News & Events

COVID-19 Has Businesses Examining Their Insurance Policies for “Business Income”/“Civil Authority” Coverage

When the Governor of Louisiana issued a COVID-19 proclamation postponing or canceling certain gatherings of 250 or more people, the owners of the Oceana Grill, a restaurant in the heart of the French Quarter, filed a lawsuit that will be of interest to many businesses.

The suit names the Governor and the State, and seeks a declaratory judgment as to the scope of the proclamation, but in addition it names Certain Underwriters at Lloyds.  This part of the suit seeks a judicial declaration that the “all risk” Lloyds policy:

provides [1] coverage to Plaintiffs for any future civil authority shutdowns of restaurants in the New Orleans area due to physical loss from Coronavirus contamination and that the policy provides [2] business income coverage in the event that the coronavirus has contaminated the insured premises.

Business Income Coverage

The Oceana Grill suit didn’t quote or attach the Lloyds’ policy, but we can get an idea of the issues by taking a look at the typical “Business Income and Extra Expense” policy, which may contain an insuring clause along these lines:

We will pay for the actual loss of Business Income [and certain “Extra Expenses”] you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”.  The “suspension” must be caused by direct physical loss of or damage to property at premises which are described in the Declarations.

The Oceana Grill suit asserts that premises contaminated by the virus have suffered “direct physical loss.”

Civil Authority coverage

The Oceana Grill suit references “civil authority” coverage.  Oversimplifying, this pays the same things — lost “Business Income” and incurred “Extra Expense” – but the trigger, instead of “direct physical loss” at the insured premises, is damage to property near the insured property that causes the civil authorities to bar access to the insured property:

When a Covered Cause of Loss causes damage to property other than property at the described premises, 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, provided that both of the following apply:

1)  Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and

(2)  The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

Virus exclusion

 Again, the Oceana Grill suit didn’t quote or attach the Lloyds’ policy, but it did allege that the policy has no exclusion for “virus or global pandemic,” and excludes losses “due to biological materials” “only in connection with terrorism or malicious use. . . .”  Some policies have much broader exclusions; one, for example, excludes all losses attributable to

Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.

What’s next

Policies differ, of course, but insureds with these and similar policy provisions will be studying them closely in the days and weeks to come.