Hurricane Irene caused significant infrastructure damage. Here is a picture of the damage caused to a road in Puerto Rico. There are still many roads that are unserviceable as thousands of people and businesses grow increasingly anxious to resume normal business activities.
A typical ingress/egress provision will provide coverage for economic losses sustained when access to the insured property is impaired. The language found in most commercial policies reads as follows:
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.
Under most policies, the insured property does not need to sustain direct physical loss or damage for the insured to recover income losses which were the proximate result of inaccessibility to the insured premises.
Fountain Powerboat v. Reliance Ins. Co., 119 F. Supp. 2d 552 (E.D. N.C. 2000), illustrates of the value of this type of coverage. Fountain manufactured, distributed and sold boats and boating equipment out of a facility in Washington, N.C. In 1999, Hurricane Floyd dumped record-setting rain fall over the eastern part of North Carolina. After the storm passed, 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. As a result of displacement caused by the floods, production at the Fountain facility fell to 33 percent of full capacity.
Reliance paid nearly $1,000,000 for certain claims but partially denied the claim for ingress/egress coverage, asserting that without property damage the insured could not recover under this provision despite their extraordinary efforts to resume operations, because there was no “actual impairment” to access as they were able to drive over the flooded and eroded roads for three days.
The Reliance policy had a standard ingress/egress provision, and the court rejected the insured’s “actual impairment” requirement.
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.
Interestingly, the court found that the length of time for which loss of ingress/egress could be claimed was the length of time it took to restore Fountain’s business to the condition that would have existed had no loss of ingress/egress occurred.
Not all ingress/egress provisions are as expansive as the one interpreted in Fountain Powerboat. Most forms will limit the period of recovery to a few weeks. I strongly urge all claims professionals to carefully read the applicable provisions to determine if ingress/egress coverage dovetails into a commercial property insurance claim.