Filed Under:Risk Management, Loss Control

What’s the effect of government activity on insurance coverage?

Coverage Q&A

A closed sign is displayed on the door of Papacito’s restaurant due to an evacuation order Feb. 12, 2017, in Marysville, Calif. Thousands of Northern California residents were under evacuation orders after authorities warned an emergency spillway in the country’s tallest Oroville Dam was in danger of failing and unleashing uncontrolled flood waters on towns below. (AP Photo/Rich Pedroncelli))
A closed sign is displayed on the door of Papacito’s restaurant due to an evacuation order Feb. 12, 2017, in Marysville, Calif. Thousands of Northern California residents were under evacuation orders after authorities warned an emergency spillway in the country’s tallest Oroville Dam was in danger of failing and unleashing uncontrolled flood waters on towns below. (AP Photo/Rich Pedroncelli))

Question: We are reviewing the date coverage is triggered under the civil authority extension of the CP0030 (Additional Coverages, a. Civil Authority) under the following circumstances:

An insured business was closed on Oct. 5 due to a mandatory evacuation ordered by civil authority. Actual damage occurred within a mile of the insured location preventing access to the property on Oct. 8, at which time the civil authority issued a notice that the area surrounding the insured location was to remain evacuated. No direct damage occurred to the insured property.

Our current interpretation of the language is that the civil authority extension was triggered on Oct. 8 when the damage occurred within a mile of the insured property, preventing access. Therefore, damage and the 72 hours began at that time.

The policy states: “Civil Authority Coverage for Business Income will begin 72 hours after the time of the first action of civil authority….”

In this case, the first action of civil authority began before coverage was triggered.

Would the 72 hours begin at the time of the evacuation and before the physical damage, or would it begin at the time when coverage is triggered and the physical damage occurs?

— Florida Subscriber

Answer: You are correct that although the first evacuation was ordered on Oct. 5, coverage is not extended until Oct. 8 when the evacuation was related to actual damage to property away from the premises. That’s the first time any action of the civil authority related to actual property damage, which is the trigger you need for the coverage, even though an evacuation was ordered earlier. The 72 hours begins at the time of the evacuation related to damage, which was Oct. 8.

Question: We insure an apartment building, but due to zoning changes it can’t be rebuilt as an apartment. Under the CP0010 with the replacement cost option, can the insured use the payment to rebuild a commercial building instead at the same location?

— Hawaii subscriber

I see nothing in the policy that requires you to rebuild the exact same building. The only parameters you are bound by is that the settlement is based on the building that was destroyed; no more than that will be covered, even if the new construction exceeds that value.

 Analysis brought to you by the experts at FC&S Online, the unquestioned authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered —visit www.nationalunderwriter.com/FCS.

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