As
the category 4 Hurricane Harvey approached the Texas Gulf Coast, many areas
evacuated in preparation for the storm. And in the wake of the hurricane and
the widespread flooding that followed, additional evacuations and curfews
followed.
Only days later, the country then watched as Irma, a category 5 hurricane, ravaged the Caribbean and headed straight toward Florida. Many areas in Florida, Georgia, and South Carolina evacuated in preparation for the storm.
The evacuation orders and curfews in both Texas and Florida will bring a flurry of business interruption claims for businesses forced to shut down during the storms – specifically under coverage provisions for “civil authority”. There are a few generalities to be aware of when it comes to coverage for loss of business due to acts of civil authority, but of course each claim will be governed by the terms of the policy and the facts of the particular loss.
Only days later, the country then watched as Irma, a category 5 hurricane, ravaged the Caribbean and headed straight toward Florida. Many areas in Florida, Georgia, and South Carolina evacuated in preparation for the storm.
The evacuation orders and curfews in both Texas and Florida will bring a flurry of business interruption claims for businesses forced to shut down during the storms – specifically under coverage provisions for “civil authority”. There are a few generalities to be aware of when it comes to coverage for loss of business due to acts of civil authority, but of course each claim will be governed by the terms of the policy and the facts of the particular loss.
A covered cause of loss must cause damage to
other property.
In order to trigger coverage, the act of civil authority – such as the
evacuation order or curfew – must typically be a direct result of a covered cause of loss to property other than the insured
property. The coverage analysis is fact specific and will depend on the express
terms of the policy at issue.
For example, many of the curfews and evacuations in Texas in the wake
of Hurricane Harvey were a result of the threat to public safety caused by
flooding. But many commercial property policies specifically exclude flooding. In
these cases, there would be no coverage for loss of business during the forced
closures. See e.g. Bamundo, Zwal &
Schermerhorn, LLP v. Sentinel Ins. Co., Ltd., No. 13-cv-6672, 2015 WL 1408873 (S.D.N.Y. Mar. 26, 2015) (holding that
there was no coverage under a civil authority provision because the evacuation
order was based on flooding, which was an expressly excluded cause of loss).
Alternatively, some of the curfews in the Gulf Coast may have been put
in place due to fears of actual ongoing criminal activity such as looting as thousands of houses lay partially submerged
and abandoned. In these cases, coverage might be triggered if theft or looting
is also covered under the policy and the order was issued as a direct result of
actual property damage caused by looting or theft.
The act of civil authority must be a direct
result of property damage, not just the threat of property damage.
The act of civil
authority must also typically result from property damage that has already
occurred or is in the process of occurring – coverage will not be triggered if
the civil authority was issued in anticipation of future damage. Understanding
the policy language and this requirement is key to coverage because in many
cases, the evacuations or curfews were put in place in anticipation of future
harm that Harvey and Irma would bring.
Many policies further
require that the civil authority order prohibit access to the insured property
due to damage to property nearby or adjacent to the insured premises, a
requirement that courts will enforce. Syufy Enterprises v. Home
Insurance Co. of Indiana,
No. 94-0756, 1995 WL 129229 (N.D. Cal. Mar. 21, 1995) (denying coverage because
no property adjacent to Syufy’s premises sustained physical damage); Bros., Inc. v. Liberty Mut. Fire Ins. Co.,
268 A.2d 611, 613 (D.C. App. 1970) (denying coverage because the regulations
were not the direct result of damage or destruction of adjacent property); Adelman Laundry & Cleaners, Inc. v.
Factory Ins. Ass’n, 207 N.W.2d 646 (Wis. 1983).
The query will again turn on the specific policy
language at issue and the facts of each
claim – including the basis for the evacuation or curfew at issue. For
example, if the policy does not require nearby
or adjacent property damage, the
precautionary evacuations may be covered if based on property damage that occurred in
the Caribbean. South Texas Medical
Clinics, P.A. v. CNA Financial Corp., No. H-06-4041, 2008 WL 450012, *9 (S.D.Tex. Feb. 15, 2008) (holding that that
there was no coverage because the judge had issued the evacuation order “due
to” fear that the Hurricane would strike, based in part of the physical damage
in Florida, but it was not issued “due to” to the physical damage in Florida).
The action of civil authority must completely
prevent access to the described premises.
An action of civil authority must actually and completely prohibit access
to the insured premises. Kean, Miller, Hawthorne, D’Armond McCowan
& Jarman, LLP v. Nat’l Fire Ins. Co. of Hartford, No. 06-770-C, 2007 WL 2489711, *4 (M.D. La.
Aug. 29, 2007) (citing Southern
Hospitality, Inc. v. Zurich American Ins. Co., 343 F.3d 1137 (10th Cir.
2004); TMC Stores, Inc. v. Federated
Mutual Ins. Co., 2005 WL 1331700 (2005); By Development, Inc. v. United Fire & Casualty Co., 2006 WL
694991 (D.S.D. 2006); 730 Bienville
Partners Ltd. v. Assurance Co. of America, No. Civ. A. 02-106, 2002 WL
31996014 (E.D. La. Sept. 30, 2002)). Evacuations and city-wide curfews both
meet this element, as they completely prohibit access to premises within the
city limits because the businesses are required to close. See,
e.g., Kean, 2007 WL
2489711, *6 (citing Assurance Co. of Am. v. BBB Serv. Co., 265 Ga.App.
35, 593 S.Ed.2d 7, 7-9 (2003); Narricot Indus., Inc. v. Fireman's Fund Ins.
Co., 2002 WL 31247972, at *4 (E.D.Pa.2002); Southlanes Bowl, Inc. v.
Lumbermen's Mut. Ins. Co., 46 Mich.App. 758, 208 N.W.2d 569, 570 (1973); Altru
Health System v. American Protection Insurance Co., 238 F.3d 961 (8th
Cir.2001)).
But where a
business claims losses because its business slowed due to evacuations or
curfews imposed in nearby areas, coverage will not exist. The act of civil authority must actually and
completely prohibit access to the insured premises. “Without a complete
inability to access the premises, or a forced closing by a civil authority, the
coverage … is not applicable.”
Ski Shawnee, Inc. v. Commonwealth Ins. Co., No. 3:09–CV–02391, 2010 WL
2696782, *5 (M.D. Pa. Jul. 6, 2012) (relying on Southern Hospitality).
Coverage is only provided for the amount of time
the civil authority order actually prohibited access.
Finally, if
circumstances surrounding a civil authority order in relation to Hurricanes Harvey
and Irma meet the coverage requirements, the inquiry becomes the length of time
coverage is provided. Courts have consistently held that civil authority
coverage extends only for the specific
period of time access to the property is completely prohibited. See
e.g., Southern Hospitality, 393 F.3d at 1140; TMC Stores, 2005 WL 1331700, at *4 (recognizing that other
jurisdictions only find civil authority coverage available when access is
completely prohibited). Once the evacuation order or curfew is lifted and
business can resume, coverage ceases.
Some policies further
provide that coverage does not begin until a period of time after the act of
civil authority begins – 48 or 72 hours after the evacuation order begins, for
example. These timelines will be enforced and should be considered on a
case-by-case/policy-by-policy basis.
Conclusion
Ultimately, the plain language of the civil authority provisions must
be analyzed in light of the specific facts of each claim. With regard to the
evacuation orders and curfews in place during Hurricanes Harvey and Irma, it may
be a high burden for the insured to meet. The inquiry, however, is
fact-dependent and must be evaluated on a case-by-case basis.
Post by Lindsey Bruning