While local attorneys are getting bombarded with client inquiries about force majeure and business interruption insurance, they caution that the highly desired sources of relief are far more complex than many realize—and some businesses might not be able to claim either, depending on their contracts.
Force majeure, typically a boilerplate provision included in commercial lease agreements, applies to an unforeseen or unavoidable event that prevents a party, like a tenant, from being able to uphold a contract or obligation, like a lease. Though often glossed over, this so-called “act of God” provision is becoming especially critical at a time when tenants are telling their landlords they won’t be able to pay rent due to the viral outbreak.
But whether landlords will recognize the disruption as an act of God remains to be seen. Because there is no universal standard definition, clauses can vary among contracts. Further complicating matters is that most provisions aren’t entirely clear, and they don’t typically list pandemics as excusable force majeure events.
“For tenants to say, ‘I’m just going to claim force majeure’—no, you have to look at your lease and the language and see if this event is covered,” says local attorney Charles Landry, who’s sifted through 50 force majeure provisions over the past week. “If you don’t have it in your document, you may not be able to claim it.”
Moreover, says Landry, some landlords will argue that the event is a result of unauthorized police power, meaning that if a tenant closes its doors, it cannot legitimately be considered force majeure. Others, meanwhile, will counter that the government does have an all-powerful kind of authority in times like these, making the event a legitimate force majeure.
Baton Rouge businesses are also keeping a watchful eye over business interruption insurance policies, usually outlined in coverage plans with commercial insurers.
Attorney Darrel Papillion says he’s expecting calls from a variety of businesses over this issue, ranging from restaurants to doctors who perform elective procedures.
Any ambiguities in a policy’s language are typically construed against the insurance company that drafted it, Papillion says. But that becomes complicated in some instances, such as when the provision is tied to the destruction of property (as it is in many plans), or if a business were to voluntarily suspend their activities.
“It always goes back to the language in the policy,” Papillion says. “Insurance companies will likely try to fight this, but, in all fairness, I don’t know that anyone envisioned a pandemic when writing policy.”
Attorneys expect to keep busy over the next few months. Though he represents mostly industrial plants, Taylor Porter attorney Jess Frey says he’s monitoring a pending case in New Orleans regarding a bar that closed because of the pandemic, which is trying to claim business interruption insurance by citing damages.
“The outcome of that case could determine how much litigation we’re going to see,” Frey says, “but when stock prices go down at the rate they’re going, litigation generally goes up.”
Read more stories on how Baton Rouge businesses are responding to the coronavirus outbreak.