Because of the damage caused to businesses and property by the recent social unrest throughout the country, business owners have asked for a short explanation of the types of damages and losses covered under commercial property insurance policies and how to pursue claims against their insurers.
Property Damage Claims
While policies vary and are subject to each state’s coverage law, most commercial property insurance policies cover direct physical loss or damage to covered property resulting from vandalism and other illegal activity. This includes everything from the cost to clean up debris, board up windows and doors, and repair or replace damaged or destroyed property.
Lost Business Income Claims Following Property Damage
Businesses that suffered direct physical loss or damage to property may also be eligible to recover lost business income following vandalism and other illegal activity. This may include lost net income and continuing expenses, including rent, utilities, and wages, during the period of restoration. The period for this coverage often varies from a matter of weeks to months. Some policies also provide extended coverage for such losses to cover the period from when the business reopens until it resumes its prior level of sales.
Lost Business Income Claims Following Curfews Without Property Damage
Businesses that were fortunate not to suffer direct physical loss or damage to property, but were still required to close under curfew orders and that suffered lost income, as a result, may be able to recover their lost net income and continuing expenses. This may include rent, utilities, and wages, for the limited time of the curfew closures under what is known as civil authority coverage. Civil authority coverage may also provide relief to those businesses just about to reopen following the removal of shelter-in-place orders.
Civil authority coverage insures businesses against losses resulting from an order of a civil authority restricting access to the insured’s premises. For example, a curfew order imposed by a mayor as a result of rioting and nearby property damage could trigger this type of coverage. Policy language varies, but most policies require that access be restricted as a result of damage to nearby property that results from a covered peril under the policy. In other words, a curfew order imposed because of civil unrest and damage nearby may trigger coverage under the policy if the insurance policy covers property damage resulting from civil unrest.
Civil authority coverage generally has a waiting period and distance parameters that limit coverage. For example, some policies have a waiting period before the coverage begins of eight to 72 hours. The coverage may be triggered only when there is property damage caused by a covered peril under your policy to “adjacent property” or to property as far as two or more miles away. Finally, the coverage is usually limited to a few weeks to a matter of months.
The seminal case on civil authority coverage arose out of a curfew imposed in the wake of civil unrest in Detroit in 1967. There, the commercial property policy provided coverage for losses, not exceeding two consecutive weeks, when as a direct result of a covered peril access to the insured premises was prohibited by order of civil authority. Sloan v. Phoenix of Hartford Ins. Co., 207 N.W.2d 434 (Mich. App. 1973). Because the mayor imposed a city-wide curfew, the business was able to recover its lost income over a period of total to partial closure of eight days, even though the business itself never suffered property damage.
In response, insurers tightened their policy language by imposing time and distance conditions on civil authority coverage. For example, a federal court in California held that a business had no right to civil authority coverage after the civil unrest following the Rodney King verdict because there was no proof that the business shut down because of property damage caused by a covered peril to adjacent property —meaning next door — as opposed to a curfew order. Syufy Enterprises v. Home Ins. Co. of Ind., 1995 WL 129229 (N.D. Cal. 1995).
File Your Claim
Promptly notify your insurer that you have a claim. Many policies require prompt notice of a claim. In addition, many insurers have relationships with restoration companies that can help you protect your business, restore valuable books and records, and quickly begin the restoration process so that you can resume business.
Your insurer will likely require that you provide a sworn proof of loss that includes the damages and losses that you are claiming. You will want to review your insurance policy with your broker and your attorney to make sure you understand your coverages and make a comprehensive claim for your damages and losses.
Finally, some policies will even provide a small amount of coverage to have an accountant help you calculate your losses. And you can usually supplement your claim as your losses continue. However, the failure to promptly notify your insurer of a claim can result in forfeiting coverage. For more information, please contact a member of Taft’s Insurance Coverage and Recovery group.