Legal Terms: What Is an Act of God Clause?

November 15, 2021

Through the last couple of years, we have certainly been through unpredictable times. Some businesses are more prepared than others to face times like this. For example, last year, Wimbledon…

Through the last couple of years, we have certainly been through unpredictable times. Some businesses are more prepared than others to face times like this.

For example, last year, Wimbledon had a $141 million payout from their insurance policy because a worldwide pandemic was covered as a cause of cancelation to receive a payout.

Unfortunately, not every business can say that they had policies that protected them from an event like this. An act of God clause may help or hurt the chances of businesses to receive any compensation for an event like this.

What is an act of God clause? This article will give you the explanation that you need.

What Is an Act of God Clause?

Very simply, the act of God clause definition is a term that insurance companies put into contracts that either limits or negates liability if something truly unforeseeable happens. Most of the time, this is something related to a natural disaster.

Examples of an Act of God

Most acts of God involve natural disasters in an area where they may not expect to receive that kind of storm. For example, it is much rarer for the northeast U.S. to get hit with a powerful hurricane than, say, the state of Florida.

California tends to be the state known for earthquakes, and Texas is the state known for tornadoes. If you flipped the natural disasters in those states, people might not be adequately prepared for them.

Therefore, if an act of God destroys your personal property or your place of business, you may not be covered for it. Plus, you may not receive any compensation for the damages that one of the storms above may have caused.

In response to this, you would need to get separate insurance coverage. This prevents you from exposure to an act of God like Wimbledon did with getting pandemic insurance.

However, an act of God does not have to be something that was caused by nature, although it is the most popular example. It can be caused by humans that were very difficult to see coming in advance, such as war, terrorist attacks, or even a pandemic like COVID-19.

The point is that these are events that had such remarkable odds of happening. So, people did not think to prepare for them specifically or put them in a contract for an insurance company to cover.

COVID as an Act of God

If you are reading this, dealing with COVID and its effects on daily life and business is probably a big reason you are here. The truth is, depending on your situation, COVID may not always be considered an act of God, and/or your insurance may not always cover it.

For contracts, if there is something that mentions a pandemic or a global health crisis as an emergency, then it is more likely that COVID would fall underneath that category. However, this is not exactly a situation that happens every day, with the closest thing in recent years being SARS about 20 years ago.

With that in mind, some things that may be considered acts of God may not have a lot of past history to look at how that would be ruled in a court of law. So, you may have to rely on either subjectivity by a court of law or try to prove there is sufficient evidence that it meets the language in the terms of the contract.

Taking Precautions

Just because you may have an act of God clause in a contract does not mean that you are automatically covered in every situation. With these situations, you will likely have to prove that you took active measures to prevent yourself from being exposed to an act of God or damages.

For example, you may have to show that you had safety inspections for your building if you own a business or equipment that you used for your business. If you are providing a service, you may have to show that you went through health inspections before to prove that the product was good to go and that your employees had the ability to do their jobs.

This is all about proving that you were not negligent in a situation where one bad event could cause the whole thing to come crashing down.

It is like an athlete in sports signing a contract with their team. In their contract, a clause states that the athlete may not participate in activities that can increase their chances of getting injured off of the field. Examples include going skiing, playing a casual football game, jumping off of a cliff, etc.

You need to make sure that you are protecting your assets actively and not relying on an act of God to bail you out or still allow you to be paid for services that you failed to provide.

Find Out More About an Act of God Clause

This is some basic information you need to know about an act of God clause if you are thinking about getting involved with it or already have a contract with the clause.

This can help protect you in certain situations, but it is important to know which conditions where this clause leaves you on your own as well. Do you need help managing this clause and other legal terms in your contract?

Contact us with your questions today.

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