November 5, 2012
Our last post discussed Contingent Business Interruption (CBI) insurance coverage. Hurricane Sandy-related CBI claims need not arise in the Northeastern part of the country. The insured business need only establish that it lost income as a result of physical damage to the property of a customer or key supplier—typically described in the insured’s policy as a “Contributing,” “Recipient,” “Dependent,” “Leader,” or “Attraction” Property. Given the interconnectedness of our modern economy, the insured seeking CBI benefits may be located anywhere in the world. For example,United States automobile and electronics manufacturers successfully sought CBI coverage when they were unable to obtain key components due to physical damage suffered by suppliers in the Japanese Earthquake and Tsunami.
Today’s post examines another type of coverage for income losses suffered by businesses that did not experience physical damage to their own covered property in Hurricane Sandy—Civil Authority or Ingress/Egress coverage, which protects against income losses suffered when access to the insured’s property is cut off. Unlike CBI claims, which can arise anywhere in the world, Civil Authority and Ingress/Egress claims will be concentrated in the areas directly affected by Hurricane Sandy. Businesses located in closed subway stations or in the seven block area around the damaged construction crane hanging over mid-Town Manhattan are likely to make Civil Authority or Ingress/Egress claims under their commercial property insurance policies.
Civil Authority or Ingress/Egress coverage tends to be less standardized than other forms of Business Interruption coverage. Practitioners therefore must pay close attention to the language of their client’s policy.
- Some policies require that a civil order prohibit access to insured property due to damage to “adjacent properties,” while other policies require only that the physical damage occur to property other than the insured premises. See, e.g., United Airlines, Inc. v. Insurance Co. of the State of Pennsylvania, (“United Airlines”).
- Policyholders may need to establish a causal connection between the civil order and damage to adjacent property. For example, in United Airlines, the Second Circuit ruled that United’s access to the airport was barred as a result of the FAA’s shutdown orders, not as a result of the physical damage to the Pentagon.
- What qualifies as an order of civil authority may differ depending on the language of the policy or the court interpreting it. See., e.g., Penton Media, Inc. v. Affiliated FM Ins. Co., aff’d, 2007 WL 2332323 (6th Cir. Aug. 15, 2007).
- Although most policies require an order of civil authority, some policies may contain separate ingress/egress coverage that does not require an act of civil authority to trigger coverage.
- Some policies require that the order prevent access to the insured’s property, not merely impede access to it. Royal Indemnity Co. v. Retail Brand Alliance, Inc., Index No. 601164/04, N.Y. Sup. Ct. (Freedman, J.), Feb. 23, 2006, aff’d; Abner, Herrman & Brock, Inc. v. Great Northern Insurance Co.