December 11, 2014
We have recently seen images of rioting, looting and arson in Ferguson, Missouri in response to the grand jury’s decision not to indict Darren Wilson, a white police officer, for the death of Michael Brown, an African-American teenager. There are many victims of this tragedy, including the local residents and small businesses owners whose stores and restaurants were raided, ransacked and burned.
People are asking, “Is there insurance coverage for these losses?”
I’ve heard people say there is no coverage. And at first glance, that might appear to be correct. Intentional harms and criminal activity, generally speaking, are not covered by insurance.
However, a deeper dive into the applicable policy provisions – for those Ferguson business owners and residents who purchased insurance – reveals that there should indeed be coverage.
Why the Confusion? It is a fundamental principle of insurance that, for a “loss” or an “occurrence” to be covered, it must be fortuitous. Across all lines – Personal and Commercial, Property and Liability – there is generally no coverage for:
- “Bodily injury,” “personal injury” or “property damage” knowingly or intentionally inflicted by the insured,
- Dishonest or criminal acts by the insured, or
- Actions the insured commits, or conspires to commit, with the intent to cause a “loss.”
This principle is embodied in the coverage grants and exclusions that form the basis for property/casualty insurance contracts throughout the industry.
However, the principle does not preclude coverage for the intentional destruction of insured property in Ferguson. Those losses, after all, were intentionally inflicted not by the insureds, but by others – the rioters.
Recall the definition of “occurrence” in ISO’s 1973 Comprehensive General Liability Insurance Policy: “an accident, including continuous or repeated exposure to conditions which results in ‘bodily injury’ or ‘property damage’ neither expected nor intended from the standpoint of the insured.”
What policies would provide coverage?
There are two policies routinely sold in the United States that provide coverage for damages caused by riot, civil commotion and vandalism: the Businessowners Policy and the Homeowners Policy.
I. The Businessowners Policy
The Businessowners Policy (BOP) is a simplified language policy designed for small businesses like the retail establishments damaged and destroyed in Ferguson. The policy provides coverage for real and personal property, loss of business income, and liability.
The property insurance portion of the BOP provides coverage for full “replacement cost” – not just “actual cash value.” For that reason, insurers require that policyholders insure the property for its full replacement value.
There are other versions of a non-ISO “Business Policy” with coverages that resemble those provided by the BOP. In addition, several basic coverage forms in ISO’s Commercial Property line provide first party coverage substantially similar to that provided by the BOP. You can find these provisions and their annotations, directly through the forms included in Miller’s Standard Insurance Policies Annotated®, or through “Miller’s Index.”
The case citations below sketch the context for understanding the Businessowners Policy and its “look-alikes” that would be at issue in Ferguson.
A. Coverage for Loss of Property – Requirements
The BOP covers “direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.”
1. “Direct Physical Loss”
“Direct physical loss” to Covered Property is essential to coverage.
Association of Apartment Owners of Imperial Plaza v. Fireman’s Fund Ins. Co., 939 F.Supp.2d 1059, 1068 (D.Hawai‘i,2013); MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co., 187 Cal.App.4th 766, 115 Cal.Rptr.3d 27, 31 (Cal.App. 2 Dist.,2010); Universal Image Productions, Inc. v. Chubb Corp., 703 F.Supp.2d 705, 709 (E.D.Mich.,2010); 242-44 East 77th Street, LLC v. Greater New York Mut. Ins. Co., 31 A.D.3d 100, 815 N.Y.S.2d 507, 508 (N.Y.A.D. 1 Dept.,2006); Crestview Country Club, Inc. v. St. Paul Guardian Ins. Co., 321 F. Supp. 2d 260, 264 (D.Mass. 2004); Ward General Ins. Services, Inc. v. Employers Fire Ins. Co., 114 Cal. App. 4th 548, 7 Cal. Rptr. 3d 844, 846 (Cal.App. 4 Dist. 2003); Massi’s Greenhouses, Inc. v. Farm Family Mut. Ins. Co., 233 A.D.2d 844, 649 N.Y.S.2d 307, 308 (N.Y.App.Div. 4Dep’t 1996); Florists’ Mut. Ins. Co. v. Tatterson, 802 F. Supp. 1426, 1429 (E.D.Va. 1992).
2. “Covered Property”
The BOP provides coverage for damage to the insured’s:
- Fixtures, including outdoor fixtures,
- Permanently installed machinery and equipment,
- Personal property owned by the insured and used to maintain or service the premises, including fire extinguishing equipment,
- Outdoor furniture,
- Floor coverings,
- Appliances used for refrigerating, ventilating, cooking dishwashing or laundering, and
- Business personal property located in or on the building, or in the open or in a vehicle within 100 feet of the premises.
MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co., 187 Cal.App.4th 766, 115 Cal.Rptr.3d 27, 31 (Cal.App. 2 Dist.,2010); Trophy Tracks, Inc. v. Massachusetts Bay Ins. Co., 673 S.E.2d 787, 789 (N.C.App., 2009); Nationwide Mut. Ins. Co. v. Regency Furniture, Inc., 183 Md. App. 710, 963 A.2d 253, 261 (Md.Spec.App. 2009); Italian Designer Import Outlet, Inc. v. New York Cent. Mut. Fire Ins. Co., 26 Misc.3d 631, 891 N.Y.S.2d 260, 262 (N.Y.Sup.,2009).
3. “By a Covered Cause of Loss”
For an insured Ferguson business owner, Covered Causes of Loss would include “Riot and Civil Commotion” and “Vandalism.”
a. “Riot or Civil Commotion” is defined by the BOP to include “looting occurring at the time and place of a riot or civil commotion.”
The National Underwriter’s Commercial Property Coverage Guide defines a “riot” as “any tumultuous disturbance of the public peace by three or more persons mutually assisting one another in execution of a common purpose by the unlawful use of force and violence resulting in property damage of any kind.”
Blackledge v. Omega Ins. Co., 740 So. 2d 295, 297 (Miss. 1999); Kent Ins. Co. v. Glades Liquors, Inc., 418 So. 2d 1101, 1102 (Fla.Dist.App. 3 Dist. 1982).
b. “Vandalism” means the “willful and malicious damage to, or destruction or, covered Property.”
Georgitsi Realty, LLC v. Penn-Star Ins. Co., 21 N.Y.3d 606, 977 N.Y.S.2d 157, 158, 999 N.E.2d 520 (N.Y.,2013); Blackledge v. Omega Ins. Co., 740 So. 2d 295, 299 (Miss. 1999).
B. Business Income Coverage
When a business is damaged or destroyed by riot, civil commotion, or vandalism, the interruption in business can be as expensive as the cost of rebuilding, renovating or replacing the damaged property. The business has lost its profit potential, it cannot meet payroll, and its other fixed expenses continue.
The BOP’s “business income” coverage is intended to cover these losses: to reimburse the business for lost income and for continuing expenses like payroll, utilities, mortgage or rent – until business resumes. If the insurer fails to fulfill its contractual obligation to cover business income losses, one court has held that the insured may seek consequential damages for collapse of the business. Bi-Economy Market, Inc. v. Harleysville Ins. Co. of New York, 10 N.Y.3d 187, 856 N.Y.S.2d 505, 507, 886 N.E.2d 127 (N.Y.App. 2008).
1. “Direct Physical Loss”
Under the BOP, or an identically worded equivalent in the Commercial Property line, an insured is entitled to “business income” coverage only if there is “direct physical loss of or damage to the property at the described premises” of a magnitude that requires the suspension of operations.
Aztar Corp. v. U.S. Fire Ins. Co., 223 Ariz. 463, 224 P.3d 960, 963 (Ariz.App. Div. 1,2010); MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co., 187 Cal.App.4th 766, 115 Cal.Rptr.3d 27, 31 (Cal.App.2 Dist., 2010); Universal Image Productions, Inc. v. Chubb Corp., 703 F.Supp.2d 705, 710 (E.D.Mich.,2010); Yount v. Lafayette Ins. Co., 4 So.3d 162, 166 (La. Ct. App. 4th Cir. 2009); Source Food Technology, Inc. v. U.S. Fidelity and Guar. Co., 465 F.3d 834, 835 (C.A.8 (Minn.) 2006); Southern Hospitality, Inc. v. Zurich American Ins. Co., 393 F.3d 1137, 1139 (C.A.10 (Okla.) 2004); Archer-Daniels-Midland Co. v. Phoenix Assur. Co. of New York, 936 F. Supp. 534, 540 (S.D.Ill. 1996).
2. “Period of Restoration”
If the “direct physical loss” requirement is met, then business income losses may be paid, but only during the “Period of Restoration.” This period is defined by the policy to begin 72 hours after the “direct physical loss or damage,” and to end “when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or the date when business is resumed at a new permanent location.”
Lakeland True Value Hardware, LLC v. Hartford Fire Ins. Co., 153 Idaho 716, 291 P.3d 399, 406 (Idaho, 2012); Aztar Corp. v. U.S. Fire Ins. Co., 223 Ariz. 463, 224 P.3d 960, 963 (Ariz.App. Div. 1,2010); MacDonald & Evans, Inc. v. Utica Mutual Ins. Co., 578 F. Supp. 2d 222, 229 (D. Mass. 2008); Bi-Economy Market, Inc. v. Harleysville Ins. Co. of New York, 10 N.Y.3d 187, 856 N.Y.S.2d 505, 507, 886 N.E.2d 127 (N.Y.App. 2008); Assurance Co. of America v. BBB Service Co., Inc., 259 Ga. App. 54, 576 S.E.2d 38, 39 (Ga.App. 2002); American States Ins. Co. v. Creative Walking, Inc., 16 F. Supp. 2d 1062, 1064 (E.D.Mo. 1998).
3. “Civil Authority”
The Businessowners Policy will pay for “the actual loss of Business Income” the insured sustains “and any necessary Extra Expenses caused by action of Civil Authority that 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.” Civil Authority coverage is also provided by the “Business Income and Extra Expense Coverage Form” in the Commercial Property line of insurance.
An “action of Civil Authority” typically includes a police curfew, barricades, and other restrictions on access to the insured business. The coverage begins 72 hours after action by Civil Authority and applies for a period of up to three consecutive weeks.
Dickie Brennan & Co., Inc. v. Lexington Ins. Co., 636 F.3d 683, 685 (C.A.5 (La.),2011); BY Development, Inc. v. United Fire and Cas. Co., 206 Fed. Appx. 609, 610 (C.A.8 (S.D.) 2006); PMA Capital Ins. Co. v. US Airways, Inc., 271 Va. 352, 626 S.E.2d 369, 373 (Va. 2006); Aztar Corp. v. U.S. Fire Ins. Co., 223 Ariz. 463, 224 P.3d 960, 963 (Ariz.App. Div. 1,2010); New York Career Institute v. Hanover Ins. Co., 6 Misc. 3d 734, 791 N.Y.S.2d 338, 341 (N.Y. 2005); Southern Hospitality, Inc. v. Zurich American Ins. Co., 393 F.3d 1137, 1139 (C.A.10 (Okla.) 2004); 54th Street Ltd. Partners, L.P. v. Fidelity and Guar. Ins. Co., 306 A.D.2d 67, 763 N.Y.S.2d 243, 244 (N.Y.App.Div. 1 Dep’t 2003); Assurance Co. of America v. BBB Service Co., Inc., 259 Ga. App. 54, 576 S.E.2d 38, 39 (Ga.App. 2002).
II. The Homeowners Policy
The Homeowners Policy provides both property and liability insurance coverage for a residential insured. Its terms vary somewhat depending on the type of residence and the perils covered.
“Riot or civil commotion” is a named peril covered by the “Broad Form” Homeowners Policy (HO-2). It is also covered by the “Special Form” Homeowners Policy (HO-3), a common “all-risk” policy with enumerated exclusions. “Direct physical loss” to a dwelling, other structure, or personal property owned by an insured resident of Ferguson during a “riot or civil commotion” would be covered by these policies.
The Homeowners Policy also covers “Vandalism”, provided that, under the HO-2 form, the dwelling has not been “vacant” for more than a 60 consecutive days immediately before the loss. Some news outlets reported that Ferguson residents who lived near looted businesses remained at home for several days in order to protect their property. Hopefully, homeowners suffered no losses, but even if they did, the Homeowners Policy should provide coverage.
New London County Mut. Ins. Co. v. Zachem, 145 Conn.App. 160, 74 A.3d 525, 528 (Conn.App.,2013); Garnar v. New York Cent. Mut. Fire Ins. Co., 96 A.D.3d 715, 946 N.Y.S.2d 199, 200 (N.Y.A.D. 2 Dept.,2012).
So There is Coverage!
Among all the bad news from Ferguson, perhaps there is also some good news. For insured owners of businesses or homes that were damaged or destroyed by riot, civil commotion or vandalism, the policies should provide coverage in accordance with the provisions described above.
You can find all of these provisions, along with their annotations, in Miller’s Standard Insurance Policies Annotated.
Miller’s is available in print, and on Westlaw® and Westlaw Next®.