Author: VU Faculty

The ISO business income form(s) includes coverage for loss arising out of a civil authority prohibiting access to the insured's premises due to direct damage by a covered peril to property at that location or elsewhere. However, what if the civil authority doesn't specifically prohibit access to the insured's property, but rather to the insured's products? Intrigued? Then keep on reading....

"Here's a question that comes from a situation we encountered at an agency in the area affected by Hurricane Frances on the East Coast.  It's a Business Income situation. Lots of hurricane damage in the area. The county issued an emergency order that no alcoholic beverages can be sold until the catastrophe is over. The insured owns a pub and, due to the order, cannot operate his business (this is what he says, although sodas, etc. may be sold). The order is issued because of the hurricane...however, does the Civil Authority under the Additional Coverages in the Business Income Coverage form apply or not?"

This is an interesting twist on the civil authority coverage where the local government doesn't expressly prohibit access to the premises but effectively does so by ordering that the insured's primary product cannot be sold. We ran this by the VU faculty and below are their unanimous opinions.

I don't think the additional coverage applies. The denial of access is/was not due to direct physical loss and not directly to the premises or another premises. The denial of access was to particular personal property for reasons other than direct physical loss. It's tempting to make the argument for coverage, but it's a real stretch in my opinion.

In my opinion, this situation does not constitute an "action of civil authority that prohibits access to the described premises." If it said "prohibits access to goods or services sold at the described premises," that would be different but still stretching it, because I really think "access" means physical access, not the ability to sell or buy something.

I would say no coverage. The premises are accessible. The same is true when there is major road construction in front of a bar, etc. The bar is open but people have a difficult/impossible time getting in—no coverage. My question is "why"—seems like this would be a good time to "have a nip"!  :-)

I’d like to say it’s covered, but the form specifically says the provision is only applicable when the Civil Authority “Prohibits access to the described premises” – it doesn’t say “prohibits access to various products or services.” So it seems the form precludes coverage when the only prohibition is for certain profitable activities, while still allowing access to the described premises. Enough to drive a man to drink.

The CP 00 30 says that the policy pays loss of business income and extra expense "...caused by a civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss." Coverage begins 72 hours after the time of action and applies for up to three weeks.
 
From what I have observed in the Vero Beach area, the civil authorities have not prohibited access to the locations. We have bars, restaurants, liquor stores, and grocery stores that are open and capable of full operation. The only problem is the county commission has said, "You can't sell alcohol." You can go to Outback and get a steak, but no beer. You can go to the ABC liquor store, walk in and buy all the Coke and ice you want, but no booze.
 
As much as I'd like to say this is covered I think a literal reading of the form results in there being no coverage because access to the premises was not restricted.  Customers can get in, they just can't buy booze.

Unfortunately, the local government hasn't prohibited access to the "described premises." If the policy provision was triggered by a prohibition of access to "covered property," then you'd probably have a valid claim.