If you are homebuyer who invested in a building project ahead of the pandemic or a policyholder who has signed up for life or health insurance, you may be worried about the developer or insurer taking shelter under the force majeure clause amid the Covid crisis.

What is it?

Force majeure is a clause in an agreement or contract that allows the parties to not fulfil their promises under extraordinary circumstances which make it impossible to do so. Also commonly referred to as ‘Act of God’, the clause implies that the contractual obligations can not be fulfilled due to conditions beyond human control, and hence the parties should be exempted from the legal consequences of non-performance of the contract. Common examples of such events would be natural disasters, fire, wars and pandemics, thus summing up the reason why this term has regained popularity recently.

Indian contract law does not specifically define force majeure , but there are two broad conditions that must be met for an event to be categorised under it. The event must be unforeseen by the parties, and must be beyond their control, making it impossible for them to fulfil their obligations.

Why is it important?

Imagine a time when you could not keep up your word to your friends, because of a reason beyond your control. Let’s say you were on your way to a friend’s birthday party, but you met with an accident because someone else drove rashly. Such hitches can happen on a much larger scale to companies and businesses too, requiring them to have a force majeure clause to protect them from the legal consequences of unintentionally not keeping their word.

Force majeure clauses exist to offer protection from unavoidable or uncontrollable situations. The Covid outbreak has impacted lives and businesses much more drastically than anyone expected even a few months ago, with most nations imposing severe restrictions on movement of both people and goods. Corporates are therefore moving courts to seek shelter under this clause.

Why should I care?

Among the sectors that have recently looked for leeway under the force majeure clause, the ones that should concern you the most are insurers and real estate developers.

Most insurance contracts allow the insurance company to take shelter under force majeure events to decide on claims. But to ensure that settlement of claims doesn’t suffer during Covid, the IRDAI has specifically instructed insurers to settle claims on life insurance policies for death due to Covid-19. For health insurance, existing policies do cover Covid-related hospitalisation in most cases.

However, without any such standard instructions from the IRDAI, force majeure continues to apply for fire and general insurance contracts. Your claims during the pandemic for such insurance policies might still be debatable.

For those of you who are expecting the construction of a RERA-registered property to be completed soon, the force majeure clause could act as a bummer. Recently, following the plea of real estate developers, the Centre has urged States to provide a six-month extension for projects registered under RERA for completion, and said that the pandemic should be recognised as a force majeure event. If your developer had promised to complete construction on March 25, 2020 or later, you may witness delays.

This is because, with the lockdown having forced the reverse migration of many labourers, construction companies are finding it hard to resume operations, even after lifting of the embargo on construction activity. If developers invoke the force majeure clause, you may not be able to file complaints or claim damages from the developer for this delay.

The bottomline

Acts of God are not always merciful.

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