The Brennans operated New Orleans
restaurants that Lexington insured dur-
ing the evacuation period. The policy
provided coverage for “the actual loss of
business income you sustain and neces-
sary extra expense caused by action of
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 any
covered cause of loss.”
The insured, reasoning that the damage
Hurricane Gustav caused in the Caribbe-
an area qualified as “damage to property,
other than at the described premises,”
submitted a claim, which was denied.
The court said that, in order to prove
coverage under the civil authority provision, the insured must meet three requirements:
1. Establish a loss of business income
caused by an action of civil authority.
2. The action must prohibit access to the
described premises of the insured.
3. The action must be caused by direct
physical loss of or damage to property
other than at the described premises.
The area of dispute between the insured and the insurer was whether the
mandatory evacuation order fulfilled the
The Brennans argued that the damage
to the Caribbean area fulfilled that element. Lexington countered that the policy
requires a causal link between the prior
damage and the civil authority action and
that the damage must be near the insured
premises to satisfy that third element. The
court said that nothing in the record shows
that the issuance of the evacuation order
was due to physical damage to property,
either distant property in the Caribbean or
property in Louisiana. Therefore, the court
said, it found no nexus between any prior
property damage and the evacuation order.
The civil authority additional cover-
age on commercial property policies is
generally intended to apply in situations
such as an explosion at a building down
the street from the insured’s premises that
causes the police to close the street (and
thus access to the insured’s business) for
a week to investigate and remove debris.
In this scenario, the three elements of the
Brennan case are met.
An evacuation order during a
hurricane or the sheriff shutting down
snow-covered roads are not enough to
trigger civil authority coverage—without
direct physical damage to property away
from the insured’s premises, the coverage
will not apply.
Susan Massmann, CPCU, is Managing
Editor of electronic publications for
the reference division of the National
Underwriter Group. She may be reached
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