No, it's not a French superhero. It's what happens when the world goes mad and a company is unable to fulfill its contractual obligations. Find out the meaning of force majeure and how it applies to both insurers and the insured.
In much the same way that words like 'comorbidity' and 'antigen' have entered the public lexicon over the past two years, 'force majeure' (French for 'superior force') is a term we've become increasingly familiar with as our lives have experienced some interesting plot twists.
Companies including steel giants ArcelorMittal and SAPREF, South Africa's largest crude oil refinery, declared force majeure in July 2021 when civil unrest broke out, disrupting supply chains.
Later that month Transnet declared the same when they experienced what they called a "cyberattack, security intrusion and sabotage", with Transnet Port Terminals being among the hardest hit. The hack disrupted normal processes, damaged equipment and data.
Transnet was again forced to invoke the term in October this year when a fire damaged its Richards Bay Bulk Terminal, the country's largest coal export facility.
It sounds serious, mostly because it's a legal term in a foreign language (and that normally spells trouble), but what is force majeure, and what does it mean?
"In short, force majeure is a legal defence that may be raised in instances where a party to a contract is unable to perform its end of the bargain, due to forces beyond its control," says Peter Nkhuna, Senior Assistant Ombudsman at the Ombudsman for Short-Term Insurance (OSTI). "It would have to be part of the contract or would otherwise fall under the common law doctrine of 'supervening impossibility of performance', which can be quite technical."
Both these applications would have the effect of shielding the declaring party from the consequences of a breach of contract that would normally allow the other party to claim damages or cancel the contract – or both.
"It is important to note that if you raise this defence, it will also mean that you cannot insist on receiving performance from the other party. By implication, the contract or the contractual obligations would then be extinguished," says Nkhuna.
He explains that the alleged force majeure cannot be of the first party's own creation and, in addition, it must not have merely been difficult to perform – but absolutely impossible – for one to succeed with this defence.
Some contracts will regulate the consequences of a force majeure event with a force majeure clause. If the clause is not present, as Nkhuna explained, the common law concept of 'supervening impossibility' applies by default.
Force majeure events typically include acts of God, war, riots, earthquakes, hurricanes, imposition of sanctions, lightning, pandemics, strikes, a change in law, governmental intervention and the like.
'Supervening impossibility' is the South African common law doctrine which accounts for an event where each party's obligation to perform in terms of an agreement and their respective rights to receive performance under that agreement are extinguished in the event that the performance of an obligation becomes objectively impossible because of unforeseeable and unavoidable events, for which neither party is at fault.
Force majeure applies to both insurer and insured. In the case of the insurer, Nkhuna says that when it comes to not approving a claim, a legal defence can always be raised where it is applicable. "Whether it will be successful or not will depend on the merits of each case," he says.
On whether you can use it as an excuse for not paying your insurance premiums, Nkhuna explains: "Generally speaking, for one to enjoy cover one has to pay premiums. If you do not pay premiums, then you will not enjoy the cover provided in terms of your policy."
He says that it would be hard to rely on force majeure as an excuse for not paying premiums because it might be somewhat inaccurate and have some negative connotation, whereas the principle is based on the common sense view that it would be unreasonable to expect someone to perform the impossible. "That would mean that it would be equally useful to both the powerful and the weak," he says.
As with any contract, it's important to understand the fine print, especially if you're an insured business in an unpredictable world.
To bring some predictability to that world, make sure you're getting the best deals on Business Insurance by comparing Business Insurance quotes with our quote comparison tool.
This article is for informational purposes only and should not be construed as financial, legal or medical advice.