For anyone following the daily flood of developments regarding business interruption and COVID-19, insurance commentator Bill Wilson is a good source to read and follow. Astutely, his website is www.insurancecommentary.com. Mr. Wilson’s newest post, It’s Not Just About ‘Direct Physical Damage’,1 raises interesting new arguments about Civil Authority claims – a sub-coverage within business interruption. He breaks down some factors that lean both for and against civil authority coverage for COVID-19 claims based on some interesting historical research.
In his article, Mr. Wilson explains that he reviewed the civil authority ISO forms going back to 1988 and noticed some interesting changes. Mr. Wilson explains that prior to 2007, the ISO form required “direct physical loss of or damage to property,” but afterward ISO changed the form to requiring only “damage to property.” He further notes that ISO added language requiring that the “action of the civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage.…” Mr. Wilson did not find any evidence explaining the reasons for the changes with insurance company public filings on these changes. However, given that ISO left the “direct physical loss of or damage to” language in the main BI provision, strongly suggests they intended a different standard apply to civil authority coverage.
This argument is useful fodder for policyholders seeking some reprieve from their devastating losses of business. However, what Mr. Wilson giveth he taketh away—just like an insurance policy exclusion. Mr. Wilson also observes that in 2007, the civil authority provisions changed to require that any civil order prohibit “[a]ccess to the area immediately surrounding the damaged property.” According to Mr. Wilson, “few, if any, governmental orders have prohibited access to business premises, much less larger ‘areas’ like neighborhoods or business districts.” Mr. Wilson states that “the consensus of coverage experts and educators is that this language reflects the fact that, in the case of damage caused by perils like windstorm (e.g. tornadoes and hurricanes), widespread damage (e.g. downed power lines) may exist that warrant shutting down these areas to all but emergency workers.”
We greatly appreciate Mr. Wilson identifying these issues, and insurers will attempt them in court. But we see a number of responses in favor of coverage. For instance, the civil authority language does not say the extent to which the order must “prohibit access.” Mr. Wilson is reading this as prohibiting any kind of physical presence whatsoever. This is just one interpretation, however. We note that the term “prohibit access” does not say “prohibits any physical presence whatsoever.” And in court, insuring provisions are “interpreted broadly so as to afford the greatest possible protection to the insured, [whereas] . . . exclusionary clauses are interpreted narrowly against the insurer.”2 Further, where there are two or more reasonable interpretations, the tie typically ends up going to the insured.3 Thus, an order that allows one to walk up to a business’ front door, but prohibits physical access to it and any other business in the area, may create coverage.
For another argument, the term “access” may mean more than just the right to be physically present in an area. In court, insurance policy terms are construed based on their ordinary and popular meaning wherever possible.4 Meriam-Webster defines “access” as “permission, liberty or ability to enter, approach, or pass to and from a place,” as well as “freedom or ability to make use of something.”5 Thus, the term “access” may be interpreted as referring to a civil order that prohibits the ability to make use of the business, by either the customer or owner/insured. We see no issues with this interpretation when considered in the context of the policy as a whole.
Additionally, Mr. Wilson’s note addressing the consensus of experts gives examples of situations involving windstorms or tornadoes. But this is not a windstorm or tornado. This is COVID-19. Business interruption policies generally cover all risks unless otherwise excluded, and as we have seen many policies do not include ISO’s virus exclusion. Accordingly, how the industry applies the coverage provisions to other types of losses do not translate well here.
We greatly appreciate Mr. Wilson’s scholarship and hope that he continues to analyze the subject. We enjoy debating with him when he concludes an issue in favor of insures, and we greatly appreciate his ability to identify issues that will arise in future litigation. For this we thank you, Mr. Wilson.
2 MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 649 (Cal. 2003).
3 Id. At 655.
4 Id.</em< at 650.