Civil Authority and Other Common BI Coverages May Not Cover Coronavirus Losses

As conventional business interruption insurance typically requires “direct physical loss or damage” for coverage to be triggered, it is currently in question whether or not such coverage will help business absorb losses from interruptions to their business due to coronavirus.

While contamination of a business has been judged to amount to physical damage in some cases—such as a case where accidental contamination of a building by ammonia was found to be covered property damage—these judgments were narrow and generally contingent on the circumstances peculiar to the case. Insureds may find themselves having to turn to other methods to cover their losses during this pandemic, but may not have much luck there either.

Civil authority coverage, for example, “is based on the interruption of the insured’s business, when an order of civil or military authority impairs access to the insured’s property as a result of insured physical damage,”according to a report by international law firm Zelle LLP. But policyholders would have to prove actual physical property damage here, too—fear of contagion is not sufficient.  “Unless the insured can prove that an order of civil authority was directly due to property damage at or near the insured’s location, the Policy’s civil authority provision should not apply,” said the report.

Another common coverage is contingent business interruption (CBI) coverage, which “insures against a company’s lost business in the event the insured’s customer or supplier sustains insured physical loss or damage at their property.” Again, this coverage hinges on the insured being able to prove that actual property damage to a customer or supplier took place and that that damage was directly linked to the loss of business. And as discussed previously, it is ambiguous whether or not contamination by the virus qualifies.

Lastly, policyholders may also have recourse to coverage for Ingress/Egress, which “covers the insured’s loss due to the necessary interruption of the insured’s business due to the prevention of ingress to or egress from the insured’s property.” But this too requires insureds to prove that actual insured physical loss or damage prevented access to the property, which would be difficult to do when it comes to the coronavirus.

In sum, it is an open question whether or not business interruption and other related coverages will help businesses respond to coronavirus-related losses. Litigation may be the only path to finding an answer to it.

Check out the sources for more detail:
Commercial Property Insurance Coverage and Coronavirus – Zelle LLP

Insurance Coverage for the Coronavirus – Lewis Rice LLC

COVID-19 and Business Interruption: How Insurance Can and Cannot Mitigate Losses – Risk & Insurance