Hurricane Sandy and Force Majeure for New Jersey Businesses

800px-Hurricane_Sandy_New_Jersey_Pier.jpgHurricane Sandy caused massive devastation across the eastern United States, destroying property, displacing people, and disrupting communications and transportation from Pennsylvania up to New England. New Jersey and New York were particularly hard-hit. Dozens of people lost their lives because of the storm in New Jersey, with even more fatalities in New York. Millions more lost electrical power and other services. Businesses that are trying to rebuild after the storm may face difficulties with insurers, who may contest claims for damages, and suppliers, who may have suffered their own losses. An often overlooked feature in many contracts is the force majeure clause, which businesses may be able to invoke to delay or excuse obligations they cannot fulfill. They should also be on guard, however, for attempts by others Behring Intern. v. Imperial Iranian Air Force, 475 F.Supp. 396, 401 (D.N.J. 1979). It typically refers to a “natural cause without the intervention of man.” Id. The Behring case involved a breach of contract claim between an American company and the Iranian government, with the Iranian government claiming that the unrest of the 1979 Iranian Revolution constituted force majeure excusing it from performance. The court found that this was clearly “within the control of human agencies” and therefore could not justify non-performance.

Natural disasters, including hurricanes, much more easily fit within the purview of force majeure, when it is invoked as a means of delaying or avoiding performing on a contract. The Third Circuit Court of Appeals held that a hurricane may meet the requirement of a force majeure clause in Gulf Oil Corp. v. FERC, 706 F.2d 444 (3rd Cir. 1983). In that case, Gulf Oil sought to excuse its non-performance on a contract due to various circumstances it claimed were beyond its control. The court used a hurricane as an example of an event truly beyond human control, but also stated that a party invoking force majeure would have to prove that the natural disaster directly caused the damage that prevented performance. Id. at 453.

The intervention of a natural disaster like a hurricane can also relieve a manufacturer or distributor of its duties under a warranty. A Pennsylvania federal court noted in In Re CertainTeed Corp. Roofing Shingle Products Liability Litigation that a hurricane could excuse performance under a settlement agreement for allegedly defective products, if an event like a hurricane, rather than the defect, caused the damage. Insurance companies may attempt to invoke exceptions like this to limit or avoid paying claims for damages.

Contracts may also limit the scope of duties excused by force majeure. A lease contract for an auto dealership contained a force majeure clause, but the clause contained an exception for rent payments. The auto dealership sought to be released from the lease agreement after Chrysler’s 2009 bankruptcy effectively terminated the dealership’s business operations. The New Jersey Appellate Division therefore held in 476 Grand, LLC v. Dodge of Englewood, Inc. that, while that event may have constituted force majeure, the lease contract specified that force majeure would not eliminate the obligation to pay rent, and it affirmed a judgment for over $250,000 in unpaid rent and costs.

The business attorneys at Samuel C. Berger, PC offer fixed-fee packages of legal services to businesses and entrepreneurs who want to do business in New York and northern New Jersey. To speak to a member of our skilled legal team, contact us today online or at (212) 380-8117.

More Blog Posts:

Protecting Your New York or New Jersey Business from Liability for Distracted Employees’ Car Crashes, New York & New Jersey Business Lawyer Blog, June 28, 2012
Pending New Jersey Legislation Addresses Lack of Health Insurance, New York & New Jersey Business Lawyer Blog, March 23, 2012
New Jersey Businesses Are Eligible for SBA Economic Injury Disaster Loans, New York & New Jersey Business Lawyer Blog, December 15, 2011
Photo credit: ‘Hurricane Sandy New Jersey Pier’ by Master Sgt. Mark C. Olsen/U.S. Air Force/New Jersey National Guard (Flickr) [CC-BY-2.0], via Wikimedia Commons.