Is There Coverage for Losses Stemming from a Government Shutdown or Default?

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A company that suffers significant losses due to the shutdown could face investor suits and should make sure its D&O (Directors and Officers) coverage is adequate for such a possibility. A federal contractor that loses government funding may be forced to layoff or furlough employees. Any such measure could give rise to a variety of employment-related claims, to which employment practice liability insurance (EPLI) may respond. Delayed EPA approvals could increase the cost of ongoing environmental remediation, which could lead to faster erosion of CGL (commercial general liability) limits for environmental claims. Lastly, regarding the possibility of a federal debt default, the loss mitigation tool most likely to address such a possibility, however remote, is probably a credit default swap. Those instruments would typically pay any after any failure to make a single due payment that lasts only 3 business days.

While insurance is far from certain to cover the negative consequences of a federal government shutdown, now is the time to review your policies and find out, and to plan ahead for the next potential stand-off.

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