Several states have already attempted to pass legislation
declaring that shutdowns caused by COVID constitute property damage
under insurance policies. That, of course, will probably run afoul
of the Contract Clause of the Constitution. The Contract Clause of
the Constitution provides that that "No state may enter into
any ...law impairing the obligation of contracts." It is
difficult to see how legislation passed that would retroactively
alter insurance coverage afforded by the insurance contract could
be constitutional.
However, some states and local governments may attempt to bypass
that issue entirely by virtue of the "civil authorities"
coverage offered under some insurance policies. Most insurance
policies offer coverage for lost income that results from shutdowns
by civil authorities, but those shutdowns must be caused by
property damage.
