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

Cyber Insurance for the Cannabis Industry

Farella's Shanti Eagle (moderator), Nate Garhart and Tyler Gerking, along with guest speakers Javier Gonzalez and Michael Peters from PL Risk Advisors, discuss "Cyber Insurance for the Cannabis Industry." Cannabis businesses have cyber security...

Read More
News

Key Cyber Insurance Issues Hitting the Cannabis Industry

Tyler Gerking was quoted in the article "Key Cyber Insurance Issues Hitting the Cannabis Industry." Read the full article here . View full webinar below.

Read More
Publication

The FASTER Act: What Companies Need To Know About the New Food Allergy Law

While the Food Allergy Safety, Treatment, Education, and Research Act (FASTER Act) only makes a minor change to add sesame as a major food allergen, it signals the government’s intent to closely examine food...

Read More
Publication

In Verizon Decision Careful Review of Insurance Policies Expands Coverage

In Verizon Communications Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa ., the Delaware Superior Court ruled that Verizon was entitled to a defense under its D&O policy for fraudulent transfer claims. Although...

Read More
News

51 Farella Lawyers Listed in The Best Lawyers in America© 2022 and Best Lawyers: Ones to Watch

Forty-six Farella Braun + Martel lawyers were selected by their peers for inclusion in the 2022 edition of The Best Lawyers in America © .  Five Farella lawyers were named to Best Lawyers: Ones to...

Read More
Publication

Insurance for Nonprofits: Managing Risk in Risky Times

Mary McCutcheon, Cynthia Rowland and guest speaker, Joan Dove from Gallagher, discuss "Insurance for Nonprofits: Managing Risk in Risky Times" at the April Nonprofit Education Series. Nonprofit organizations—and their directors and staff—are not immune to...

Read More
Publication

“Unfair Trade Practices” Exclusion Does Not Extend to Consumer Protection Claims

Two phrases combined in a single exclusion—“alleging, arising out of, based upon or attributable to any violation of any law…” and “as respects… unfair trade practices” could inspire carriers to make trouble for policyholders...

Read More
News

Chambers USA 2021 Recognizes Farella Braun + Martel Attorneys, Practices

Farella Braun + Martel announces that Chambers USA has recognized 13 lawyers and 6 practice areas in the legal directory’s 2021 edition. Individual Rankings: Tyler Gerking – Insurance: Policyholders Jeffrey Hamilton – Cannabis Law...

Read More
Publication

How to Guard Against 3 Cannabis Cyber Attack Risks

Cyber attacks are now commonplace. Ransomware attacks, in particular, have skyrocketed in frequency and size. High-profile data breaches have cost businesses in the United States millions of dollars in losses and incalculable reputational harm...

Read More
News

Farella Braun + Martel Attorneys Named to 2021 Northern California Super Lawyers and Rising Stars

Thirty-seven Farella Braun + Martel lawyers were named to the Super Lawyers and Rising Stars lists of top attorneys in Northern California for 2021. 2021 Farella Northern California Super Lawyers: George Argyris – Estate...

Read More