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!
Bill Wilson
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Excellent summary of the Civil Authority limitations in the ISO property policies!
Gracias. Check out the comment about the CDC now saying that COVID-19 does NOT spread easily from touching surfaces or objects. Think that reduces the credence of claims that there is property damage?
The CDC now says that COVID-19 does NOT spread easily from touching surfaces or objects.
“The virus does not spread easily in other ways.
“COVID-19 is a new disease and we are still learning about how it spreads. It may be possible for COVID-19 to spread in other ways, but these are not thought to be the main ways the virus spreads.
“From touching surfaces or objects. It may be possible that a person can get COVID-19 by touching a surface or object that has the virus on it and then touching their own mouth, nose, or possibly their eyes. This is not thought to be the main way the virus spreads, but we are still learning more about this virus.
“From animals to people. At this time, the risk of COVID-19 spreading from animals to people is considered to be low. Learn about COVID-19 and pets and other animals.
“From people to animals. It appears that the virus that causes COVID-19 can spread from people to animals in some situations. CDC is aware of a small number of pets worldwide, including cats and dogs, reported to be infected with the virus that causes COVID-19, mostly after close contact with people with COVID-19. Learn what you should do if you have pets.”
This may impact insurance claims alleging property damage.
https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/how-covid-spreads.html
Oh yes they have Bill. When you clsoe a business and make it illegal to eneter that qualifies as denying access.
They’re denying commerce, not deny physical access. Take the gym owner who has been on the news. He and employees have been reconfiguring equipment and disinfecting the premises. Their “access” to the premises hasn’t been denied, they’re just not open to the public.
But, aside from that, this is not what the ISO form says. You have to read the insurance contract language. One of the coverage triggers is denying access to the “area” surrounding the premises, as often happens following a tornado, hurricane, or wildfire, where NOBODY can get inside that designated area. That is a true prohibition of access. That simply has not been the case with COVID-19.
Bill denial of access to the general public is denial of access. That employees may be allowed in in no way changes this status. If you want the exclusion for this make it clear. Ambiguity escheats to the policyholder not the contract framer
“Prohibits access” is “prohibits access.” There’s nothing ambiguous about that. We see countless news stories following disasters where the property owners are not allowed to access their own premises. That’s not the case with the pandemic. Nobody is keeping building owners or tenants from their premises or from the area surrounding their premises, which is what the policy language addresses. The general public can drive down the street and the business owners can as well, in addition to accessing their premises. So, there has been no prohibition of access to “the area” by anyone and, as a result, the civil authority coverage does not apply.
Ownership is not Public Access bill when you deny non-ownership access that is denial of access now that’s the common meaning of the phrase Public Access and is very inclusive of that me if the public is denied access to a business premises that is denial of access you cannot hide behind that if you want the restrictive definition you’re trying to apply you’re going to have to stay at the policy I’m not aware of any such definition being present in any such policy thank you
I don’t have any idea what point you’re trying to make. I don’t see the mention of “Public Access” in any forms I’ve reviewed. But, carry on.
Act of civil Authority triggers coverage that’s the point I’m making bill the fact that the Civil Authority makes an exception for the owners to re-enter the premises it doesn’t change the fact that the premises is closed to the public and that the act of the Civil Authority did so does triggering coverage under the policy form.
Unfortunately, that’s not what the ISO CP 00 30 or most other business income forms I’ve examined actually say.