What is an Act of God Clause?
How do you legally define it?
What are the essential elements you should know!
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What Is An Act of God Clause
An “Act of God” clause or force majeure clause is a contractual provision where the parties attempt to limit their liability in the event of nonperformance of the contract or injuries caused as a result of an event defined to be outside the control of the parties.
In other words, the main objective of an Act of God clause is to limit a contracting party’s (or all parties’) liability if certain events were to occur.
A party may temporarily or permanently be relieved from executing its contractual obligations without being considered in breach of contract.
In practice, if two parties enter into a contractual relationship and include an Act of God clause, they are looking to limit their duty of reasonable care should a qualifying event occurs.
For example, in an insurance contract, the insurance company may exclude coverage for “Acts of God” and define floods and earthquakes to qualify as such.
This means that if a policyholder loses property due to an earthquake, the insurance company will not be liable to provide compensation under the insurance policy.
The term “God” in this context does not have any religious or spiritual connotation.
In essence, the reference to God is to suggest that an event was outside of human control, was unforeseeable, and not caused by any other individual or entity.
Act of God Clause Definition
According to Investopedia, the Act of God clause is defined as follows:
An act of God describes an event outside of human control or activity. It’s usually a natural disaster, such as a flood or an earthquake. (…) These clauses typically limit or remove liability for injuries, damages, and losses caused by acts of God.
As you can see from this definition, an “Act” of “God” clause is:
- Contractual clause
- Limiting a party’s liability
- Relating to an event
- Outside of human intervention
How Does It Work
Due to the COVID-19 pandemic, the Act of God clause has regained popularity in contracts and business transactions.
The prime objective of such a contractual clause is to define certain events as unforeseeable, unpreventable, uncontrollable, or outside of a party’s reasonable control so that if such events were to occur, the parties can limit their liability if they are unable to perform their obligations or cause injury to the other party.
For example, let’s assume that a shipping company, further to a shipment contract, is required to deliver certain goods or merchandise from one location to another location.
Imagine that due to the COVID-19 pandemic breakout, the borders close down, businesses are required to shut down, and business operations come to a grinding halt.
In this case, the shipping company will not be able to deliver the goods on time.
Depending on how the Act of God provision in the contract is formulated, the shipping company may invoke the pandemic to be an Act of God preventing it to fulfill its obligations as per the terms of the contract.
However, this does not mean that the shipping company is free from all liability.
If the shipping company does not take proper measures to safeguard the shipment for the period of the lock-down or the shipment is lost or destroyed due to its carelessness or negligence, it may be held responsible to compensate for damages.
“Act of God” Legal Defense
In the context of contract disputes, contract law, and litigation, a party may invoke an “Act of God” as a legal defense to escape legal liability in the event of nonperformance of contractual obligations.
The notion of force majeure, generally referring to an unforeseeable, irresistible, uncontrollable, and outside of human intervention, may provide an implied defense under the rules of impossibility and impracticability in common law jurisdictions.
As a result, if an event causes significant delays, excessive increases in costs and expenses, or the breach of contractual obligations, a party may defend itself by arguing that it was caused by an unforeseen and unavoidable event.
If a party is able to establish that an event qualified as God’s act, then it will be excused for failing to fulfill its duties under the contract, will not be considered to be in breach of contract, and will not be responsible to compensate for any damages.
Proving A Force Majeure Event
Proving a force majeure event may not be as easy as one might think.
When entering into a business contract, the parties should be mindful of the various contractual clauses they include, how the provision is worded, and how they are interpreted in relation to the other provisions of the contract, the law, and so on.
In the United States, in most cases, contracts are interpreted based on state laws.
As a result, one state may not recognize an Act of God event in the same manner as another state.
This means that if the wording of the “Act of God Clause” is clear, the parties may most likely reach a satisfactory agreement.
However, if the clause is ambiguous, broad, or subject to interpretation, then the parties may not be able to agree that an event should qualify as force majeure or not leading to dispute, lawsuit, and litigation.
In that case, the state laws are become important to prove that an event does qualify as that of “God”.
In some jurisdictions, a party may need to prove that the business disruption was caused by events outside their control and without any reasonable workarounds.
In other states, in addition to demonstrating that the business disruption was outside of their control, they must also demonstrate that the event was unforeseeable.
Act of God Clause Example
What are some examples of Acts of God that may qualify under an Act of God clause in a contract?
Although the contracting parties have the ability to define a force majeure event in a manner of their choosing, typically an Act of God may relate to:
- Earthquakes
- Floods
- Tornadoes
- Hurricanes
- Tsunamis
- Storms
- Strong winds
- Hail
- Heavy snow
- Heavy rain
- Forrest fire
- Pandemic
- Epidemics
- War
- Unforeseen government actions
- Wildfire
As you can see from this list, natural disasters and natural hazards are common events that may qualify as force majeure.
Acts of God Clause Takeaways
So, what does an Act of God Clause mean?
How does it work?
Let’s look at a summary of our findings.
Act of God Clause In Contract
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