Filed Under:Agent Broker, Commercial Business

Protests, riots, and loss of business income

Insurance concerns go beyond the political unrest of the day.

There simply isn't an insurance policy that covers loss of business due to the public's fear to return to a location because of recent civil unrest. Here, notes and flowers form a memorial in the streets of Charlottesville, Va., in honor Heather Heyer, who was killed while protesting a white nationalist rally there. (AP Photo/Cliff Owen)
There simply isn't an insurance policy that covers loss of business due to the public's fear to return to a location because of recent civil unrest. Here, notes and flowers form a memorial in the streets of Charlottesville, Va., in honor Heather Heyer, who was killed while protesting a white nationalist rally there. (AP Photo/Cliff Owen)

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, visit the National Underwriter website, or contact the editors via Twitter: @FCSbulletins.

The deadly violence that erupted in Charlottesville, Va. the weekend of Aug. 11-13, 2017, has generated any number of comments and questions, not the least of which is what happens when businesses lose customers not just from closing their doors during a public event gone wrong, but in the aftermath when patrons may either be too afraid to frequent the area or simply put off the news and don’t want to be anywhere near it.

Related: Terrorism and political violence call for review of insurance strategy

Of course, Charlottesville isn’t the first city to experience violence prompting retailers to close their shops, at least temporarily. Similar circumstances have unfolded nationwide including in such cities as Portland, Seattle, Chicago, Boston, Washington and Los Angeles.

The truth is that violence can happen anywhere, anytime, and may affect many types of businesses.

An insurance outlook


Let’s take a look at what coverages are provided by businessowners and commercial property policies related to business income loss and civil authority actions.

Under the Businessowners Coverage Form, BP 00 03 07 13, the insuring agreement from the portion pertaining to business income states, "We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your operations during the 'period of restoration.'"

The insuring agreement in the Business Income Coverage Form CP 00 32 10 12 states, "We will pay for the actual loss of Business Income you sustain due to the necessary 'suspension ofoperations'" and the "period of restoration." The suspension must be caused by direct physical loss of or damage to property at premises described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.

Related: Business owners pay the price for Ferguson riots

Defining business income


Both forms define "business income" as "net income (Net Profit or Loss before Income Taxes) that would have been earned or incurred if no physical loss or damage had occurred." The policies provide for the loss of income only during the period of restoration, which is the period that begins seventy-two hours after the time of loss and ends when the property should be repaired or replaced with reasonable speed and similar quality or when business resumes, whichever comes first.

In both of the coverage forms, the policy insures against loss of business income only if the insured's operations are suspended due to "direct physical loss or damage to property" at the insured premises. Absent physical damage, there is no coverage for suspension of operations caused by threats or fright. Therefore, when no direct loss is sustained, no business income loss is payable.

The issue of civil authority


What about coverage for loss due to civil authority? For civil authority coverage to apply, there must be loss or damage to property other than at the described premises.  Access to the area immediately surrounding the damaged property must be prohibited by civil authority as a result of the damage, and the insured’s described premises must be within a mile of the damaged property.

The action of civil authority must be taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property. If there is no damage to the property, only dangerous conditions, the coverage would not apply.

Further, the damage must be at premises other than the described premises. For example, if there was actual damage to or on the roads that caused the sheriff to shut down the roads leading to the insured’s business; or the damage to premises on the same street as the insured’s business were damaged and the sheriff blocked off entry impeding access to the insured’s premises; then the civil authority coverage could respond to these actions (after the seventy-two hour waiting period), for four consecutive weeks.

If such coverage applies, civil authority coverage provides for necessary extra expense beginning immediately after the time of the first action of civil authority that prohibits access to the described premises and ends at the earliest of either four consecutive weeks after the date of that action or when the civil authority coverage for business income ends.

Under both the BOP and the Commercial Property Causes of Loss — Special Form CP 10 30 10 12, "specified causes of loss" include (but are not limited to) loss from:

          • fire,
          • explosion,
          • aircraft,
          • vehicles,
          • rioting, or
          • civil commotion.

These perils would be covered causes of loss that could trigger the above described Civil Authority coverage.

Lethal fallout


As for coverage for business income from loss of patrons because there was deadly violence in the area of the business, that just simply doesn’t exist.

Karen L. Sorrell, CPCU, is an editor with FC&S®, the premier resource for insurance coverage analysis. She has an extensive background in commercial insurance underwriting. She may be reached at ksorrell@alm.com. Additional information about FC&S Online is available at www.NationalUnderwriter.com.

See also:

Terrorism risk insurance: Trends, take-up & pricing

Three keys to reducing workplace violence risks

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