As businesses and insurers recover from the devastation of
Hurricane Harvey and Hurricane Irma, it may take time to fully assess the
effects of these storms on a business’s bottom line. Invariably, however, the
scale of these natural disasters likely provides some immediate impact on
insureds’ businesses – the ability to access the premises may be barred or
impacted.
And, so enters ingress/egress business interruption coverage.
Ingress/egress coverage involves the inability to enter or leave the insured
premises. Some examples include customers not being able to access a store,
product is unable to be shipped out, or raw materials are unable to be shipped
in.
Ingress/egress coverage is similar to civil authority
insurance in that both apply when access to the insured’s property is limited.
The difference between these coverage is that ingress/egress coverage is not
limited to circumstances where the government prevents access to the premises
by way of law, ordinance, or emergency order. Said differently, a civil
authority’s interference is not required for ingress/egress coverage to be
triggered.
Commercial property policies may provide coverage for damages
arising from prevention of ingress to or egress from an insured’s premises.
However, not all insurance companies offer this kind of coverage, so an
analysis of the individual carrier’s policy language and endorsements is
critical. Additionally, and as a result, ingress/egress policy language tends
to be less standardized than other forms of business interruption coverage. As
an example, an ingress/egress provision may read:
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.
An often-cited case addressing an ingress/egress provision
like the one above is Fountain Powerboat
Indus., Inc. v. Reliance Ins. Co., 119 F.Supp.2d 552 (E.D.N.C.2000). In Fountain, the district court was faced
with determining whether recovery under this ingress/egress provision required
property damage to trigger coverage. The plaintiff conceded that business
interruption coverage generally requires that the interruption be caused by
damage to covered property, but relied upon the ingress/egress clause in its
policy to extend such coverage when a covered cause of loss barred access to
the property. The court held:
1. The closure of the only access road to insured’s facility triggered coverage under the egress/ingress clause even though the interruption was not caused by physical damage to the insured premises; and
2. The coverage period required to “restore the insured’s business” to its previous condition was triggered even though interruption was not caused by physical damage to facility.
The Fountain
case, while not controlling in either Texas or Florida, provides some guidance
for parties and courts in those jurisdictions when analyzing ingress/egress
claims. It is likely that courts in Texas and Florida will agree with the Fountain court’s conclusion that the ingress/egress provision does not typically require
actual damage to the insured property to trigger coverage. This is because the
general business interruption provisions would cover those very same damages if
property damage at the insured property were required to trigger ingress/egress
coverage. That would render the ingress/egress clause meaningless. The
judge therefore concluded, “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.”
Moreover, the Fountain
court determined that the plaintiff could recover not only for the period of
time that the damage actually blocked access to the insured, but also for “the
length of time to restore Fountain’s business to the condition that would have
existed had no loss of ingress/egress occurred.” A more recent Arizona case, Aztar Corp. v. U.S. Fire Ins. Co., 223
Ariz. 463, 479 (Ct. App. 2010), challenged this conclusion, however. In Aztar, the court declined to extend the period of liability to the length of time
necessary to restore the business because that policy contained an explicit
maximum indemnity period for impaired access (30 days).
The court in Fountain
further determined that the ingress/egress provision was only triggered if
the lack of access was due to the “direct result of a peril not excluded” by
the policy. This position was reinforced by City
of Chicago v. Factory Mut. Ins. Co., No. 02 C 7023, 2004 WL 549447, at *3
(N.D. Ill. Mar. 18, 2004), where, after considering Fountain, the court determined that because the ingress/egress
business interruption claim was due to damage specifically excluded by the
policy, no coverage was afforded.
Notably, the Fountain
court determined that ingress/egress coverage could be triggered even if
there is not a complete prohibition of access to the property. This conclusion
differs from cases discussing civil authority provisions, which can require
complete prohibition of access. In Fountain,
the property was still somewhat accessible and workers were able to be
transported to the facility by Fountain using
large trucks, but production at the Fountain facility fell significantly during
the period of business interruption. The court still found this was sufficient
to trigger coverage.
Case law in Florida and Texas is not well developed with
respect to ingress/egress claims. Nevertheless, courts in these jurisdictions
have sought guidance to analyze ingress/egress provisions by reviewing the more
well-developed case law on civil authority provisions. See e.g., Houston Cas. Co. v.
Lexington Ins. Co., No. CIV.A. H-05-1804, 2006 WL 7348102, at *1 (S.D. Tex.
June 15, 2006) (analyzing case law on civil authority and ingress/egress in
interpreting a business interruption provision following mandatory evacuations
for a hurricane that never made landfall or damaged the property).
In Texas and Florida, as in most jurisdictions, the relevant
issues with respect to potential coverage under a civil authority provision
are:
1. Whether a covered cause of loss damaged property;
2. Whether the action of civil authority actually prohibited access to the described premises; and
3. Whether the time element deductible (“waiting period”) is met.
Taking the analysis in cases addressing civil authority claims, and
extrapolating the analysis from cases such as Fountain, Aztar, and City of Chicago, a carrier should
consider affording coverage under an ingress/egress provision when:
1. The listed sublimits or waiting period has been met and the duration of liability has not run (which usually falls between 30 and 90 days);
2. The event directly preventing access is covered under the policy and is not caused by an excluded cause of loss; and,
3. Ingress to or egress from an insured premises is reasonably prohibited.
Ultimately, ingress/egress claims are more immediately
felt by insureds and their businesses. Whether there will be a dispute with
respect to coverage for these claims will likely be due to whether the access
was prohibited due to a covered or excluded cause of loss, the reasonableness
of the prohibition of access, and the length of time the business interruption
loss is reasonably sustained. A policy’s language should be closely considered
and no ingress/egress claim is likely to be the same.
Posted by Walter W. Cardwell IV