Client Memorandum – Insurance Coverage

March 26, 2020

This Update covers insurance coverage issues. It discusses several potential avenues for
insurance relief in addition to traditional business interruption claims.

Commercial Property Policies

A. Interruption by Civil Authorities Coverage

Many commercial property insurance policies provide coverage for business income losses
incurred when a “civil authority” prohibits or impairs access to the insured’s property. However,
even where the insured business is interrupted by a civil authority order, many policies require
that the civil authority order result in some “physical loss” to the property and the law is not
settled on what constitutes a “physical loss.” Although the spread of COVID-19 does not
immediately suggest “physical loss” to property, the loss of use of property that has become
uninhabitable or unusable because of COVID-19 contamination may be considered “physical
loss,” depending on the specific policy language, the specific circumstances, and the case law in
that particular jurisdiction.

B. Contingent Business Interruption Coverage

Contingent business interruption insurance (“CBI”) protects again losses stemming from supply
chain disruptions. CBI coverage is typically added as a rider to a business interruption insurance
policy and may provide financial assistance when the direct loss of a primary supplier or
customer affects your ability to do business, without any requirement that the policyholder itself
suffer “physical loss.” These policies may help your business stay open during the COVID-19
pandemic by providing enough cash to cover payroll, rent, and other necessary business

Event Cancellation Policies

These types of policies cover a wide array of losses arising out of the cancellation, interruption,
or postponement of specified events, such as sporting events, concerts, conferences, weddings,
and trade shows. You’ll need to review the policies carefully for potential exclusions for
communicable diseases or cancellations caused by government order. Our firm has already
reviewed and started the claims process for several claims based on event cancellations.

Trade Disruption Policies – Supply Chain

Trade disruption or supply chain insurance policies insure against consequential damages as a
result of loss of earnings, extra expenses and contractual penalties incurred because of
disruptions to the supply chain. In contrast to most traditional business interruption policies,
these policies generally don’t require a direct “physical loss” to the insured’s goods or assets.
These policies are generally broader than contingent business interruption insurance policies and
may help businesses that depend in whole or in part on an established supply chain.

Commercial General Liability Policies

Commercial general liability (“CGL”) policies provide coverage for liability to third parties for
bodily injury and property damage. When individuals suffer bodily injury as a result of COVID-
19, a business could be liable depending on the procedures they implemented to warn and protect
customers from exposure to the virus. Businesses may soon face claims by customers alleging
negligent failure to warn of or protect against the risk of exposure to the COVID-19. CGL
policies may provide coverage for such claims. Insurers, however, may attempt to deny
coverage by relying on exclusions in the policy that exclude claims related to viral or
communicable diseases. For those reasons, it is important to review CGL policies carefully and
evaluate potential arguments to support coverage and defeat such exclusions.


We’re happy to work with you to find short terms solutions to cash flow problems. If you’d like
advice or suggestions on how to approach your landlord or lender, we’re here. Please call or
email us with your questions about ways to weather a short term cash flow crunch or any other
business issues. We know these are difficult times – we’re here to help in any way we can.

Take care and stay safe.