As the federal government shutdown enters its second week, the impact is being felt by federal employees and also by those businesses that rely upon the government. These include government contractors, as well as businesses that serve government employees, such as restaurants adjacent to large federal offices. The shutdown may also result in significant financial losses to tour companies and hotels catering to national park visitors. As these losses mount, insurers could see a number of different claims being presented by commercial policyholders. However, many of these claims may ultimately be without merit.
The shutdown may encourage contingent business interruption claims. Standard policies covering such claims would not apply to the government shutdown, as they are typically limited to interruptions caused by a physical loss to a third party that is vital to the continuation of business operations. Such policies usually also require that the physical loss fall within the scope of policy coverage.
Policyholders may also bring claims under “civil authority” provisions, which offer coverage for business interruption losses where governmental action has limited access to the insured premises. Such claims could be brought by concessionaires within national parks or other governmental facilities. Again, most policies limit coverage under such provisions to governmental action following physical damage to a third party’s property.
The shutdown could also encourage claims arising under political risk insurance, which may extend coverage to losses arising from “contract frustration” by a governmental entity. In most cases, such insurance is limited to foreign political risks and would therefore not apply to American policyholders. Of course, this would not prevent such claims from being made under policies issued to foreign entities. It should be noted that such coverage is often limited to risks that continue for designated periods of time, frequently 90 days. Although the government shutdown shows no signs of resolution in the near future, it may not last long enough to trigger coverage under many political risk provisions.
The federal government shutdown is unlikely to result in a large number of insurable losses. However, this may not discourage policyholders from filing claims. Insurers should be aware of the potential for such claims and review policy forms to determine the amount of exposure, if any, they may face from the government shutdown. In addition, insurers that issue customized manuscript forms to government contractors should carefully review these forms to determine the potential for shutdown-related coverage.
