Insurance considerations during a shutdown
Nearly three weeks into the partial federal shutdown, Congressional deadlock over the debt ceiling poses several possible risks for businesses that may suffer losses stemming from the shutdown. While political analysts say the current situation is unlikely to affect the validity of federal debt, companies that provide services to the government (and spend considerable resources and money to do so) should consider special insurance policies that will provide coverage for losses associated with the situation. This includes the potential elimination or disruption of any underlying government project, in which case coverage would protect businesses if the order is cancelled. These policies are specifically underwritten for particular risks, and while it’s often difficult (or cost prohibitive) to find this kind of coverage, it is certainly worth preliminary research The following are types of policies that may apply in certain cases and help defray some costs for losses stemming from the shutdown.
Contingent Business Interruption (CBI)
Late last week, Congress approved a bill to continue to fund organizations like the U.S. National Parks Service and the National Institutes of Health. Had the bill failed to pass, the lack of funding could have affected tour companies and travel businesses in the Parks’ industry and halted future medical research and treatment for individuals with life-threatening diseases. CBI policies typically require physical damage to a third-party whose operations are deemed necessary to a business’ services (i.e. supply chain operations, production, etc.) before they trigger coverage. In some instances, however, manuscripted policies will afford coverage absent a direct physical loss. In terms of the shutdown, companies that do not deal directly with the government but whose services are affected should review any business income provisions listed in their polices.
Depending on the specific circumstances and losses a company experiences during the shutdown, other insurance policies may apply. Directors’ and Officers’ Liability (D&O) coverage, Employment Practices Liability (EPL) and Commercial General Liability (CGL) insurance could be relevant as risk mitigation tools while handling particular claims.
Despite the uncertainties and limitations involved with these available policies, it is worthwhile for businesses to review their existing insurance policies and become educated and better-prepared to handle the current and any future government shutdown.
About the Author
Ann Mizner McKay is the General Counsel and Senior Vice President at WGA. She manages the legal affairs of the company and also manages the Claims Department.