Civil authorities across the country have ordered many businesses to close to the public, both large and small, due to the COVID-19 pandemic, and it is having enormous consequences for millions of Americans. Most business insurance policies include coverage for lost earnings due to government shutdowns. This coverage is typically called “Business Interruption” and “Civil Authority” coverage.

What is Business Interruption Insurance?

Business interruption insurance protects against economic losses resulting from a business’s inability to put insured property damaged by a covered peril to its normal use. Business interruption typically indemnifies for loss of revenue that would have been earned had there been no business interruption and the continuing normal operating expenses incurred during the time it takes to restore the damaged property.

Typically, under standard business interruption policies, five conditions are required for a recoverable business interruption loss: 1) physical damage, 2) to insured property, 3) caused by a covered peril, 4) resulting in quantifiable business interruption loss, 5) during the period of time it takes to restore the damaged property.

What is Civil Authority Coverage?

Commercial property policies may include coverage for losses caused by forced closure of property by civil authority. The coverage typically applies when an insured is unable to access its property due to a government order as a result of physical damage to adjacent or nearby property. Thus, civil authority coverage typically requires physical damage to property to trigger the coverage. If the policy requires physical damage to adjacent or nearby property and the insured is unable to establish a causal connection between the government order and that physical damage, then there likely will be no coverage.

However, courts have held that civil authority provisions do not always require physical damage to property to trigger coverage. For instance, due to widespread riots in the 1970’s the governor of Michigan ordered a curfew and required business to close. In that case the court held there was a business interruption coverage under the civil authority provision for losses incurred to comply with the governor’s order.

Furthermore, only government orders causing a business to close will constitute a civil authority order. If a business closes because of government action that does not rise to the level of an order, such as an advisory to stay off the streets following a hurricane, then there will be no civil authority coverage.

Multidistrict Litigation Cases

As of the end of May, there were 101 federal lawsuits filed seeking coverage from insurers for business interruption loses caused by COVID-19. This number is expected to rise into the thousands by the end of the year. The 101 cases filed so far were tagged by the U.S. Judicial Panel on Multidistrict Litigation because they are related to a petition filed by groups of plaintiffs in Philadelphia and Chicago to assign a single judge all COVID-19 business interruption lawsuit filed in federal courts.

The central question binding all of the lawsuits together is whether the novel coronavirus amounts to a physical loss of property that triggers insurance coverage for business income lost because of government ordered closures. Currently businesses that have filed lawsuits include restaurants, taverns, dental practices, day care centers and hair salons all across America.

Insurers are opposing the consolidation of the federal lawsuits though. The insurance industry has filed more than 24 briefs opposing multidistrict litigation, following in the footsteps of arguments posted in a brief by two Chubb affiliates that stated consolidation would complicate and prolong the litigation. The MDL judicial panel will consider two motions to consolidate cases when it convenes at the end of July.