Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900 (1987)

Impossibility and force majeure clauses excusing nonperformance of a contract are narrowly construed and generally do not apply unless the specific event preventing performance was unforeseeable and specifically included in the contract’s force majeure clause.

Summary

Kel Kim Corporation leased a supermarket from Central Markets, Inc. to operate a roller skating rink, requiring specific liability insurance. When Kel Kim’s insurer refused to renew the policy due to the reinsurer’s financial instability, Kel Kim couldn’t find a replacement policy meeting the lease requirements. Kel Kim argued impossibility and invoked the lease’s force majeure clause to excuse non-compliance. The court held that Kel Kim’s inability to obtain insurance was foreseeable and not specifically covered by the force majeure clause, thus not excusing performance. This case highlights the limited scope of impossibility and force majeure defenses in contract law.

Facts

In early 1980, Kel Kim leased a vacant supermarket from Central Markets to operate a roller skating rink. The lease required Kel Kim to maintain a public liability insurance policy of at least $500,000 per person and $1,000,000 per accident. Kel Kim obtained the required insurance and operated the rink for six years. In November 1985, the insurance carrier notified Kel Kim that the policy would expire on January 6, 1986, and would not be renewed due to the reinsurer’s financial condition. Kel Kim informed Central Markets and attempted to procure replacement insurance, but was unable to obtain a policy for the required amount due to a liability insurance crisis. Kel Kim obtained a $500,000 policy effective March 1, 1986, and the required coverage by August 1987.

Procedural History

On January 7, 1986, Central Markets sent Kel Kim a notice of default for being uninsured and demanded a cure within 30 days. Kel Kim filed a declaratory judgment action, arguing impossibility and the lease’s force majeure clause should excuse compliance. Special Term granted Central Markets’ motion for summary judgment, nullifying the lease and directing Kel Kim to vacate. The Appellate Division affirmed.

Issue(s)

1. Whether Kel Kim’s inability to procure the required insurance coverage excused performance under the doctrine of impossibility?
2. Whether Kel Kim’s inability to procure the required insurance coverage was covered by the lease’s force majeure clause, excusing performance?

Holding

1. No, because Kel Kim’s inability to procure and maintain the requisite insurance coverage could have been foreseen and guarded against when it undertook the obligation in the lease.
2. No, because the force majeure clause did not specifically include the inability to procure and maintain insurance, and the catchall provision only applies to events similar in nature to those specifically listed.

Court’s Reasoning

The court reasoned that contractual obligations must be performed, even when unforeseen circumstances make performance burdensome, unless performance is objectively impossible due to the destruction of the subject matter or means of performance, caused by an unanticipated event that could not have been foreseen or guarded against. The court found that Kel Kim’s inability to procure insurance was foreseeable, especially given the business it operated. The court emphasized that the purpose of contract law is to allocate risks. Regarding the force majeure clause, the court stated, “Ordinarily, only if the force majeure clause specifically includes the event that actually prevents a party’s performance will that party be excused.” The court further explained that general words in a force majeure clause are interpreted narrowly, applying only to events similar to those specifically mentioned. The clause in question listed labor disputes, inability to procure materials, failure of utility service, restrictive governmental laws, riots, insurrection, war, adverse weather, and Acts of God. The court concluded that the events listed pertained to a party’s ability to conduct day-to-day commercial operations, while the insurance requirement protected the landlord’s economic interests. Therefore, the inability to obtain insurance was not of the same kind or nature as the listed events and did not excuse Kel Kim’s non-performance. The court effectively stated that parties should explicitly negotiate and include potential risks such as insurance availability when drafting contracts rather than relying on general clauses to excuse their obligations.