Actual property damage outside the US was used to support a claim for business interruption for a popular restaurant chain. In an interesting case for loss of business income,1 policyholders were able to prevail by showing how a local evacuation order and hurricane damage in the Bahamas would trigger coverage for 2 ½ days of lost revenue for shut-down stateside restaurants.

In this case, BBB Service Company, Inc., an owner of several of the popular Wendy’s Old Fashioned Hamburgers restaurants in Florida and Georgia, sued for breach of contract and bad faith arising out of the loss of business income due to shutting down their Broward County restaurants.

This is not a new case—it is one that was published in 2003—but dealt with Hurricane Floyd. What became very important in this case was that while the path of the hurricane’s storm surge and high winds were not known, the Chairman of the County Commission had declared a local state of emergency and certain persons were ordered to evacuate. Several Wendy’s fast-food locations were shut down as a result and the loss of business was claimed. The storm didn’t hit the restaurants but the workers were not there and the locations were not operational because of the evacuation order.

Assurance Company of American denied Wendy’s claims for the business loss and said that the evacuation order was issued due to the threat of damage to property, and not due to actual damage to property as required by the policy.

Here is the policy language:

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 your premises due to direct physical loss of or damage to property, other than at the “covered premises,” caused by or resulting from any Covered Cause of Loss. This coverage will apply for a period of up to 4 consecutive weeks from the date of that action.

Here is the test that the court applied:

The Civil Authority clause in the insurance policy requires two things in order for BBB to recover lost business income: (1) that the loss was caused by a civil authority action which prohibited access to BBB’s insured premises, and (2) that the civil authority action which prohibited access was due to the direct physical loss of or damage to property other than the insured premises.

The first element of the test was met when the Broward County Evacuation Order was issued but what about the second action of direct physical damage or damage to property?

As to that issue, BBB introduced photographs of the hurricane’s landfall in the Bahamas on September 13 through September 14. BBB also presented the testimony of members of the Brevard County “Policy Group,” who were assembled to make emergency decisions regarding weather-related problems. One member of that team, the attorney for Brevard County, testified that the group had “watched [the storm] progress from the Atlantic, [and] there was a lot of damage being done to the south of us at the various islands that it crossed.” He stated that the fact that the storm had been causing damage in its path, the forecast that the storm was headed to Brevard County, and the anticipated impact of the storm if it reached Brevard County were factors that led the team to advise the Chairman of the County Commission to sign the evacuation order.

The moral of the story is that for coverage to apply, the actual business did not have to suffer “direct physical loss” because the policy requirement for a civil authority business income loss required that the policyholder to be prohibited from access to the premises due to direct physical loss of or damage to property, other than at the “covered premises,” caused by or resulting from any Covered Cause of Loss.

1 Assurance Co. of Am. v. BBB Serv. Co., 265 Ga. App. 35, 36, 593 S.E.2d 7, 8 (2003).