The destruction and devastation Hurricane Sandy left behind is disheartening. I have no doubt the greater New York City area will rise again- stronger than ever. Some news outlets have already reported that business interruption coverage may not be triggered for many commercial policyholders if the damage was caused by flood or storm surge.
This last Friday, a Wall Street Journal blog posted the following quote from George Stratts, head of AIG Property Casualty’s Global Property Division.
Business interruption coverage is tied to actual perils that are covered. From a property perspective, if you have a flood loss and there is no flood coverage then business interruption is not covered. So companies have to make sure they have the best understanding of their business and the best understanding of the exposures to it. In commercial insurance, contracts can be manuscripted so they are unique to the individual insurance.
I expected this type of response from the industry, but I did not expect it to come so soon. Hurricane Sandy caused more perils than ever imagined. While this statement could be accurate in some cases, I sincerely hope the industry is not taking a blanket exclusionary approach and each claim is evaluated on its facts and all available coverages, such as Civil Authority, are duly considered and extended without the slightest doubt.
For example, on Friday, November 2, 2012 at 10:00am, Governor Christie lifted the 6-day mandatory evacuation and closure orders he declared for Atlantic City on October 27, 2012. Governor Christie’s order issued official certificates of operation for the twelve casinos in the area, granting permission to recommence gaming and wagering activities.
Many of these casinos were damaged by both wind and storm surge. They lost millions in property damages and business income losses. These casinos should not be denied recovery for business income losses because they sustained storm surge damage. Most commercial forms include Civil Authority coverage and it should be extended- no questions asked.
Most Civil Authority provisions state:
We will pay for the actual:
Business income loss you incur due to the actual impairment of your operations, directly caused by the prohibition of access to your premises by a civil authority. This prohibition of access by a civil authority must be the direct result of direct physical loss or damage to property away from such premises or such dependent business premises by a covered peril, provided such property is within one mile from such premises or dependent premises[…]
A. Business income will begin:
After the applicable waiting period shown in the Declarations for Business Income expires; or 24 normal business hours following the time the civil authority prohibits access, whichever is the longer.
The Waiting Period shown in the Declarations will begin immediately following the time the civil authority prohibits access. The coverage will apply for a period of up to 30 consecutive days after coverage begins; or when your business income loss ends, whichever occurs first […]
In simple terms, Civil Authority coverage is triggered if all of the following elements are met:
- Government authority prohibits access to the insured property (or dependent business);
- the prohibition was issued as a result of physical loss or damage caused to property within a one-mile radius of the insured property; and
- the time element deductible (“waiting period”) is met.
We will continue monitoring and posting relevant news on how this catastrophe affects millions of businesses and enterprises.