Civil Authority Coverage in the Wake of Harvey and Irma

by Zelle LLP
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As the category 4 Hurricane Harvey approached the Texas Gulf Coast, many areas evacuated in preparation for the storm. And in the wake of the hurricane and the widespread flooding that followed, additional evacuations and curfews followed.

Only days later, the country then watched as Irma, a category 5 hurricane, ravaged the Caribbean and headed straight toward Florida. Many areas in Florida, Georgia, and South Carolina evacuated in preparation for the storm.

The evacuation orders and curfews in both Texas and Florida will bring a flurry of business interruption claims for businesses forced to shut down during the storms – specifically under coverage provisions for “civil authority”. There are a few generalities to be aware of when it comes to coverage for loss of business due to acts of civil authority, but of course each claim will be governed by the terms of the policy and the facts of the particular loss.
 
A covered cause of loss must cause damage to other property.
 
In order to trigger coverage, the act of civil authority – such as the evacuation order or curfew – must typically be a direct result of a covered cause of loss to property other than the insured property. The coverage analysis is fact specific and will depend on the express terms of the policy at issue.
 
For example, many of the curfews and evacuations in Texas in the wake of Hurricane Harvey were a result of the threat to public safety caused by flooding. But many commercial property policies specifically exclude flooding. In these cases, there would be no coverage for loss of business during the forced closures. See e.g. Bamundo, Zwal & Schermerhorn, LLP v. Sentinel Ins. Co., Ltd., No. 13-cv-6672, 2015 WL 1408873 (S.D.N.Y. Mar. 26, 2015) (holding that there was no coverage under a civil authority provision because the evacuation order was based on flooding, which was an expressly excluded cause of loss).
 
Alternatively, some of the curfews in the Gulf Coast may have been put in place due to fears of actual ongoing criminal activity such as looting as thousands of houses lay partially submerged and abandoned. In these cases, coverage might be triggered if theft or looting is also covered under the policy and the order was issued as a direct result of actual property damage caused by looting or theft.
 
The act of civil authority must be a direct result of property damage, not just the threat of property damage.
 
The act of civil authority must also typically result from property damage that has already occurred or is in the process of occurring – coverage will not be triggered if the civil authority was issued in anticipation of future damage. Understanding the policy language and this requirement is key to coverage because in many cases, the evacuations or curfews were put in place in anticipation of future harm that Harvey and Irma would bring.
 
Many policies further require that the civil authority order prohibit access to the insured property due to damage to property nearby or adjacent to the insured premises, a requirement that courts will enforce. Syufy Enterprises v. Home Insurance Co. of Indiana, No. 94-0756, 1995 WL 129229 (N.D. Cal. Mar. 21, 1995) (denying coverage because no property adjacent to Syufy’s premises sustained physical damage); Bros., Inc. v. Liberty Mut. Fire Ins. Co., 268 A.2d 611, 613 (D.C. App. 1970) (denying coverage because the regulations were not the direct result of damage or destruction of adjacent property); Adelman Laundry & Cleaners, Inc. v. Factory Ins. Ass’n, 207 N.W.2d 646 (Wis. 1983).
 
The query will again turn on the specific policy language at issue and the facts of each claim – including the basis for the evacuation or curfew at issue. For example, if the policy does not require nearby or adjacent property damage, the precautionary evacuations may be covered if based on property damage that occurred in the Caribbean. South Texas Medical Clinics, P.A. v. CNA Financial Corp., No. H-06-4041, 2008 WL 450012, *9 (S.D.Tex. Feb. 15, 2008) (holding that that there was no coverage because the judge had issued the evacuation order “due to” fear that the Hurricane would strike, based in part of the physical damage in Florida, but it was not issued “due to” to the physical damage in Florida).
 
The action of civil authority must completely prevent access to the described premises.
 
An action of civil authority must actually and completely prohibit access to the insured premises. Kean, Miller, Hawthorne, D’Armond McCowan & Jarman, LLP v. Nat’l Fire Ins. Co. of Hartford, No. 06-770-C, 2007 WL 2489711, *4 (M.D. La. Aug. 29, 2007) (citing Southern Hospitality, Inc. v. Zurich American Ins. Co., 343 F.3d 1137 (10th Cir. 2004); TMC Stores, Inc. v. Federated Mutual Ins. Co., 2005 WL 1331700 (2005); By Development, Inc. v. United Fire & Casualty Co., 2006 WL 694991 (D.S.D. 2006); 730 Bienville Partners Ltd. v. Assurance Co. of America, No. Civ. A. 02-106, 2002 WL 31996014 (E.D. La. Sept. 30, 2002)). Evacuations and city-wide curfews both meet this element, as they completely prohibit access to premises within the city limits because the businesses are required to close. See, e.g., Kean, 2007 WL 2489711, *6 (citing Assurance Co. of Am. v. BBB Serv. Co., 265 Ga.App. 35, 593 S.Ed.2d 7, 7-9 (2003); Narricot Indus., Inc. v. Fireman's Fund Ins. Co., 2002 WL 31247972, at *4 (E.D.Pa.2002); Southlanes Bowl, Inc. v. Lumbermen's Mut. Ins. Co., 46 Mich.App. 758, 208 N.W.2d 569, 570 (1973); Altru Health System v. American Protection Insurance Co., 238 F.3d 961 (8th Cir.2001)).
 
But where a business claims losses because its business slowed due to evacuations or curfews imposed in nearby areas, coverage will not exist. The act of civil authority must actually and completely prohibit access to the insured premises. “Without a complete inability to access the premises, or a forced closing by a civil authority, the coverage … is not applicable.” Ski Shawnee, Inc. v. Commonwealth Ins. Co., No. 3:09–CV–02391, 2010 WL 2696782, *5 (M.D. Pa. Jul. 6, 2012) (relying on Southern Hospitality).
 
Coverage is only provided for the amount of time the civil authority order actually prohibited access.
 
Finally, if circumstances surrounding a civil authority order in relation to Hurricanes Harvey and Irma meet the coverage requirements, the inquiry becomes the length of time coverage is provided. Courts have consistently held that civil authority coverage extends only for the specific period of time access to the property is completely prohibited. See e.g., Southern Hospitality, 393 F.3d at 1140; TMC Stores, 2005 WL 1331700, at *4 (recognizing that other jurisdictions only find civil authority coverage available when access is completely prohibited). Once the evacuation order or curfew is lifted and business can resume, coverage ceases.
 
Some policies further provide that coverage does not begin until a period of time after the act of civil authority begins – 48 or 72 hours after the evacuation order begins, for example. These timelines will be enforced and should be considered on a case-by-case/policy-by-policy basis.
 
Conclusion
 
Ultimately, the plain language of the civil authority provisions must be analyzed in light of the specific facts of each claim. With regard to the evacuation orders and curfews in place during Hurricanes Harvey and Irma, it may be a high burden for the insured to meet. The inquiry, however, is fact-dependent and must be evaluated on a case-by-case basis.
 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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