Micah E. Skidmore is a partner at Haynes and Boone inDallas. Skidmore represents policyholders in significant insurancecoverage disputes involving a variety of claims from commercialgeneral liability, directors and officers liability, employmentpractices liability, and errors and omissions liability tofirst-party property claims, trade credit, and crime and fidelityclaims. He can be reached at [email protected].

Whether you call it a “shutdown” or a “slowdown,” the lack of afully funded federal government has impacted more thanthe 800,000 federal workers furloughed from Oct. 1 to 16.

According to economic consulting firm, IHS Global Insight, thefederal budget debacle cost $1.6 billion per week in lost grossdomestic product. Government contractors and other businesses, inindustries from defense, health care, construction and hospitality,may face significant financial losses.

For those contractors and other businesses whose operations havebeen slowed or stopped by the shutdown, contingent businessinterruption insurance coverage may provide some recourse orrelief. Contingent business interruption coverage is often a partof commercial property insurance policies and is intended to insurethe losses sustained by a business when a significant customer's orsupplier's operations are interrupted by covered loss ordamage.

While direct physical damage is often the trigger for commercialproperty coverage, including CBI coverage, physical “loss”, such asthe loss of functionality caused by the lack of governmentappropriations, may be sufficient to invoke CBI coverage forbusinesses dependent on the federal government for theiroperations. Depending on the terms of the applicable policy, abusiness, for example, that is required to suspend or reduceoperations because its customer, the federal government, hassustained a physical loss from the “shutdown” may be entitled tocoverage for the resulting losses.

Alternatively, in some cases, “civil authority” coverage—alsofound in many commercial property policies—may be appropriate.Subject to variations in policy terms, such coverage generallyextends to losses sustained by an insured when, as a direct resultof an insured peril, access to real or personal property isprohibited by order of civil or military authority. Since theshutdown, various government facilities, including national parksand other agencies, have been ordered closed until funding isrestored.5 To the extent that civil orders to close governmentfacilities have caused direct losses to insureds, such losses maybe compensable under the civil authority coverage commonly found incommercial property insurance policies.

Given the significant financial impact for federal contractorsand other business operators, companies whose operations haveslowed or ceased since Oct. 1 from the shutdown shouldcarefully examine their commercial property policies or otherpotentially applicable insurance contracts to determine if coverageis available and a claim is appropriate. As with any insurancematter, it is important to provide prompt and adequate notice of aclaim. Particularly for business interruption claims, asatisfactory proof of loss is typically also required in additionto notice of the “occurrence” resulting in the insured's loss.