Coverage for income loss, also referred to as business interruption, is commonly found in Commercial Property and Business Owners’ policies. This provides coverage for loss of income as a result of the insured’s suspension of operations. The most frequent triggering event for such coverage is physical damage to the business premises necessitating a closure for repair, rebuilding, or even relocation.
However, a unique aspect of business interruption coverage is income loss due to actions of civil authority. Such actions include something as minor as a road closure for repairs or as significant as an act of terrorism. In order to invoke such coverage, the prevention or interruption of access to the insured premises, absent physical damage to the insured premises itself, must be the result of physical loss or damage to property away from the insured property as a result of an insured peril.
The terms “prevention of access” and “resulting physical loss or damage” have been strictly construed by the courts, leading to what some might consider unrealistic limitations to actions of civil authority coverage. Cases arising out of travel limitations, particularly the grounding of all air travel, imposed following the 9/11 attack, are particularly instructive.
While the grounding of air travel prevented potential guests from arriving at the destination in which the hotel was located, it has been held that the hotel itself was accessible and, therefore, coverage for income loss due to this action of civil authority was denied. 730 Bienville Partners Ltd v Assurance Co. of America; Southern Hospitality v Zurich America Insurance Company.
The court in Paradise Shops Inc. v Hartford Ins . Co., took this one step further, holding that the air travel grounding wasn’t the result of physical loss or damage, but to protect against future damage from terrorist attacks. This same logic was applied to a curfew in California following the Rodney King verdict in Syufy Enterprise v Home Ins. Co. of Indiana, holding that the purpose of the curfew was to prevent future looting and rioting. The prevention of future damage rather than loss resulting from physical damage led to denial of coverage in two cases involving hurricane anticipatory evacuation orders. Dickie Brennan & Company, Inc. v Lexington Insurance Co.; Jones, Walker ,Waechter, Poitevent, Carrere & Denegre, LLP v Chubb Corp.
Conversely, coverage was found as a result of an order closing all places of amusement due to rioting. Southland Bowl, Inc. v Lumbermen’s Mutual Ins. Co.; the distinction was that the impacted business was ordered completely closed. This same reasoning was applied to confirm coverage for loss of restaurant income resulting from the Hurricane Floyd evacuation order. Assurance Co. of Am. v BBB Serv. Co.
As can be seen from the above, whether viewed as an obstacle course or a minefield, claims for income loss/business interruption as a result of actions of civil authority require careful navigation.