- Review all contracts to determine whether provisions excuse performance based on a pandemic such as COVID-19.
- Review all applicable insurance policies to see if there is cancellation coverage for a pandemic such as COVID-19
- Engage in open dialogue early and often.
- Check your ticketing terms and conditions.
- If you don’t have anything in writing – get something agreed to immediately.
On March 15th, 2020, Bars and Restaurants were ordered closed in at least 5 states – including Illinois and Ohio. In other parts of the country, similar restrictions have been put in place. The Federal Government has stopped short of a forced quarantine for the time being – but are advocating for aggressive social distancing. The World Health Organization has declared COVID-19 a global pandemic, and the White House has declared a State of Emergency. On Sunday, the CDC recommended that all gatherings over 50 people be cancelled for the next 8 weeks.
These unprecedented events have left many businesses wondering whether – and how – they should best address meeting and events in the face of this pandemic. The first step is to take a look at your businesses contracts, your insurance policies and any and all communications you have had regarding upcoming events. This type of due diligence will give a business’ leaders the tools they need to make better informed decisions, and to try to manage the fallout from ticket holders, customers, contractors or stakeholders.
Coronavirus in Contracts
As with any complex event, there are often several contracts in place. Depending on the event, this may take the form of contracts for lodging, convention halls, audiovisual companies, entertainment, food and the like. It is vital to review all of these contracts to see how they deal with excusing performance in the event. These usually take the form of a “Force Majeure” provision – which translates to a Superior Force. These provision provide for an excuse to the performance under a contract due to unforeseeable circumstances that prevent a party from being able to meet its’ obligations. A typical Force Majeure provision looks something like this:
Force Majeure. In no event shall the parties be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the parties shall use reasonable efforts which are consistent with accepted practices to resume performance as soon as practicable under the circumstances.
However, it’s important to understand that the cancelling party will bear the burden of proving the applicability of a force majeure provision. This analysis requires a consideration into two prongs:
- Whether COVID-19 would qualify as an “unforeseen item” listed in the Force Majeure provision. Typically, provisions such as this will list out individual acts (such as acts of god, weather, fire, etc.) to refine the scope of the term; and
- If it does fit within the definition, if COVID-19 has impacted the ability to perform under the contract in such a way that it has rendered the contract impossible, illegal or otherwise commercially impracticable. The latter term is the most flexible, and business owners can find the most support by availing themselves to this argument with respect to COVID-19.
If a business or group is able to meet both of these prongs, they can fairly take the position that performance is excused. This often has the effect of negating cancellation fees or other consequential damages – such as minimum purchasing limits or liquidated damages. Of course, this can and will inevitably lead to disagreement – but the old adage that “some business is better than no business” is often enough to make parties to a contract forego conflict for a long term business relationship.
Also remember that if you would like to still proceed with an event, it is possible to negotiate the sharing of the risk of poor attendance with the venue, contractors or entertainers. Just because a Force Majeure may apply doesn’t necessarily mean it needs to be invoked. Parties to contracts have remarkable flexibility in dealing with these type of issues – but forthright and open communication is the key to avoiding misunderstandings and friction.
Coronavirus and Insurance Policies
After a review of all relevant contracts, it’s important to consider the way in which your insurance policies may deal with event cancellations or unforeseen scenarios such as COVID-19. While all insurance policies are different, many policies contain provisions for coverage for losses sustained due to the cancellation of a meeting or event, lower revenue due to poor attendance or widespread service interruptions. However, as with any insurance policy, it’s important to remember that the details are critical. Most policies contain exclusions – many of which exclude infectious or communicable diseases from coverage.
It’s vital that the company – or it’s legal team – review in detail all insurance policies in place to determine if the policy covers COVID-19 related disruptions. Depending on the policy, it’s possible that there is coverage for infectious disease disruptions – especially when the government has mandated the closer of wide swaths of the business sectors or otherwise declared a state of emergency.
Lastly, communication is key. Most events or businesses have hundreds, if not thousands, of affected stakeholders. Business should examine any and all communications to ensure that there has been adequate notification to all stakeholders – including employees, vendors and contractors. A company wide, prepared response is wise to ensure that communication is clear and concise. All public statements should be reviewed by a company’s leadership and legal team prior to being released. This is even more so when seeking to avail yourself to a Force Majeure excuse under the contract, as fair and reasonable notification can play a big role in ensuing litigation.
Ticketing Terms and Conditions
For those businesses that have sold tickets to an event, the decision to cancel or postpone an event can be particularly difficult. The entitlement to a refund is governed by both the terms and conditions of the ticket purchase, and consumer protection legislation. The first step is to thoroughly review the terms and conditions of the ticket to see what – if any – scenarios trigger a right to refund. While these terms and conditions are often between the ticketing agent and the consumer – it’s also important to note that often times the event organizer has agreed to those terms as well (whether explicitly or implicitly).
As a best practice, it is wise to permit consumers to either 1) provide a free exchange for a ticket to a rescheduled event or 2) offer a refund in the event that the customer can’t attend the new date. If the terms and conditions are written in a particularly one-sided way (i.e. an adhesion contract), business owners risk widespread invalidation of the terms and conditions and forced refund of all money paid. Compromise is almost always a cheaper alternative, and fosters better relationships with customers.
Dennis E. Sawan
Licensed in Ohio and Florida
Dennis P. Sawan
Licensed in Ohio and Georgia
Christopher A. Sawan
Licensed in Ohio and Michigan
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