Member Article

Many governmental authorities across the country have ordered “nonessential” businesses to shut down because of the COVID-19 crisis. Many business owners are asking what that means for the business income losses that they are forced to endure and whether insurance will cover those losses.

Most property insurance policies that offer business interruption coverage provide some form of “civil authority” coverage. Civil authority coverage provides insurance for the loss of income that results from restrictions prohibiting access to the insured’s premises. As with other insurance provisions, different policies will provide different operative language for triggering the civil authority coverage.

The Insurance Services Office, Inc. (“ISO”), the primary organization that drafts standard-form insurance policies often adopted in whole or with some modifications by various insurance companies, has released two different forms for business interruption. Coverage may differ depending on whether the insurer uses one or neither of these forms. The coverage for business income under either form typically begins 72 hours (unless modified by endorsement) after the civil authority action preventing access goes into effect and applies for up to several weeks. Note, however, that the specific language of your policy or as otherwise modified by endorsement may differ from or may be totally unrelated to the standard ISO business income language described here.

Under the older ISO form, civil authority coverage for business income losses is available “due to direct physical loss of or damage to property, other than at the [insured property], caused by or resulting from any Covered Cause of Loss.”

The newer form states that “[w]hen a Covered Cause of Loss causes damage to property other than [to the insured property],” insurance coverage is provided “for the actual loss of Business Income . . . sustain[ed] and necessary Extra Expense caused by action of civil authority that prohibits access to [insured property].” Two things must occur: “(1) [a]ccess to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage . . . and (2) [t]he action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage.”