Welcome
Bloomberg Law Analysis

ANALYSIS: New Boilerplate Needed as Contract Actions Heat Up

Nov. 16, 2020, 9:46 AM

The Covid-19 health crisis, with its many lockdowns and restrictions, is engendering new species of contract-based litigation. These disputes have a common thread: Few drafters and signatories may have properly anticipated the impact of a global pandemic when entering into standard-form agreements or agreements with boilerplate clauses. Or even if they did, they may have lacked the bargaining power to change the language. As a result, lawsuits, including class actions, are being filed against companies issuing agreements for season passes, monthly memberships, tuition, insurance policies, and special events.

In 2021, pandemic-related disruptions and restrictions are likely to continue. Accordingly, if it has not been already, standard-form agreements and boilerplate language may need to be retooled with the pandemic in mind to avoid continued litigation.

‘I want my money back!’

Prior to the pandemic, consumers purchased theme park season passes, monthly memberships, and lift tickets. When the pandemic hit, seasons were cut short or modified. Even when parks came back to life over the summer, they operated differently than anticipated. In lieu of contract language spelling out what should happen in a health crisis, plaintiffs filed class action lawsuits seeking apportioned reimbursement.

As we move into 2021, lockdowns, stay-at-home-orders, capacity limits, and other restrictions are either likely to continue or reappear. Even if a membership service is operating, but consumers feel uncomfortable partaking, appropriate grounds for canceling the membership likely will get tested in court. Thus, to avoid litigation, standard-form agreements and boilerplate clauses should be revised to spell out under what circumstances fees will get reimbursed, so that consumers have a clearer understanding when signing the agreement.

‘I didn’t bargain for an online university!’

Parents and students may feel that college tuition and fees paid for libraries, laboratories, computer labs, health services, and other activities are not worth it if students never make it to campus (or must stay locked in their dorm room). Many schools, colleges, and universities are not operating as usual; classes are being held online, and activities and services that would normally be part of the college experience are unavailable.

When schools transitioned to an online format, or otherwise restricted activities, class actions followed. If schools continue to charge the same tuition and fees, but students do not receive the full benefit of the college experience they bargained for, suits like these may persist. Thus, colleges and universities should revisit their tuition and fee contracts to clarify when reimbursements will be issued.

‘That’s why I bought travel insurance!’

When stay-at-home orders forced people to stay put, would-be travelers sought reimbursement from their travel insurance providers.

In some cases, insurance companies are alleged to have failed to provide reimbursement due to the potentially ambiguous term “quarantine.” Specifically, the main question is whether a stay-at-home order is, in fact, a quarantine. Again, if contracts include terms like “quarantine,” the contract language should be revised to specifically define what that term means — particularly, whether the contract includes shutdown orders and other government-mandated restrictions experienced during this current health crisis.

‘What really constitutes a Force Majeure?’

Parties who have booked events, such as professional conferences and conventions, are canceling relying on force majeure or “Act of God” clauses. Doing so has spurred suits seeking declaratory judgment that the canceler had properly invoked the clause.

The constantly changing landscape of travel restrictions and health and safety requirements make it difficult — or near impossible — to predict when and if events can be held safely and legally. Because events and conferences typically are set up long in advance, it behooves the parties to draft contracts that more explicitly set forth how to handle cancellations in light of these health and safety restrictions.

‘I’ll just stay home (and bake bread)!’

With many folks staying home more, some are starting new hobbies or just requiring more or different supplies. As such, increased demand for products, including flour, can result in supply-chain disputes.

And if people are home baking their own bread, they aren’t visiting bakeries, restaurants, and many other businesses as often. Thus, these businesses seek reimbursement from insurance companies for business interruption losses, and will dispute whether income loss due to the pandemic is a covered loss under the applicable insurance contract. Those clauses will also need to be better defined to avoid future litigation.

Looking Ahead

These are unprecedented times. But, we can look to current trends in contract litigation in an effort to avoid these disputes going forward. Clearly, a worldwide pandemic was not fully anticipated by many standard-form agreements and boilerplate clauses. Accordingly, the global health crisis is creating new species of contract actions and will continue to do so until that language is modified — or until the pandemic winds down.

Drafters should look at the complaints being filed today, and use them as a guide when retooling what’s been thought of as standard language. By doing so, it may help curb the number of lawsuits and class actions filed over less precise contract language.

Access additional analyses from our Bloomberg Law 2021 series here, including pieces covering trends in Litigation, Transactions & Markets, the Future of the Legal Industry, and ESG.

Bloomberg Law subscribers can find related content on our In Focus: Business Closure, In Focus: Coronavirus, and In Focus: Remaining Operational resources.

If you’re reading this on the Bloomberg Terminal, please run BLAW OUT <GO> in order to access the hyperlinked content.

To read more articles log in. To learn more about a subscription click here.