As the Category 4 Hurricane Michael approached Florida, many areas evacuated in preparation for the storm. During a catastrophic event, such as Hurricane Michael, governmental authorities often order evacuation and prohibit access to certain areas due to public safety. The evacuation orders in Florida forced many businesses to shut down their operations until further notice. As a result, the businesses affected by the evacuation orders may bring a claim for business interruption claim under coverage provisions for Civil Authority.
A standard business income policy, likely includes Civil Authority coverage. Civil Authority provisions, provide coverage for an insured’s business interruption losses resulting from orders of civil authority, such as evacuation orders, curfews, highway closures etc., which deny access to the insured’s property. Most Civil Authority provisions provide language similar to below:
We will pay for the actual loss of ‘business income’ you sustain and necessary ‘extra expense’ caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from a Covered Cause of Loss.
The coverage for Business Income will begin 72 hours after the time of the action and will apply for a period of up to three consecutive weeks after coverage begins.
In simple terms, to trigger the Civil Authority coverage there must be a loss of business income:
- Caused by an action of civil authority;
- The action of civil authority must prohibit access to the described premises of the insured;
- The denial of access to described premises must be caused by direct physical loss of or damage to property other than at the described premises; and
- A covered cause of loss must cause damage to other property.
Civil Authority coverage may be subject to time restrictions. Depending on how long the government mandate lasts, coverage is only provided for the amount of time the civil authority order actually prohibited access.1
This coverage, however, is not easily triggered, as Hurricane Michael is a more complex event that caused many perils simultaneously – some of which may or may not be covered. For this coverage to be triggered, action must be due to direct physical loss of or damage to property away from insured premises from a covered peril. Many commercial property policies specifically exclude flooding. If both storm surge and wind affected the area, one must identify what actually prompted the civil authority action.
Generally, advisory and “voluntary evacuations” do not trigger coverage either.2 In the case of a catastrophic loss, insurers have also resisted this coverage by arguing that while there were several orders affecting business, orders to evacuate or remain at home taken because of fear of property damage or loss of life were not the direct result of physical damage, but to prevent harm to public health and safety. At least, one court has held that post-hurricane civil evacuation orders by local authority triggered Civil Authority coverage even without physical damage “because of the serious threat to the lives and property of residents” posed by a hurricane.3
Orders issued in anticipation of a hurricane can be extended by separate action because of actual physical damage. Many commercial businesses in Florida’s Panhandle will be affected by Hurricane Michael. Depending on the language of the policy and how long these orders stay in effect, a business may be able to pursue a business income loss claim. However, watch for implications of overlapping civil evacuation orders, such as county and city. The policyholder should keep good records proving prohibition of access to insured property and research the cause of civil authority action.
1 Southern Hospitality, Inc. v. Zurich American Ins. Co., 393 F.3d 1137 (10th Cir. 2004).
2 Kean Miller v. Nat. Fire Ins. Co. of Harford, No. 06-770, 2007 WL 2489711 (M.D. La. Aug. 29, 2007).
3 Assurance Co. of America v. BBB Service Co., 593 S.E.2d 7 (Ga. App. Ct. 2003).