Property Damage or Actual Impairment of Access Is Not Necessarily Required To Recover Business Income Losses
The Port of New York and New Jersey is the third largest seaport in North America and the largest maritime cargo center on the East Coast. Many highly interdependent supply chain networks were disrupted during and after Hurricane Sandy. Although Port Authority employees worked extra shifts to resume its transportation and holding operations, many goods were stuck or slowed down at the Port, shipments were rerouted and rescheduled, and businesses from New York to Malaysia suffered losses as the flow of goods over railroads, bridges and roads connecting the Port with the world came to a halt.
Many insurers are claiming direct physical loss or damage at the insured property is required to trigger business interruption coverage. Although this statement may be true under certain types of policies, many port dependent industries will have policies that provide adequate coverage for the significant losses caused by supply chain disruptions
In 2010, I posted The Value of Ingress/Egress Coverage - Understanding Business Interruption Claims, Part 33 and highlighted a case that has already made into many power point slides, panels and presentations addressing Hurricane Sandy insurance claims.
Fountain Powerboat v. Reliance Insurance Company,1 is one of the few published court interpretations discussing Ingress/Egress coverage. Fountain Powerboat manufactured, distributed and sold boats and boating equipment out of a facility in North Carolina. In 1999 Hurricane Floyd dumped record-setting rain over the eastern part of North Carolina, and, although the facility did not sustain any physical loss or damage from the storm, the only roads leading to the Fountain facility were closed for seven days. For three days Fountain used large trucks to pick up workers from various “pick-up points” and transport them to the facility to continue operations, albeit at 33% reduced capacity.
The insurance company paid for certain claims but denied coverage under the Ingress/Egress provision for the same reason that many Hurricane Sandy business interruption claims have been denied.
- That without property damage, the insured cannot recover for its income losses and;
- that there is no “actual impairment to access” if the insured is able to operate, albeit at reduced capacity (ie. requiring a total cessation).
The Fountain court interpreted the Ingress/Egress provision and held:
Loss of Ingress or Egress:
This policy covers loss sustained during the period of time when, as a direct result of a peril not excluded, ingress to or egress from real and personal property not excluded hereunder, is thereby prevented.
The plain meaning of this language indicates an agreement between the parties that the contract for insurance cover any business interruption caused by loss by any peril not excluded. A “loss” is not predicated on physical damage but is one category of recovery along with damage and destruction as indicated by the use of the alternative coordinating conjunction “or.” Flooding due to Hurricane Floyd is exactly the type of peril this business interruption loss was drafted to insure against.
Furthermore, Reliance was aware of the location of the Fountain facility and was aware that the facility had a limited access. The court can only conclude that the parties intended that the policy would provide coverage not only when the property itself was inaccessible, but also when the only route to the Facility caused the property to be inaccessible. The court's conclusion that no physical loss is required to trigger business interruption coverage is further bolstered by the parties' inclusion of the following provision:
5. Interruption by Civil or Military Authority: This policy is extended to cover the loss sustained during the period of time when, as a direct result of a peril not excluded, access to real or personal property is prohibited by order of civil or military authority.
This provision immediately precedes the loss of ingress/egress provision. Neither provision requires physical loss, but merely covers loss sustained due to lack of access to the property. Therefore, the court finds that no requirement for physical loss to the property is required under the contract of insurance in order to trigger business interruption coverage under the ingress/egress clause.
The court also found the insured’s efforts to pick up its employees and drive them to work were extraordinary (since they were driving large trucks over heavily flooded and closed roads) and the provision provides coverage when there is no reasonable access to the property. Interestingly, the court found the period of restoration for which loss of ingress/egress may be claimed is the length of time to restore the business to the condition that would have existed had no loss of ingress/egress occurred.
Not all ingress/egress provisions are alike. Businesses considering or currently presenting a claim for business income losses caused by Hurricane Sandy should review their policies to determine whether the Ingress/Egress provisions provide coverage.
1 Fountain Powerboat v. Reliance Ins. Co., 119 F. Supp. 2d 552 (E.D. N.C. 2000).