As the world bands together to slow the spread of the COVID-19, large gatherings such as sporting events have been canceled in favor of practicing distancing practices such as self-isolating indoors. In times like these where we shift away from real life, esports and gaming have the potential to grow. For example, shortly after several states began to promote or require social distancing, CS: GO reached 1 million concurrent players for the first time ever.
However, esports has experienced its cancellations as well. At the risk of great financial loss, live events must decide whether they must cancel to prevent the spread of COVID-19. Though some events, like Flashpoint, have had the option to continue their matches online, CEO: Dreamland had to continue to host the event because canceling the event would bankrupt the organizer unless a contract’s “force majeure clause” was triggered. These clauses are triggered when a force majeure event occurs, as specified in a contract itself.
The difficulties that event organizers have faced in the wake of COVID-19 have reinforced the need of the following:
Narrowly Drafted Contracts
Contractual parties are excused from performing under an agreement when the failure is due to “force majeure.” To avoid conflicts or confusion when enforcing a force majeure clause, it is imperative that triggering events are narrowly drafted and clearly defined. If an event is not included in the clause and a party tries to rely on a catch-all force majeure clause (e.g., “other events beyond a party’s reasonable control), a court will consider whether the triggering event was foreseeable.
For illustration, a non-exhaustive list of “force majeure” events can include acts of God, strikes, lockouts or industrial disturbances, civil disturbances, arrests and restraints, interruptions by government or court orders, present and future valid order of any regulatory body having proper jurisdiction, acts of the public enemy (think terrorism, not the rap group), zombie apocalypse, wars, riots, insurrections, inability to secure labor or inability to secure materials, including the inability to secure materials because of allocations promulgated by authorized governmental agencies, epidemics, pandemics, fires, and explosions. Terms included in force majeure clauses may be accompanied by their qualifying definitions. If an event does not meet this definition, it may not trigger the clause. Alongside defining which events trigger force majeure clauses, obligations under a force majeure event for both contracting parties should be specified as well.
In short, force majeure clauses should include (1) specific categories of triggering events; (2) the extent and duration of an excluding event; and (3) the type of notice either party must give to be excluded from performance.
The Need for Insurance
A prudent practice to compensate for force majeure specificity is retaining insurance policies that cover the losses resulting from event cancellation. Depending on how they are structured, these policies can allow parties to potentially recover on business interruptions and related financial losses such as hotel attrition fees. However, even then, determining coverage is a granular process.
Business Interruption Coverage
Business interruption policies, as the name suggests, can cover losses of slowed or shut down businesses. Recovery under conventional business interruption insurance requires showing loss due to physical damage or loss caused by a trigging event specified in the policy. Depending on the policy, a loss can include the inability to use a venue or a loss of access. In particular, loss of access may be triggered by the act of a civil authority.
Force Majeure Insurance
Though they come at a high premium, force majeure insurance policies can cover financial consequences due to changes in federal or state statutes, ordinances, codes, directive, rule, regulation, or orders. These policies appear in many different forms like project completion, performance coverage, delayed competition, or event cancellation insurance. Event cancellation insurance is a growing insurance trend available to clients and venues to protect their bottom lines and protect them from wholly absorbing losses caused by contractually specified triggering events. As force majeure is unforeseeable, insurance companies require policyholders to purchase event cancellation insurance well in advance of their event.
As with all contracts, specificity is key. Before attempting to utilize a force majeure clause, be sure that the perceived triggering event is included in the respective agreement. Prematurely or falsely terminating a contract opens a party to liability for breach of contract claims. Having insurance is a best practice for businesses, but keep in mind that coverage for force majeure events is a safeguard that does not automatically act as a catch-all for any incident – making sure your company complies with the policy is essential.
(This post was submitted by Patrick Hankins, a 3L at Marquette University Law School and intern for Quiles Law)
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