Share this on FacebookApril 23rd, 2020 | Published by NEW Construction Alliance
The Build Out caught up with Paul Kaster, JD, MBA, director of compliance and risk management for McClone Insurance, about a very hot topic as this Coronavirus crisis continues: the role insurance plays in mitigating losses over project delays and cancellations.
First, we start with a very important disclaimer: to know if your specific situation qualifies for force majeure relief, please consult with your legal and insurance professionals—every contract must be treated on an individual basis.
Kaster begins with step one: “Prior to a claim of force majeure, the company should look to the statement of work (SOW) section of the agreement. The SOW is intended to provide a clear, complete explanation of the work to be performed and the terms for deliverables. This information will guide the process of discerning if relief is available.”
Force majeure clauses, commonly referred to as Acts of God provisions, relate to events outside human control, like flash floods, earthquakes, or other natural disasters.
Such events—such as flash floods, earthquakes and/or other natural disasters—occur outside the reasonable control of a party and which prevents that party from performing its obligations under a contract. A party’s ability to claim relief for a force majeure event therefore depends upon the terms of the contract, and the force majeure provision in particular.
A party affected by such an event of force majeure will typically be relieved from performing the obligation affected for the duration and to the extent affected and may be entitled to compensation.
The “test” for force majeure usually requires the satisfaction of three distinct criteria: (1) the event must be beyond the reasonable control of the affected party; (2) the affected party’s ability to perform its obligations under the contract must have been prevented, impeded or hindered by the event; and (3) the affected party must have taken all reasonable steps to seek to avoid or mitigate the event or its consequences.
“It seems fairly clear that a pandemic such as COVID-19 would qualify as force majeure under such a provision,” observed Kaster. “It is important to bear in mind however that the relevant force majeure event need not be COVID-19 itself. It is the consequences of COVID-19 and its impact upon the ability of the affected party to fulfil its contractual obligations that will be relevant.”
For more information you can contact McClone here and you can drop note to Paul Kaster at Paul.Kaster@mcclone.com.