Quick answer
Court rulings differ on whether business interruption coverage requires visible physical damage. Pennsylvania requires actual physical harm, while North Carolina recognizes loss of use. New York has a new stand-alone business interruption law. Technology manufacturers should review how their policies define physical loss and which law governs.
This article explains how recent court rulings in Pennsylvania and North Carolina affect business interruption insurance coverage for technology manufacturers, especially regarding non-physical losses like government shutdowns and cyber incidents. It also highlights New York’s new stand-alone business interruption law and offers practical advice to update insurance policies to protect against emerging risks.
Key Takeaways:
Have you ever wondered if your policy covers a shutdown when there’s no visible damage?
How do recent court decisions change what’s covered when cyber-failures or government orders halt your operations?
In this guide, you’ll gain:
If your business interruption policy excludes non-physical events—like cyberattacks or supply-chain breakdowns—you may face millions in uninsured losses. Our team has over a decade of experience helping technology manufacturers navigate complex insurance disputes. Below, we break down pivotal court rulings, highlight emerging legislative solutions, and offer concrete recommendations to keep your coverage as cutting-edge as your products.
In Ungarean v. CNA Insurance Co. (PA, Sept. 2024), the Pennsylvania Supreme Court held that “direct physical loss or damage” requires actual, visible harm—erosion, destruction, or disappearance of property. Under this view, government-mandated shutdowns or safety retrofits (e.g., installing partitions or hand-sanitizer stations) don’t qualify for business interruption (BI) coverage unless there’s tangible damage.
By contrast, in North State Deli v. Cincinnati Ins. Co. (NC, Dec. 2024), the North Carolina Supreme Court ruled that if property can’t be used for its insured purpose, that functional loss counts as “physical loss.” This decision underscores the principle that ambiguities in insurance contracts should favor the policyholder.
Technology manufacturers operating across multiple states face a patchwork of interpretations.
Effective October 27, 2024, New York’s Bill A10342 authorizes stand-alone BI policies that do not require physical loss or damage. Covered triggers include:
Today’s factories run on integrated software, IoT sensors, and automated controls. A single software bug or cyber-intrusion can halt production without a scratch on any machinery.
On July 19, 2024, a flawed CrowdStrike update affected 8.5 million devices, grounding flights, delaying surgeries, and stalling transactions—yet no physical damage occurred.
Semiconductor shortages, factory shutdowns abroad, or transportation disruptions can ripple through your just-in-time processes, stopping your lines with zero physical damage to your facility.
By understanding how courts are defining “physical loss,” leveraging new legislative options, and structuring a modern, layered insurance program, technology manufacturers can protect themselves against today’s non-physical threats. Update your policies, engage with specialized brokers, and ensure that your business interruption coverage truly matches the digital realities of modern manufacturing.
It depends on the policy and the jurisdiction. Pennsylvania's Supreme Court held that direct physical loss requires actual, visible harm, so shutdowns without tangible damage are typically not covered, while North Carolina's Supreme Court recognized loss of use as physical loss unless the policy expressly excludes it.
Effective October 27, 2024, New York's Bill A10342 authorizes stand-alone business interruption policies that do not require physical loss or damage. Covered triggers include damage to your or neighboring property, acts of violence on the premises, and government orders. Insurer participation is optional.
Courts in different states interpret physical loss differently, so technology manufacturers operating across states face a patchwork of interpretations. We recommend reviewing the governing-law clause to align with jurisdictions recognizing functional loss and asking insurers at renewal to clarify how physical loss is defined.
Not always. A software bug or cyber intrusion can halt production without physical damage, and many cyber business interruption policies cover only malicious attacks. Manufacturers should negotiate inclusion of software errors and vendor mistakes and review waiting periods and sublimits.
Contingent cyber business interruption covers disruptions at suppliers, customers, or service providers. Standard forms often limit coverage to direct counterparties, so multi-tier dependencies require thorough scheduling and underwriting. Mapping your dependencies helps you discuss options with an agent.