Expanding Government Action Exclusion: Insurer and Policyholder Perspectives

As with other policy exclusions, the government action exclusion is rife with ambiguities that courts across different jurisdictions have interpreted in unexpected and sometimes unanticipated ways. Originally intended to preclude coverage where the covered property had been damaged or taken by a government as a result of the insured's use of the property in criminal or illegal conduct, the exclusion has been extended in some cases to preclude coverage for innocent insureds indirectly related to some government action against another.

The government action exclusion is increasingly raised and litigated in the context of calamities like the California wildfires or Hurricane Helene, when governments take action to prevent riots and looting, or with respect to demolition or clean up. 

Insurers are increasingly successful with arguments that coverage does not exist if a government's action, and in one case, the failure to act, can be connected, however remotely, to the damage claimed. While civil authority coverage might seem like a solution, it often leaves significant gaps. To complicate matters further, private equity is purchasing insurer subrogation rights for a fraction of what can be recovered from the primary tortfeasor.

Listen as our authoritative panel of practitioners discusses the scope of the government action exclusion, the most recent case law developments, and perspectives for both insurers and policyholders.

I. Introduction

II. Government action exclusion language

III. Direct vs. indirect government action

IV. Important and recent decisions 

The panel will review these and other important issues:

• Must governmental actions be explicitly authorized?
• What is the cause of a "loss" if a covered peril renders a building unfit for use and a governmental order requires its demolition?
• Must the government action be directed at policyholder property?