Act of God Clause (Legal Definition) with Example

What Is An Act of God Clause

An “Act of God” clause, also known as a force majeure clause, this type of contract allows the parties to minimize their responsibility in the case of non-performance of the contract or injury resulting due to an event that is defined as beyond the control of parties.

The principal purpose of the Act of God clause is to limit a contracting partner’s (or the entire of the parties’) liability if certain situations were to happen.

In the real world, if two parties sign an agreement under contract and add the Act of God clause, they seek to restrict their responsibility to exercise reasonable care in the event that qualifies as a qualifying one occur.

For instance, in an insurance contract, the insurer may exempt coverage from “Acts by God” and also define floods and earthquakes as being such.

In other words, when a policyholder is unable to use their property as a result of an earthquake and the insurance company is not be held responsible to pay an amount of compensation as per the policy.

The word “God” within this sense doesn’t have any spiritual or religious connotations.

In essence, the allusion to God suggests that the cause of an incident that was out of the human’s control, not anticipated, and was not caused by another person or entity.

Act of God Clause Definition

According to the Investopedia website, the Act of God clause is defined as “The term act of God refers to an event that is not under the control of human control or action. It’s usually a natural event like the occurrence of a flood or earthquake. The clauses generally restrict or eliminate responsibility for damages, injuries as well as losses resulting from the acts of God. 

From this definition “Act of God” clause relates to:

  • Contractual clause
  • Limiting a person’s liability
  • Referring to an incident
  • In the absence of human intervention

Guaranty vs Guarantee

How Does the “Act of God” clause Work

Due to the COVID-19 pandemic, Nowadays the Act of God clause has been gaining popularity in contracts and business transactions.

The primary purpose of an agreement is to identify certain events as unforeseeable, inexplicably unpreventable, inexplicably uncontrollable, or out of reasonable control in order that, if these incidents were to occur the parties have the ability to restrict their liability in the event that they fail to fulfil their duties or cause harm for the opposing party.

As an example, let’s suppose that a shipping business as a result of a shipment contract, has to ship certain goods or items from one place to another.

Imagine that, due to the spread of the COVID-19 pandemic border get closed and businesses have to close down and operations are brought to a halt.

In this scenario, the shipping company will not be in a position to deliver the items at the time it was promised.

Based on how you interpret the Act of God provision in the contract is constructed depending on the way it is formulated, the shipping company can declare the pandemic the result of an Act of God preventing it from fulfilling its obligations according to the contract’s terms.

But, it does not mean that the company shipping is immune to any responsibility.

In the event that the company shipping fails to adopt the proper precautions to protect the shipment during the time of lock-down, or the shipment is damaged or destroyed because of its negligence or carelessness or carelessness, the company may be held accountable to pay for any damages.

In the case of disputes over contracts as well as contract law litigation, a person can use the “Act by God” as a legal defence to avoid legal liability in the event of failure to fulfil contractual obligations.

The concept of force majeure generally being a reference to something that is unforeseeable, inexplicably, uncontrollable, and without human intervention can provide an implicit defence under the doctrine of impossibility and inapplicability under general law areas.

In the event that an incident causes substantial delays, high cost and expense increases or a breach of contract obligations, the party can defend itself by arguing that it was caused by an unexpected and unavoidable incident.

If a party can prove that an event is God’s will and is, therefore, God’s act, it will be excused from failing to perform its obligations in the contract. It is not considered to be in violation of the contract and is not liable to compensate any damages.

Proving A Force Majeure Event

Finding a cause for a force majeure situation might not be as straightforward as you think.

When entering into a commercial contract, both parties should be aware of the different clauses of the contract and how they are written, and how they are read with respect to other clauses of the contract, law and more.

Within the United States, in most situations, contracts are read in accordance with the laws of the state.

Therefore it is possible for one state to not be able to recognize the Act of God event in the same way as another state.

That means that if the language in the “Act of God Clause,” is precise that the parties could probably reach a satisfactory agreement.

If the clause is unclear, broad or susceptible to interpretation, the parties might not be able that the event is qualified as a force majeure event or not triggering litigation, dispute, or litigation.

In that instance, state laws will be used to show that the event is regarded as being the work of “God”.

In certain states in some jurisdictions, parties might need to prove that the interruption was the result of events that were beyond their control and with no workarounds that are reasonable.

Other states require along with showing that the disruption to business was not their fault in other states, they also need to prove that the incident was not foreseeable.

Act of God Clause Example

Are there any examples of Acts of God that may be considered to be the Act of God clause in the contract?

The contracting parties do can identify a “force majeure situation in the manner that they prefer, generally, it is an Act of God could be a reference to:

  • Earthquakes
  • Floods
  • Tornadoes
  • Hurricanes
  • Tsunamis
  • Storms
  • Strong winds
  • Hail
  • Heavy snow
  • Heavy rain
  • Forrest fire
  • Pandemic
  • Epidemics
  • War
  • Unforeseen government actions
  • Wildfire

You can observe in the following list of natural hazards, natural disasters, as well as natural hazards, are fairly common that could qualify as force majeure.

Acts of God Clause Takeaways

What exactly does the Act of God Clause have to do with it?

What is an act of God?

What is the process?

Let’s take a look at some of the findings we’ve uncovered.

Act of God Clause In Contract
  • God clauses are a type of contract where God provisions are legal agreements which limits the liability for parties when certain unpredictability or uncontrollable circumstances take place.
  • The goal of a provision for force majeure is to permit a party to temporarily or permanently halt or stop the execution on its contract obligations, without being deemed to be in breach
  • A “act” of God is a kind of incident that the contracting parties determine as being outside of their reasonable ability to control and could negatively impact their ability to fulfill the obligations they have agreed to (very often, they are referring to natural disasters)
  • In disputes over contracts parties can use the God defense to establish the God defense to show that it did not commit breach of contract, but it was unable or unwilling to fulfill its obligations because of insurmountable delays, costs or any other reason.

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