Governments across the country have closed public institutions and businesses such as bars, restaurants and cafés to limit the spread of COVID-19. These closures are necessary measures to deal with a significant threat to public health. These closures will have substantial impacts to these business’ income.
 
A reasonable question our clients are asking is whether or not they have insurance coverage to recover their losses from these closures. The answer is “maybe.” In some policies, Business Interruption Coverage and Civil Authority Coverage may provide the insured with a right to claim its lost income. In others, such losses will be excluded.
 
Typically, business interruption policies cover lost income suffered by a business that is caused by an insured peril which falls within the scope of the policy. Common losses include costs associated with temporary closure of a business, such as costs of setting up off-site offices, fees for crisis management specialists, and net profits that would have been earned had the peril not occurred. This is most commonly invoked when a business is closed due to property damage, as when there is a natural disaster like a fire or hurricane that closes the business.
 
In 2003 a large hotel group recovered more than 16 million dollars from its insurance carrier after it was forced to close due to the SARS outbreak. As a result of these and other smaller losses, the ISO updated many policies to include an “Exclusion for Loss Due To Virus Or Bacteria.” This exclusion was designed to specifically exclude damages due to a virus. In its filings to state regulators, the ISO specifically mentioned SARS – a coronavirus – as a type of virus that would cause excluded damages.
 
Thus, if your policy contains this exclusion there may not be standard business interruption coverage. However, it is unclear whether courts will uphold these exclusions. As of right now, the State of New Jersey is considering a law that would invalidate these exclusions and mandate insurance carriers cover COVID-19 losses. If you have a non-standard policy, an older policy, or a negotiated policy that might not have this exclusion, the policy may in fact provide business interruption coverage.
 
A second and often overlooked possibility for coverage is the “Civil Authority” provision. Typically, standard form CGL policies have some form of “Civil Authority” coverage. A typical policy provision will extend the coverage for business interruption to include the following situation:
 

Civil Authority. We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.
 
The requirements for coverage under this provision are:

1. The existence of an order of civil authority which:
1. Prohibits access to the insured premises;
2. Is caused by or results from physical damage to property, other than insured property; and
3. That damage to property must be due to a peril covered under the policy; and
2. That denial of access must be the proximate cause of a loss of business income.

The purpose of these provisions was explained generally to extend to business interruption where the insured’s own property has not itself been damaged but because of damage to nearby property, the police or fire fighters cordon off the area and prohibit access perhaps even to premises that have not been directly involved in the loss. Or in the case of extensive wind damage like in a hurricane or tornado, an entire disaster area may be cordoned off for an extended period after the actual loss to prevent looting, or possible danger to onlookers.
 
As is evident, the key in this standard provision is that there must be a threat of “physical damage” to the property. COVID-19 generally does not pose such a threat. Instead, it poses a significant threat to persons, not property. Thus it is unclear whether a standard Civil Authority provision focused on closure to prevent property damage would provide coverage. However, more liberal provisions may very well supply coverage.
 
One such commonly found provision provides:

Interruption by Civil or Military Authority: This policy is extended to cover the loss sustained during the period of time when, as a result of a peril not excluded, access to real or personal property is prohibited by order of civil or military authority.

 
From this provision, the threshold requirements for coverage are:

1. The existence of an order of civil or military authority which:
1. Prohibits access to the insured premises; and which
2. Is caused by or results from a peril covered under the policy.
2. That denial of access must be the proximate cause of a loss of business income.

Note that the latter policy does not require physical damage to insured property, or to any property at all for that matter. In the absence of wording requiring it, a physical damage requirement normally will not be imposed by the courts. Courts interpreting this provision have held that direct physical damage is not a prerequisite to coverage. This would suggest that if there is no virus exclusion in a policy and the government closed a business, those losses would be covered by insurance. Note that the mere slowdown of business is not covered. What is unclear is whether a downstream impact is covered- for example if the government closes one business, say a university, can those business that rent apartments to university students claim business losses if they are forced to rebate or repay rents.
 
These are just two of the common Civil Authority coverages. There are likely countless variations of the above language. The specific language of each policy will control. There may also be state-specific forms that regulate coverage.
 
This is obviously a new and emerging field of insurance coverage that affects property owners, landlords, tenants, and business owners of all types. In order to assess what losses may or may not be covered, a close review of issued insurance policies by attorneys experienced in this area of law is critical. If there is the chance that the losses may be covered, timely notification and communication with insurance carriers is essential.