without the need for litigation. We all know that this is an unforeseen circumstance, and we can help you negotiate with the other party (or parties) to reach an amicable resolution. However, if contract litigation is unavoidable, we are ready and able to advocate aggressively for your rights and interests in court.

Reach out to us today at (619) 441-2500 or message us online for a free consultation. In keeping with California and federal guidelines, we are currently holding virtual consultations in compliance with the state’s stay at home order.

Does your Business Interruption Insurance cover the Coronavirus Pandemic?

Another area where contract language will be important is with a business’ commercial insurance policy. Most businesses have business interruption or business disruption insurance, either as a standalone policy or as part of a more comprehensive insurance package. Your policy may include coverage for a business slowdown or shutdown due to various events, such as earthquakes, fires, floods, and other “acts of God.” However, many policies exclude coverage for viral pandemics or do not include language that addresses this event.

Every policy is unique, and the language of each must be reviewed carefully to determine if the business has coverage for losses due to the COVID-19 pandemic. Your insurer may be obligated to cover you for losses caused by the pandemic, but it is also important to document and present your claim properly in order to ensure that it gets paid.

If you have a California business insurance policy and you are unsure if you are covered losses related to COVID-19, Garmo & Garmo can answer any questions you may have and provide a brief insurance policy review at no charge. Give us a call or fill out our online contact form to begin the conversation. We are all in this together, and we are here to help you during this difficult time.