Insights
Publications

Business Interruption Coverage for the Coronavirus (COVID-19)

March 19, 2020 Articles

The coronavirus (COVID-19) has already caused severe disruption to the economy. In the U.S., governmental entities as well as the private sector are implementing more and more drastic measures to respond to the coronavirus. While these efforts may be wise in light of the substantial public health concerns, they threaten to bring parts of the economy to a virtual halt, adversely impacting most every business and resulting in substantial losses. The Organization for Economic Cooperation and Development estimates that if the coronavirus continues to spread more widely, it could cut global growth in 2020 by half.

Business Interruption

As a company determines the impact of the coronavirus on its business, it should assess the business interruption coverage available under its commercial property (or “first-party”) insurance policies. Property policies usually contain “civil authority” or “civil order” coverage which encompasses losses caused by the actions of local, state, or federal authorities. Specifically, a property insurer may cover the loss of income that results when a government entity restricts access to a “location” covered by the policy—for example, an event facility, a shopping center, or factory owned by the company—or significantly impairs the company’s operations at that “location.”

This “civil authority” coverage may also require that the government action result from “direct physical damage” or “direct physical loss,” but this raises two important points.  First, these terms are broadly construed in California and many states as including, for example, a location that is contaminated with a virus or disease and/or is unfit for its intended use. Second, under many policies the contamination need not occur at a property owned by the company; instead, these policies provide that the contamination may exist anywhere within a defined radius around the company’s property of, say, 5 or 10 miles.

Finally, if the company’s own property is impacted by the coronavirus, then the policy may cover business interruption even in the absence of government action. The bottom line is that scope of business interruption coverage will depend on the language of your property policy and the specifics of the disruption to your business.

Contingent Business Interruption/Supply Chain Impacts

Many businesses depend on parts or products that are manufactured in China, Italy, or other areas impacted by the coronavirus, and have suffered losses due to disruption of their supply chain. Commercial property policies often contain “supply chain” or “contingent business interruption” coverage. Like the business interruption coverage for the company itself, this coverage may be triggered where there is physical loss/physical damage at links in the supply chain (for example, manufacturers, distributors, or customers), or there is a government order barring access to, or impairing the operations of, those upstream or downstream suppliers, service providers, and customers.

Next Steps

We have seen government orders and waves of cancellations and closures that were unthinkable just weeks ago. As companies assess the disruptive effects of the coronavirus, they should consider the business interruption and contingent business interruption coverage available under their insurance programs. They should also consult with their insurance brokers and counsel, because the insurance industry is likely to take a hard line on coronavirus claims as they are confronted with more and more of them.

Firm Highlights

Publication

COVID-19 Exposure and GL Coverage: Issues for Personal Injury Claims

Though much of the conversation regarding insurance coverage for COVID-19-related losses has focused on the potential for business interruption-type coverage (see prior discussion  here ), insureds should not overlook the potential that COVID risks...

Read More
News

Insurers Challenged for Denying Business-Interruption Coverage During Coronavirus Economic Lockdown

Insurance recovery partner Ray Sheen commented in the North Bay Business Journal article, "Insurers Challenged for Denying Business-Interruption Coverage During Coronavirus Economic Lockdown." Read the article, here .

Read More
Publication

Insurance Dispute Resolution

Farella's Real Estate Webinar Series features Amy Briggs discussing "Insurance Dispute Resolution." Businesses have filed claims seeking recovery help under their insurance policies due to various governmental closure orders arising from the COVID-19 pandemic. Losses related...

Read More
News

Farella Expands Insurance Recovery Practice With Addition of Litigation Partner Amy Briggs

Read More
News

52 Farella Braun + Martel Attorneys Listed in The Best Lawyers in America© 2021

Read More
News

Cyber Insurance Demand Heats Up As COVID-19 Hacks Rise

Tyler Gerking spoke to Law360 for the article "Cyber Insurance Demand Heats Up As COVID-19 Hacks Rise." As far as insurance coverage being available for fines and penalties that arise out of privacy and data security laws such as...

Read More
Publication

Maximizing Insurance Coverage: What Cannabis Businesses Need to Know

Farella's Cannabis Industry Education Series features Tyler Gerking discussing "Maximizing Insurance Coverage: What Cannabis Businesses Need to Know." The cannabis industry has flourished, along with it the cannabis insurance market has grown. As more carriers...

Read More
News

Farella Defeats Builder's Risk Insurer's Defense in Lawsuit Brought on Behalf of Webcor-Obayashi Joint Venture

SAN FRANCISCO, August 5, 2020: Farella Braun + Martel has obtained a favorable ruling from the U.S. District Court for the Northern District of California granting partial summary motion and clarifying a legal doctrine...

Read More
Publication

D&O Professionals Series: Tyler Gerking Discusses D&O Coverage and Litigation

Insurance Recovery partner Tyler Gerking explores current trends and observations on D&O coverage and litigation on Willis Towers Watson's "D&O Professionals Series." Read the full article,  here .

Read More
Publication

D&O Liability Insurance in a Time of Financial Uncertainty

As companies scramble to mitigate losses arising from government shelter-in-place directives intended to halt the spread of the COVID-19 virus, the insurance world has focused on business interruption coverage disputes and lawsuits.  But if...

Read More