Amid the current global crisis, businesses are reviewing and reinventing themselves at breakneck speed. With such change and ongoing uncertainty, the need for a detailed force majeure has never been more critical. A force majeure clause relieves a party from performing its contractual commitments in response to an event outside the reasonable control of the affected party. Unfortunately, however, this fundamental clause is often omitted or overlooked in contracts.
There have been many questions asked around the implications of COVID-19 on insurance programs and contractual obligations. Holding Redlick Lawyers has tabled comprehensive advice around force majeure through this time, with three guiding questions to help you identify and reduce your risks as follows:
Is there a clearly defined force majeure clause or similar hardship clause in the contract?
- The clause should extend from the standard wording for acts beyond the reasonable control of the parties involved to include specific events. Broad terms such as “Acts of God” can be interpreted differently by parties and should be defined to avoid differences of opinion. Clear obligations should be set out for both parties in the event the clause becomes operative.
Is the clause drafted widely enough to cover events such as COVID-19?
- Depending on how your contract has been worded, some existing contacts with force majeure clauses may have a definition that the COVID-19 event can fall within, however a review should be undertaken.
What other uninsured or uninsurable exposures is the business accepting by entering the contract?
- While your legal representative is crucial in the review and structure of contracts being entered, your insurance advisor also plays an important role in reviewing the indemnity clauses in a contract prior to signing. This allows you more clarity in the exposures your business is accepting or the opportunity to adjust your insurance program where possible to transfer the risk to the insurers.
We’re With You All The Way
We’re pleased to support businesses in managing risks and building overall resilience. As always, we recommend close consultation with your broker to ensure your cover is truly fit for purpose. To learn how Honan can further support your business, please contact your broker, or reach out directly at any time:
Emily Tonkin – Client Manager, Corporate Insurance & Risk Solutions
+61 499 799 180