Many New York business owners have been denied insurance recovery based on causation issues (i.e., property damages and business income losses were caused by flood which is excluded under most policies). However, many insurance policies provide a measure of coverage and recovery through Civil Authority and Ingress/Egress provisions, which are not triggered by damages at the insured premises. Given the mandatory evacuation orders issued by the governors of New York, Delaware, New Jersey and Connecticut, insurance companies should evaluate potential coverage for business income losses under these additional coverage provisions.
Generally, civil authority coverage provides recovery for situations in which access to an insured’s property is prevented or prohibited by an order of civil authority issued as a direct result of physical damage to other premises in the proximity of the insured’s property. The following elements are typically required:
- An action or order of civil authority that
- Prohibits access to the insured premises and that
- Results from a covered loss or damage caused by a covered peril
- At a location other than the insured property (usually within 100 miles from the insured premises).
Denial of access to the insured’s premises must also cause the claimed business interruption. It is important to analyze the policy’s restrictions on where property damage must occur. Some policies specify that the property damage must occur “adjacent to” the insured property. Other policies require property damage within a certain specified distance from the insured premises, and some merely require proof of a causal link between the property damage and the order of civil authority.
Therefore, even if a business sustained damages from an excluded cause of loss (ie. flood), that same business could also have sustained damages by the enforcement of evacuation orders that stem from damages caused at other locations, and recovery for business income losses should not be denied.
Ingress/Egress coverage pays for loss of business income caused by physical damage to property of others that prevents ingress/egress to an insured’s business.
Most Ingress/Egress provisions read as follows:
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.
Fountain Powerboat v. Reliance Insurance Company1 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 Powerboat court ruled as follows:
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.
Many businesses lost income because their customers, employees, distributors and drivers could not reasonably access the property after Hurricane Sandy. Therefore, if a policy contains an Ingress/Egress provision, a measure of recovery for business income losses may be owed to the insured, and payment should not be denied only because the insured property sustained damages from excluded cause of loss.
Businesses that have been denied payment for business income losses caused by Hurricane Sandy should review their policies and consult with coverage attorneys to determine if their claims have been wrongfully denied.