CIVIL AUTHORITY INSURANCE COVERAGE
A hot topic is insurance coverage for property closed due to a stay-at-home or safer-at-home order. Every article on this subject I have read concludes that “it depends on how the policy reads”, which is an accurate but unsatisfying answer. With this article I will focus on “it depends” so you can read your insurance policy and understand coverage.
Policies can have two separate coverages: business interruption coverage and civil authority coverage. It is important to separately consider these coverages even if they are interrelated. Business interruption coverage can be triggered with or without the action of a civil authority such as a governor issuing a stay-at-home order. Civil authority coverage is only triggered with the act of a civil authority. Business interruption coverage can be triggered for a variety of events such as a fire or windstorm, For this article I will focus on civil authority coverage rather than business interruption coverage.
There appears to be two types of civil authority coverage: one triggered by the government issuing an order, and one triggered by an otherwise covered cause of loss plus a government order. This distinction will be critical when assessing COVID-19 coverage. The following is an example of the former type of coverage:
Interruption by civil or military authority. This policy is extended to cover the loss sustained during the period of time when, as a result of a peril not excluded, access to real or personal property is prohibited by order of civil or military authority.
With this statement of coverage a civil authority, such as a governor or mayor, has to deny access to the property and there cannot be a policy exclusion at play. The big advantage to this coverage is it does not require direct physical injury to property. See Foonote. Here the initial event to trigger coverage is an order denying access to property.
Other policies have language that offers less coverage. Many policies start the statement of coverage by requiring a “Covered Cause of Loss” which is a term defined in the policy. This term typically requires an event such as fire, lightning, hailstorms, etc. to trigger coverage. Without a covered peril the acts of a civil authority are irrelevant.
The policy language quoted above requires the insured to show a “peril” to establish coverage. Fortunately, many policies are written so that definition of a “peril” is broad enough to cover nearly all life events. Exclusions then work to reduce the scope of a “peril”. In the three jurisdictions where I practice, and likely most of America, an exclusion is strictly construed against an insurance company. The insurance company carries the burden to persuade a court that an exclusion narrows coverage. That is an advantage to property owners seeking coverage.
Regular readers of policies will often look to state law to see if the law modifies the policy language. For example, in many states an appraisal clause must look like language written by the government. If it does not match what the government wrote courts will “reform” the policy language to meet government minimums. In the jurisdictions where I practice, I am not aware of government mandated minimums that govern, and thus could modify, an insurer’s civil authority coverage. What is written in the policy will control. That language must be thoughtfully and carefully reviewed.
Finally, property owners will have to search their policy to see if a virus exclusion applies. Many commercial policies now specifically exclude viruses from coverage. Frankly, many insurance companies saw a pandemic coming years ago and they altered their policies accordingly. Such an exclusion could be fatal because then there is no longer a covered “peril” or “Covered Cause of Loss”. If a virus exclusion applies then there is no coverage no matter what a governor or mayor orders.
If you need help reading your policy, contact me at firstname.lastname@example.org
Footnote: The definition of a peril is handled in another section of the policy, and that definition may require direct physical damage. Yet the policy language also provides coverage of a “loss”, which to my way of thinking is financial harm to property independent of physical damage.