While direct physical damage is often the trigger for commercial property coverage, including CBI coverage, physical “loss”, such as the loss of functionality caused by the lack of government appropriations, may be sufficient to invoke CBI coverage for businesses dependent on the federal government for their operations. Depending on the terms of the applicable policy, a business, for example, that is required to suspend or reduce operations because its customer, the federal government, has sustained a physical loss from the “shutdown” may be entitled to coverage for the resulting losses.

Alternatively, in some cases, “civil authority” coverage—also found in many commercial property policies—may be appropriate. Subject to variations in policy terms, such coverage generally extends to losses sustained by an insured when, as a direct result of an insured peril, access to real or personal property is prohibited by order of civil or military authority. Since the shutdown, various government facilities, including national parks and other agencies, have been ordered closed until funding is restored.5 To the extent that civil orders to close government facilities have caused direct losses to insureds, such losses may be compensable under the civil authority coverage commonly found in commercial property insurance policies.

Given the significant financial impact for federal contractors and other business operators, companies whose operations have slowed or ceased since Oct. 1 from the shutdown should carefully examine their commercial property policies or other potentially applicable insurance contracts to determine if coverage is available and a claim is appropriate. As with any insurance matter, it is important to provide prompt and adequate notice of a claim. Particularly for business interruption claims, a satisfactory proof of loss is typically also required in addition to notice of the “occurrence” resulting in the insured's loss.