There is no question that the coronavirus pandemic is an unprecedented event, and it’s understandably a very concerning time for businesses. With events and government guidance changing on a daily basis, it can be very difficult for businesses to know where they stand, but there are some issues to consider now which may provide you with some peace of mind if you are anxious about the potential risks posed to your business.
Businesses should review all of their existing contracts (with suppliers and customers) to see how these events may have been addressed in the contracts themselves. This is likely to differ significantly from contract to contract.
In some contracts, the pandemic may trigger a ‘force majeure’ clause, which can excuse one or both parties from performing their contractual obligations if they are prevented from doing so by events outside of their control. The scope of each individual ‘force majeure’ clause is different, depending on its wording and the specific list of events included (which may or may not include pandemics), so each contract would need to be reviewed and considered separately.
In other cases where a ‘force majeure’ clause is not applicable, the pandemic may ‘frustrate’ the contract. This is when a contract is discharged because an unforeseen event occurs after the contract is formed, which is outside the control of the parties and which effectively renders it impossible to perform the contract. This legal principle is, however, interpreted as narrowly as possible by the courts, and so is likely to depend heavily on the precise obligations set out in a contract, as well as the specific reasons why the contract allegedly cannot now be performed.
This is something that all business should be looking into as a matter of urgency. You will need to consider not only whether your business’ insurance policies cover losses caused by the pandemic, but also, for example, what notification requirements might apply in relation to potential claims. You will also need to consider what obligations you may be under to take reasonable steps to mitigate your losses and/or to consult with your insurer about any action you may want to take.
Many ‘standard’ business insurance policies might not necessarily cover losses arising from business interruptions caused by a pandemic. Losses relating to cancelling or postponing specific events may only be covered by additional events insurance. There is also the question of timing, as Covid-19 may be considered a ‘known event’ for insurance purposes from the date on which the W.H.O. officially classified it as a ‘pandemic’.
Care needs to be taken, as the Competition & Markets Authority has said it will take action in relation to any inflated pricing (or misleading claims) which attempts to take advantage of the pandemic.