Over the past few weeks, I’ve read well over 400 articles, many by attorneys, about whether there is any business income coverage for the COVID-19 pandemic. A primary focus of the coverage analysis articles is whether or not there has been any “direct physical damage” caused by the SARS-CoV-2 virus.

For most business income policy forms, that may be important when it comes to business income coverage for damage ON the described premises, but it may be far less important when it comes to coverage for business income loss due to orders of civil authority. Here’s why.

Last week, I reviewed the civil authority coverage in ISO CP 00 30 forms with edition dates of 1988, 1990, 1991, 1995, 2000, 2002, 2007, and 2012.

There was no change in coverage until 1995 when the 72-hour waiting period was specifically referenced in this coverage and the coverage was extended from 2 to 3 weeks.

There was no subsequent change until 2007 when coverage was extended from 3 to 4 weeks and the coverage grant was modified significantly.

For policy edition dates up to 2007, coverage required that a civil authority “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 any Covered Cause of Loss.”

In the 2007 edition, ISO changed the “direct physical” requirement and introduced two requirements for coverage:

  • The trigger in 2007 becomes “damage to property” not “direct physical loss of or damage to property.”
  • The civil authority must prohibit “Access to the area immediately surrounding the damaged property” and “the described premises are within that area but are not more than one mile from the damaged property….”
  • “The action of 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, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.”

I reviewed the ISO Forms Filing CF-2007-OFR07 that was submitted to most state regulators but it really doesn’t say much about these changes, In particular, it doesn’t explain why the “direct physical loss of or” language was removed, leaving only the “damage to property” requirement.

The significance of this change is that insureds that have  the 2007 or 2012 editions of the CP 00 30 do not have to prove “direct physical loss of or damage to property” but only “damage to property” away from, but within a mile of, the described premises. However, they still have the burden of demonstrating the actual existence of “damage to property.”

But that being said, keep in mind the newly introduced language that requires that the civil authority must prohibit “Access to the area immediately surrounding the damaged property….” The reality is that few, if any, governmental orders have prohibited access to business premises, much less larger “areas” like neighborhoods or business districts.

For the most part, business owners have been free to access their businesses. Likewise, while the business might not be open to the public, the public is free to walk or drive down the street in these areas. There is no prohibited access to the “area” where businesses are located.

While the ISO filing, again, was largely silent as to the intent of these 2007 changes, 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.

So, while “direct physical” loss or damage is a primary coverage issue in earlier editions of the ISO CP 00 30, in later editions “access to the area” in which a business is located is potentially even more of a problematic issue in seeking coverage.

Once again, this issue illustrates why it is critically important to read the precise language in the insurance contract and not make generalizations about coverage. RTFP!

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information

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