Civil Authority Coverage and the COVID-19 Pandemic


To soften the economic impact of the COVID-19 pandemic, many businesses are assessing their insurance policies whether existing insurance policies may provide some relief.  A New Orleans restaurant recently filed the first of a potential flood of lawsuits seeking insurance benefits to cover losses from government-mandated closures due to the novel coronavirus outbreak.  At the center of this lawsuit is whether the government’s order closing the restaurant triggers coverage under the “civil authority” provision of the “all-risk” property policy for business interruption damages.   Like many civil authority provisions, the one at issue in the lawsuit requires that a government restriction stems from a “direct physical loss” — or damage — to a nearby property for coverage to apply.  Coverage for the virus depends upon how the policy defines “covered peril.”  In addition, some policies also have exclusions for losses due to a virus or bacteria.

Other commentators note that certain jurisdictions utilize a “loss of functionality” type test which, if applied to this matter, would lessen the evidentiary burden faced by the restaurant owner.  As the name of the test would imply, a policyholder would only need to establish that the virus significantly impacted the functionality of its restaurant for coverage to attach.   However, most policies require there be at least 72 hours after the civil authority prohibits access, and there is typically a cap on the coverage being provided.

The legal issues raised by the virus will be litigated for many years to come.  Business interruption coverage is just one aspect.

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