In JN Contemporary Art, LLC v. Phillips Auctioneers LLC, (S.D.N.Y. Dec. 16. 2020), the United States District Court for the Southern District of New York (SDNY) held that the COVID-19 pandemic constitutes a "natural disaster" under the force majeure clause in the parties’ contract, excusing the defendant's contractual performance.

JN Contemporary Art LLC (JN) entered into several agreements with Phillips Auctioneers LLC (Phillips) for the auction of two paintings. One painting was sold at a public auction the same day. The second painting was to be offered for sale at an auction in May 2020. The contract for the second painting contained a force majeure provision that permitted termination if the auction was postponed for circumstances beyond the parties' control, including without limitation, natural disasters.

New York Governor Andrew Cuomo later declared a State Disaster Emergency under the New York Executive Law, and issued a series of executive orders in March 2020 that prohibited non-essential business activities. Consequently, Phillips announced it would postpone its auction.

JN and Phillips did not reach an understanding after discussing alternatives to the auction postponement. On June 1, 2020, Phillips sent a letter to JN terminating the contract for the second painting, invoking the contract's force majeure provision due to the COVID-19 pandemic and related government restrictions, which caused the auction postponement. JN sued Phillips in federal court, initially seeking specific performance to require Phillips to offer the painting at its next auction. After the court denied that request, JN filed an amended complaint with multiple claims for damages and other relief. Phillips then moved to dismiss JN's claims.

In determining whether COVID-19 could be classified as a "natural disaster," the SDNY looked to several sources, such as:

Black's Law Dictionary defined "natural" as "[b]rought about by nature as opposed to artificial means," and "disaster" as "[a] calamity; a catastrophic emergency."

The SDNY noted that neither the Second Circuit nor the New York Court of Appeals addressed whether the COVID-19 pandemic should be classified as a "natural disaster," so it looked to other courts, such as Pennsylvania Democratic Party v. Boockvar, 238 A.3d 345, 370 (Pa. 2020) and Friends of Danny DeVito v. Wolf, 227 A.3d 872, 889 (Pa. 2020). Specifically in Wolf, the Pennsylvania Supreme Court held that the COVID-19 pandemic was unquestionably a catastrophe that resulted in hardship, suffering, or a possible loss of life, which fit within the definition of "natural disaster" in Pennsylvania's Emergency Code.

The SDNY also relied on the fact that Governor Cuomo's Executive Orders declared a "state disaster emergency" and that President Trump’s major disaster declaration under the Stafford Act defined "major disaster" to include "any natural catastrophe."

Finally, the SDNY stressed that most importantly the COVID-19 pandemic should be considered a natural disaster because it is a worldwide health crisis that has taken thousands of lives and upended the world's economy. Consequently, it held that Phillips' performance was excused under the contract and granted Philipps' motion to dismiss.

Because language in force majeure clauses typically includes "natural disasters" and may not list pandemics separately, the SDNY's decision potentially makes it easier for parties to obtain relief under force majeure provisions in the contracts they could not perform due to the COVID-19 pandemic and related government orders. For more information about COVID-19, see Global Coronavirus Toolkit.

For more information on force majeure, see:

On appeal, the Second Circuit on March 23, 2022, affirmed without resolving the question of whether COVID-19 is a natural disaster within the meaning of the force majeure clause. They held that the COVID-19 pandemic and the orders issued by New York's governor that restricted how nonessential businesses could conduct their affairs during the pandemic qualified as "circumstances beyond our or your reasonable control" per the force majeure clause. They reasoned that the pandemic and government shutdown orders are the same type of events listed in the force majeure clause, which include, "without limitation," natural disaster, terrorist attack, and nuclear or chemical contamination. (JN Contemp. Art LLC v. Phillips Auctioneers LLC, , at *3-4 (2d Cir. Mar. 23, 2022) (holding each cause large-scale societal disruptions, are beyond the parties' control, and are not due to the parties' fault or negligence).)