The coronavirus pandemic has disrupted all of our lives and our businesses in some form or fashion. As business owners seek to deal with these disruptions, many have raised relevant questions about their insurance coverage, and business interruption coverage especially. One aspect of business interruption insurance that’s particularly noteworthy is civil authority coverage.
Defining Civil Authority Coverage
Recently, many civil magistrates (including governors and mayors) have offered “shelter in place” and related ordinances, prohibiting the operation of certain businesses or public areas. This is important context for understanding civil authority coverage. Essentially, this is a business interruption extension that covers business owners when access to their property/facility is impaired or impeded by an order of the civil authority.
Government-initiated actions of all kinds can trigger this kind of coverage, including roadblocks, curfews, and some of the actions currently being taken by governments in order to curb the spread of COVID-19.
With this type of coverage, it is commonly expected that the action of the government be applied to a relatively narrow geographic area. However, we’re finding recently that these government actions may also be applied on a much more widespread basis.
It should also be mentioned that civil authority coverage may be limited to a narrow timeframe, which may be anywhere from a week to 30 days.
Common Disputes with Civil Authority Coverage
At first glance, it may seem as though civil authority coverage provides solutions for business owners who are unable to be open as normal right now. With that said, it’s important to clarify some areas in which disputes between policyholders and insurance companies tend to arise:
- The cause of the impediment. Most civil authority coverage will stipulate that it’s only triggered due to a direct order or mandate from a civil authority; if a specific order or mandate cannot be found, the coverage may not be triggered.
- “Prohibits access.” Most civil authority extensions will stipulate that they are effective only when the civil authority “prohibits access” to a business property/facility. This can be tricky, as if there is any way in which someone might still legally access the property, the coverage may not be triggered. As an example, if the civil authority closes down a local airport, nearby hotels likely don’t have an insurance case to be made… while they may lose business, they are still technically accessible by tourists who arrive via car.
- Intent of the prohibition. An additional dispute that arises with civil authority coverage involves the question of whether the civil authority action is initiated in connection with “property damage.” These issues commonly arise in situations in which civil authority orders are issued in connection with impending storms or natural disasters. This issue can be somewhat complex when applied to the situation we are dealing with in connection with the coronavirus.
- Exclusions. As is customary with business interruption insurance, the general coverage provisions and exclusions will apply to alter or limit coverage. As an example: If damage to bridges, tiers, and wharfs is excluded by the overarching policy, then an order of civil authority resulting from damages to those types of property may not be covered.
The COVID-19 pandemic has brought up many unprecedented situations, and some insurance questions that may be challenging to address. Civil authority coverage may be an asset to your business right now, and to explore the matter further, we invite you to contact McLaurin Law at your next opportunity.