The Effect of Covid-19 on Business Contracts

By: Arend J. Abel, Attorney

With much of the nation shut down during the Covid-19 pandemic, many business contracts may not be performed.  One of the questions that arises from that circumstance is whether non-performance will be considered a breach of contract, subjecting the non-performing party to an action for damages.  There are three areas to consider in analyzing that question:  1) Force Majeure; 2) Impossibilitiy; and 3) Impracticability.  Impracticability is confined to contracts for the sale of goods governed by the Uniform Commercial Code

Force Majeure

Force Majeure, a French term meaning “superior force,” is a doctrine that excuses contractual performance made impossible by events listed in a contractual force majeure clause.  As the Indiana Court of Appeals has observed “the scope and effect of a force majeure clause depends on the specific contract language, and not on any traditional definition of the term. Specialty Foods of Indiana, Inc. v. City of South Bend, 997 N.E.2d 23, 27 (Ind. Ct. App. 2013).  A typical force majeure clause may look something like the following:

If a party cannot perform the obligations of this agreement due to an act of God, legal prohibition, fire, flood, natural disasters, military operations, or any other circumstance not within the control of the party, then the party is excused from performing such obligations.

The key question to ask in considering whether a force majeure clause excused a party’s performance is whether the event causing the non-performance is one of the events listed in the clause.  If the language does not specifically include diseases or epidemics, a court may or may not find that general language describing “other circumstances not within the control of the party” covers the event.  The Court of Appeals decision in Specialty Foods suggests that the particular clause set out above would cover such an event.  However, even slight changes in language can affect the result.  For example, a clause that excuse a party from performing for “reasons outside the party’s control such as an act of God, legal prohibition, fire, flood, natural disasters or military operations” might not cover CoVid-19 because the “such as” language might be interpreted to require the unlisted events to be similar in kind to those listed.  See Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900, 902, 519 N.E.2d 295, 296 n.* (1987) (language that “other similar causes beyond the control of such party” did not cover an inability to perform due to an inability to obtain insurance coverage).

Impossibility

Under Indiana law, as well as the law of most States, impossibility of performance excuses contractual performance, even in the absence of a force majeure clause.  Wagler v. West Boggs Sewer District, 980 N.E.2d 363, 378 (Ind. Ct. App. 2012).  However, the party claiming the defense must  show that performance is “not merely difficult or relatively impossible, but absolutely impossible, owing to the act of God, the act of the law, or the loss or destruction of the subject-matter of the contract.” Id. (quoting Ross Clinic, Inc. v. Tabion, 419 N.E.2d 219, 223 (Ind.Ct.App.1981), which in turn quoted Krause v. Bd. of Trustees of Sch. Town of Crothersville, 162 Ind. 278, 283–284, 70 N.E. 264, 265 (1904)).

This may be difficult to meet in the case of Covid-19, though perhaps a business ordered to close by the authorities could meet the requirements, depending on the specific contract involved.

The Indiana Court of Appeals has considered whether an epidemic excuses contractual performance on two occasions.  Gregg School Township v. Hinshaw, 76 Ind. App. 503, 132 N.E. 586, 587 (1921); Gear v. Gray, 10 Ind. App. 428, 37 N.E. 1059 (1894).  In Gregg, the Court held that the fact that a school was ordered closed due to the 1918 flu pandemic meant that the School board did not have to pay teachers during the time the school was closed.  In Gear, the Court reached the opposite conclusion when a school was closed due to a local diptheria epidemic.  Explaining the different results, the Court in Gregg noted that in Gear, the local health authorities who ordered the school closed did not have express statutory authority to close the schools.  In Gregg, the Court noted, there was such authority, and the contract had to be read as incorporating such authority, which rendered performance of the contract impossible.

It is unclear how Gregg will affect contracts of businesses that have been shut down in the latest pandemic.  If the contract is one that literally cannot be performed when the business is shut down (such as a contract for an entertainer to appear at a venue), then most likely a court would excuse performance on grounds of impossibility.  However, contracts by which a business purchases goods and services may be technically possible to perform, even if pointless.  Courts may hold that performance is not excused in such cases.

Impracticability

Where contracts are for the sale of goods, the impracticability provisions of the Uniform Commercial Code could come into play.  Section 2-615(a) of the U.C.C. provides:

Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

Significantly, the provision excuses a failure to deliver goods by a seller but offers no relief to buyers.  In addition, to be excused from performance, the seller must comply with paragraphs (b) and (c) of the statute.  If the situation only partially affects the seller’s ability to deliver goods, paragraph (b) requires the seller to allocate production and deliveries among customers in a manner that is “fair and reasonable.”  Paragraph (c) requires the seller to provide the buyer with notice that there will be a non-delivery or delay, and if an allocation is required under paragraph (b) what the buyer’s allocation will be.

Impracticability is a lesser standard than impossibility, so sellers may have the ability to avoid contracts that become burdensome to perform, though not strictly impossible.

Regardless of whether Force Majeure, impossibility, or impracticability is invoked, the result will depend on particular facts and circumstances affecting contract performance.  The issues will also likely depend on contractual language that covers, or can be read to cover, the specific events in question. I have represented businesses in a variety of litigation for over 30 years. If you are in a contract dispute as a result of this pandemic, contact me to discuss how I can help your business and protect your rights.

Nursing Homes in Indiana and Across the Country are Overwhelmed by COVID-19

By: Amina A. Young, Attorney

On Friday, April 10, 2020, the Indiana State Department of Health (ISDH) Commissioner Kristina Box confirmed that twenty-four residents at Bethany Pointe Health Campus in Anderson, Indiana had passed away.  Sixteen of the residents who died had tested positive for COVID-19.  The other eight showed similar symptoms.  Bethany Pointe, owned by Trilogy Health Services, LLC, is one of many nursing homes across the country facing coronavirus outbreaks.

Health care experts and officials have long stated that the elderly are likely one of the most vulnerable populations to the coronavirus due to compromised immune systems and/or underlying conditions.

On March 21, 2020, the Centers for Disease Control and Prevention (CDC) issued guidance for nursing homes and other long-term care facilities to take steps to assess and improve their preparedness for responding to COVID-19.  The CDC noted nursing homes are among the highest at risk of being affected by COVID-19 because of their “congregate nature and the residents served (e.g., older adults often with underlying chronic medical conditions).”  In its guidance, the CDC recommended rapid implementation of active screening of residents and health care personnel for fever and respiratory symptoms, restricting all visitation except for certain compassionate care situations, such as end of life situations, and implementing sick leave policies and other occupational health considerations.

The CDC also released a Coronavirus Disease 2019 (COVID-19) Preparedness Checklist for Nursing Homes and other Long-Term Care Settings, which identifies key areas that long-term care facilities should consider in their COVID-19 planning.  The CDC’s checklist includes a comprehensive communication plan for facilities to ensure that they are communicating with staff, residents, and their families regarding the status and impact of COVID-19 in the facility.

On its website, Trilogy Health Services declares, in responding to the COVID-19 virus, it is “following guidance from the CDC, CMS, and state officials” and is “taking extra precautions over the coming weeks and months to ensure that [its] campuses remain guarded against the spread of viral infections.”

However, a chief complaint of Bethany Pointe residents’ families is that they aren’t being kept informed on the status of the facility’s overall impact from COVID-19, or with regard to their loved one in particular.  Many families of Bethany Pointe residents state they were not even so much as notified when the first known cases were confirmed in the nursing home, and before they knew it or had a chance to respond to the situation, their loved one was showing symptoms of COVID-19.

Residents in nursing homes are members of our community and should be given the same respect and access to resources that the rest of the community has access to during a crisis.  Families of nursing home residents should be kept timely informed on the overall status of the facility’s impact to COVID-19, and on their loved one’s health.

If your loved one is residing in a nursing home or long-term care facility, and you are concerned about the facility’s handling of its response to COVID-19, one action you can take is to file a complaint or report an incident to the ISDH.  Complaint forms can be found on the Indiana State Department of Health’s website.

COVID-19 presents unchartered territory.  This article is not legal advice.  To discuss the specific facts of your situation, contact us.

How Might the COVID-19 Outbreak Affect Your Family Law Case?

By: Nicole Makris, Attorney

The coronavirus (COVID-19) has had a significant effect on daily life as we know it. With school closures, travel advisories, and the economic repercussions of the virus, the COVID-19 outbreak presents numerous possible implications for family law cases. Your family law matter could potentially be impacted in the following areas:

Parenting Time

Parents should strive in these unprecedented times to cooperate with one another for the child’s wellbeing. Efforts should be made to maintain the normal parenting time schedule to the extent possible. The Executive Order (“Directive for Hoosiers to Stay at Home”) issued on March 23, 2020 includes that travel required to transport children pursuant to a custody agreement falls within the category of “Essential Travel”. Parents should communicate with one another regarding any changes to the parenting time schedule and should be flexible with make-up time. While flexibility is important, any changes to the parenting time schedule and the reasons for the change should be documented in writing. Expectations regarding the child’s E-learning should be clearly communicated between parents, as should any changes in the health of the child or other household family members in each parent’s respective households. If a parent opts to self-quarantine or is otherwise unable to exercise parenting time, the other parent should facilitate FaceTime and phone calls with the child.

Child Support

If you have encountered a significant decrease in hours, a loss of employment, or other financial hardship, you should consult with a family law attorney to review your current child support order. It is crucial to be proactive when seeking a modification of child support because the modification can only be retroactive to the date that the request to modify child support is filed (except in very specific circumstances, such as when the child has moved in with the parent who is paying child support).

Prenuptial Agreements

If you have executed a prenuptial agreement but have had to delay your wedding, you should ensure that the agreement is up to date by the time that your wedding is rescheduled, including updated lists of each party’s non-marital assets and debts and their values and balances, as well as the new date of the wedding.

Property Issues in Dissolutions of Marriage

If your dissolution of marriage is pending, you should obtain updated valuations of marital property before your case is finalized. Changes in the values of marital assets such as retirement accounts should be documented, and verified financial declarations should be updated.

Marital Settlement Agreements

It is possible that the effects of the COVID-19 outbreak could cause you to experience financial hardship to the extent that it is not possible for you to meet your obligations pursuant to your marital settlement agreement. For example, if you are unable to perform according to the property settlement or spousal maintenance provisions of your agreement due to the current events, you should consult with a family law attorney to review your settlement agreement and discuss your options in seeking to modify the agreement.

Upcoming Hearings

Precautionary court closures may cause continuances of upcoming hearings. Mediations are also likely to be either rescheduled or conducted by video conference.

Given the uncharted territory that coronavirus (COVID-19) presents, these are general topics to consider. This article is not legal advice. For specific questions on how the COVID-19 outbreak may affect your case, consult with an experienced family law attorney to discuss the facts of your situation.