So welcome, I'm delighted to welcome my colleague, Professor Bruce Markell, from Northwestern University Pritzker School of Law. He's here to talk to us today about a range of issues. But they all are under the rubric of liability, in particular, contractual liability or the lack thereof, if I could say that as a bit of a teaser. So, even I remember this from my study, well, these many years ago Bruce about contract law. And that is the obligation individuals have, if they've undertaken a binding contract. To follow through on both ends or many ends, depending on the parties to the contract. So, that's the baseline, nothing distinct, just from the surface about the circumstances under which individuals enter into those contracts. But that's when things start to become difficult, right? And so this concept to use the extravagant Latin force majeure arises, right? The act of God as potential exceptions to contractual obligations. So, just to get things rolling, could you tell us a bit about what the, first of all, is my premise correct? And if so, what if anything does the concept of force majeure add to this circumstance? >> Far be it for me to correct you and say you're wrong. But at the same time, I think you're right with the basic premise, right, is that if you make a promise you should honor it. And that's the notion of contract laws, is that if you say you're going to do something you do it. Although contract laws kind of evolved to the point of, well, if you say you're going to do something, either you do it or you pay damages. You kind of have an option to perform or to make it good. And that's always been the notion of contractual liability. It's been kind of like strict liability, right? Your word is your bond, you do what you say. The trouble is, early on, people realize that there are just some circumstances in which this didn't work quite well. And those circumstances were when things that people didn't anticipate occur. For example, the old traditional cases. I agree to sell you my horse next Tuesday, the horse dies. So, am I liable to you? Are you liable to me to pay for the horse that died? Am I liable to give you a dead horse? And the law basically said, well, that was something that, it's now impossible to perform. And so what we're going to do is we're going to relieve both parties of their contractual obligations. Doesn't make sense to go forward. Neither party anticipated this. And because neither party anticipated it, neither party understood or thought that that was a risk. We'll just put them back to where they were. And this rolls into the classic case from the 19th century, is a music hall case. Someone rents out a music hall, just like today someone rents out a concert venue and it burns down. And the question is, do you have to pay for the rental on it? Or do you have to rebuild it in time for them to get through it? And so the notion of impossibility works into Notions that, lawyers being what lawyers are, they came up with functional impossibility in the classic case. There is that coronation case, Queen Victoria dies. Her son, he's like 63 or 64, gets to take the throne. But unfortunately at the time of his procession, he comes down with appendicitis. Well, people in England were so enthralled about this, that people were actually renting apartments so they could view the parade, the procession. And they were paying about $10,000 just to be there for two days. But, if the Prince, presumptive King, has appendicitis, there's no procession, but you can still rent the apartment. And so what the what the court said, listen, there's this concept and we're going to call it reading and call. It starts from impossibility, but we'll call it impracticability. We'll call it frustration of purpose. And if the parties don't anticipate something that just makes the contract, Unfeasible, if you will, to use a word based on the parties expectations, will either relieve them of their obligations if it's impossible. Or if it's temporary, will just suspend them. For example, this doctrine has been used when governments put in tariffs, or when governments put in quarantines for shipping in and out. Basically your obligations are on hold for a while. And it's the law, force majeure, major force, was the doctrine that was put on. It's now the trouble, and it makes a lot of sense, in sense that if something's not foreseeable and happens, we go back to- >> To God, and sometimes the expression is- >> Yeah, an act of God and we go back to square one. But lawyers again being what lawyers are, they said, okay, well, foreseeability is kind of fuzzy. Foreseeability after the fact and not foreseeability before the fact. So, what they did is they started wiring into contracts these force majeure clauses. And they said, listen, we will tell you what is foreseeable. We will tell you that an act of God, or a war, or a major quarantine, or something like that will qualify as something that allows us to back out, or not back out. And there's a, in many real estate transactions, the commercial real estate transactions, the lessee, the renter, will sometimes sign a clause that says, I gotta pay the rent no matter what. Even if the building burns down, so-called hell or high water clauses. You pay the rent come hell or high water, whatever it is. And the courts basically adopted and said, okay, that's an adaptation to the frustration, to the impossibility doctrine. And if the parties want to allocate their risk that way, who are we to say that we're going to relieve them of a risk that they willingly undertook. And so that's what- >> Just to jump in, one aspect to that is it'll affect the economic value of the contracts, right? >> Absolutely. >> So, that'll be factored in as it were to the risk. >> Right and courts, of course, then would construe and they would construe tightly, narrowly, these force majeure provisions. After the Great Recession in 2008, for example, there's a case involving Ruby Tuesday. And Ruby Tuesday had entered into this several agreements to buy land and build restaurants. When it became time to do that, it's 2008, they can't get loans to do it. And so they said, well, listen, it's a force majeure, we can't get loans. And the court said, there, now that's an economic risk. Economic risks is something that people should be able to foresee. You don't get relieved just because the price goes up or the price goes down. Here we're talking about things that actually preclude you from performing, as opposed to making it more costly to perform. Although at the margin, sometimes they'll say too high a cost is a functional impossibility or impracticability. But they told Ruby Tuesday, tough, you took that risk when you signed this document. And there are cases all over that then review and look at what lawyers put in these contracts for force majeure. Because if something comes up, one party undoubtedly will say we want out. The other party will say, no you don't. You may remember, I think it's now about ten to 15 years ago, University of Alabama has a graduation. And just before graduation, tornadoes run through the town, and they postpone everything. Well, in a college town, the room rates for hotels get jacked up. Since all the hotels were trying to collect money from the people at these high rates, when there was no purpose in using it, and people would then bring up the King's coronation case, and all this sort of stuff. So that's kind of the background when we now find ourselves in pandemics. >> So let me ask you a specific case, but I'd like to get your general thoughts about COVID-19. So a restaurant signed a lease for a restaurant about to open, government shutdowns come into effect. In most of our states, they remain in effect. The economic value of the lease is tiny. Straightforward case under the force majeure doctrine, or I mean, nothing straightforward, depends on the jurisdiction ends on that. But is there something that's unusual, or unique about that case from the ordinary run of force majeure cases? >> Not really. I mean, again, force remember, is a reaction to the general doctrine of impracticability. And the general document practicability has typically been used for government regulation that wasn't anticipated, and for natural disasters, and pandemics, again. I mean, for example, if the government doesn't have a shutdown, I mean, it says something like you can do curbside pickup, then you're getting into this. No, you're not being shut down by the government, you're just being restricted. It's like the government saying you can't serve chicken wings, you gotta serve chicken breast. Yeah, that kind of splitting of hairs might do it. But yeah, a shut down by the government. Yeah, I mean, you're in the typical area in which someone says I can't perform. Otherwise, I would break the law. And what happens at that point, if we don't have a force majeure clause is that the obligation is suspended until the regulation is relaxed. So it's just both sides. If we go into a force majeure clause, and so if you get a lease with a force majeure clause, then it becomes a question of contract interpretation. Did the activity that shut down the business, was it something that was anticipated in the contract? Because again, things that might be impracticable can be, the risk can be assumed. I mean, I could assume the risk of a pandemic in a clause if I wanted to. I don't normally do that, don't normally think about that. But courts are pretty pretty clear that if the parties anticipate something and allocate that risk, they're not going to disturb that. So we can get this default doctrine on the one hand. Then with an overlay of what the parties anticipate, in terms of what they write in. And nine times out of ten, having done this for a while when I was in practice, people just kind of, their eyes glaze over force majeure clause, right? Says act of God fire, doesn't mean- >> [INAUDIBLE] >> Make sure it's not too bad. And so then you get into a situation like this, where all of a sudden, people are kind of pouring over it like the fine-tooth comb. >> Right, so there's segments of the economy, right, that are subject to different kinds of regulations, subject to different kinds of economic risks. What I first heard of some of these disputes coming up in connection with contractual liabilities was actually in the context of sports. Maybe not surprisingly, given that it seems like ancient history, right? But it was the NBA and the NCAA back in March, that made some of the most the earliest and most aggressive moves, even before the state regulation went in place. So let me present you with this scenario. Government regulations are lifted, at least insofar as Major League Baseball, professional sports can operate if they want. So suppose the government is not a circumstance of we can't functionally operate, because the government won't let us. But what operating means takes on, as I think would be a fair prediction, something very different for some particular period of time. So not 30,000 people in Wrigley Field, 13,000 people in Wrigley Field, not a 162 games, 42 games, I'm probably wistful for Major League Baseball, which is why this is an example. >> [INAUDIBLE] >> Yeah, I think this was the Dodger's year [INAUDIBLE]. >> Right, right, exactly, that's a different conversation. But in any event, I guess what I'm getting at is, does contract law in force majeure principles bear on what is inevitably an elaborate scheme of contractual responsibilities? Owners to players, duties that they owe to members of the general public. Individuals who buy season tickets, the whole web of issues. Is there something- >> Yeah, no. >> Yeah. >> They're all interconnected. I mean, it's one contract after another. And in the best of times, you hope they mesh, and that they all work. The trouble is, is if you get a different force majeure clause, would be season ticket holder than you do with your leasing the stadium. You're going to have some problems. There are going to be some areas in which you may have to perform, but the other side doesn't have to. That's where we get the contractual interpretation aspect of this coming in. What happens most time is, to be honest, it doesn't immediately go to litigation, unless the price is really. And what happens is, it just forms the sides of the cauldron in which they negotiate. Or they're being negotiated to kind of set the terms. I heard one proposal that they're all going to play in Florida, or they're all going to play in Arizona. >> Right. >> Those are all renegotiations. And presumably, they can either get rid of, or they take into account the force majeure clause that's in there. But that kind of brings them to the table, in a sense. >> Well, that example raises an interesting one. We've been looking on the retrospective aspect, right? The litigation that might happen, disputes might happen because of the enforceability, or the lack of enforceability of current contracts. Then there's the whole fascinating question of prospectivity. How will this pandemic affect how individuals that are into contracts, right? Weill, for example, force majeure clauses be required to address pandemics, right, as particular versions of that? >> Well, yeah, I mean, to go back to the concert thing, I mean, there's a fair amount of litigation with respect to it does for rock stars drug habit that forces them into rehab, and they cancel a contract, is that force majeure? Most would say no said with a rock star, that they can be anticipated that can be foreseen. That's a risk that you allocate. What may happen is, I mean, when you're dealing with a concept as plastic and as pliable as foreseeability, I dare say that a jury now would think of foreseeability of the pandemic different than they would have three years ago. >> Yeah. >> And in which is another reason why lawyers try and draft these things, is so that you can get around this kind of floating notion of what types of things should excuse your contractual performance. And we're seeing that a lot now. Most of the press I've been reading has been on this perspective element, in terms of mergers and acquisitions, or major kind of steps forward. That's where a lot of the force majeure arguments are coming up, because again, in most of the cases like we said in the restaurant case, not much of an issue, because most real estate leases Tend to be very very tightly construed against the lessee. They're going to pay in most cases regardless. But in other cases it's a little bit different. >> So let's use that as a segue, it begin again with the with the kind of the classic abstract argument about contracts, which is you undertake an obligation you're expected to perform or pay damages. If you're worried about that the the classic solution that we have is insurance. So you're sure against that risk. So now we get to the issue that is also as you know a subject of Amount of scrutiny and litigation which is the so-called issue of business Interruption insurance. I noticed that some of the early cases, early meaning as long ago as a month ago two months ago, were bought by restaurants. Just yesterday Legal Seafood if you remember that restaurant in Boston. >> In Boston, sure. >> Brought a lawsuit claiming business interruption, right? Actually, it's the reverse of what I said. It's the insurance company resisting the payment of that the claims. As I understand it some of the language, the language that I've looked at these insurance contracts, are quite specific and refer to viruses. These are the result, as it were, of the of the post-SARS crisis in 2003. So there's specific language that from the insurance company's perspective they argue obviates any liability or responsibility under the insurance contracts. There's a lot of money at stake. One figure I read was $431 billion a month, on the apocalyptic assumption the insurance companies lose all these claims. So what do you think business interruption litigation is going to going to look like? >> I think it's just a different shade of the same type of thing that we're talking about. It's a different tree that cast the same shadow. Because Insurance in particular is a contract, but historically insurance has been subject to different interpretive rules. Or somewhat different interpretive rules than just kind of regular run-of-the-mill contracts. Because of the consumer protection aspect of it, there are lots of courts that hold you construe, insurance contracts against the insurer who's the one who normally drafts it. And that tie not only goes to the runner, but if you're close, it goes to the runner in terms of that. At the same time you have the notion that if the parties actually thought about a aprticular risk, and they described it and they quantified it, we're not going to disturb that. So what you're going to have, unfortunately I think, is two things are going to happen. One, because every insurance company drafts their own contracts, you're going to have company-specific results because they're all going to have different contracts. And you also may have state-specific results, because in many states the standard form contracts have to be passed on by the insurance commissioner, the department of insurance or whatever they are. And they sometimes have standardized clauses that they will apply. So what you're going to have is, one, that kind of traditional tight reading because you got I mean Carl Lewellyn did this long ago, it says for every maxim there's an opposite maxim. I mean the maxim here is you construe against the insurer versus you construe force majeure very very tightly. So I think it's going to be a mess. I think that people are going to try and. I think it's a little bit of a fool's errand to try and pull a single thread out of it, because it's all going to turn on what the language was in it. I mean if you've got a contract that specifically talks about viruses, then it maybe curtains if you will for business interruption. Because what they're going to say is listen, business interruption insurance, the reason we construe it strictly against the insured is because the risk we're talking about. The owner gets sick, there's a fire, you know, these are all kind of temporary types of things for which and most insurance companies will do this. They'll say here you should have this kind of fire protection. You should have so many fire extinguishers. They will tell them how to reduce that risk. >> Just let me just jump in on this in the weeds of insurance. There's also a secondary insurance markets right? Thinking about the classic Lloyd's of London, you know writing insurance companies for any risk Under the Sun. >> Actually bit of trivia, you know, the origin of the term underwriter? >> No, I hope it's not related to undertaker. >> No, it's not, close but it's Lloyd's of London. What they used to do, especially with ship insurance, is they would have kind of the liability on a piece of paper and they'd pass around the under the names. And if you wrote your name under that risk you were liable for that risk, and you were an underwriter. Interesting, I didn't know that. So I mean, I don't know the answer to this because I don't know enough about insurance law. But in an era of let's say in which there were, as I understand them, very specific provisions for virus and bacteria, then there would still seem to be another market to buy insurance to insure against that risk. >> Right, or there would be the opportunity to do that. Whether or not someone would think about doing that's another matter.
