The answer might swing a few billion from insurers to insureds.
From Columbia Law School's Blue Sky blog:
The frustration (or “frustration of purpose”) doctrine excuses a party from its contractual obligations when an extraordinary event completely undermines its principal purpose in making the deal. Historically, the doctrine has played a marginal role in contract law, as parties very rarely invoked it – and almost always without success. Courts are understandably reluctant to relieve parties from their contracts and will only do so in very unusual cases. Thus, frustration has long been an obscure doctrine, taught in law schools but infrequently litigated in court.
All that changed in 2020, as the COVID-19 pandemic – and government orders to contain it – is precisely the type of extraordinary event that frustration was designed to address. Over the past year, the courts were inundated by a wave of colorable frustration claims, including numerous high-profile and high-stakes lawsuits. Victoria’s Secret, for instance, sued its landlord to avoid paying its monthly rent of $1 million on the ground that the pandemic and related stay-at-home orders frustrated its purpose in leasing space in Manhattan’s Herald Square.
One recurring issue in these suits is whether a force majeure clause – which excuses a party from liability when an uncontrollable event listed in the clause makes a contract’s performance impossible – overrides the common-law frustration doctrine. Because force majeure clauses are prevalent in almost all commercial contracts, if a force majeure clause were to supersede the frustration doctrine, then practically all frustration claims would be rejected, even if they were otherwise meritorious.
Currently, there is a split of authority on this important question. Several frustration claims arising out of COVID-19, including that of Victoria’s Secret, have already been rejected on the ground that a force majeure clause displaces the doctrine.[1] One Massachusetts court, however, has gone the other way and expressly held that a force majeure clause has no effect on a frustration claim.[2] As I explain in a new article (which was written prior to the Massachusetts decision), I believe the latter view is correct: A force majeure clause has no bearing on the frustration doctrine and does not supersede a claim based on it.[3]
The Force Majeure Clause and the Frustration Doctrine
A force majeure clause covers the same ground as and supersedes the common-law impossibility doctrine, a relative of frustration that excuses a party when an extraordinary event renders its contractual performance impossible, through no fault of its own.[4] In other words, when parties include a force majeure clause in a contract, the precise terms of the clause, rather than the common-law doctrine of impossibility, control whether a party should be excused from performing on the grounds that doing so has become impossible.[5]
By contrast, a force majeure clause should not supersede, displace, or override a common-law frustration claim, because frustration is a separate doctrine that speaks to a different issue.[6] That is, a frustration claim is not based on performance being impossible; it is based on the contract being pointless because the counter-performance has become worthless.
In the COVID-19 context, consider a commercial tenant whose store was shuttered due to governmental stay-at-home orders. When claiming frustration, the tenant is not arguing that his performance of paying the rent is literally impossible due to the pandemic. It is not as if the virus has paralyzed his check-writing hand. Rather, the tenant is making a very different argument: He should be excused from paying his rent because the COVID-19 pandemic and related governmental orders rendered the lease worthless to him. Because his claim is focused on the lease losing value – that is, his principal purpose of entering the lease (to operate his store) has been totally undermined by the pandemic – it falls under the category of frustration rather than impossibility.....
....MUCH MORE
