One representative from a New York agency asked about the first requirement, damage to property. “Could damage to 'property' as the first of the requisite thresholds include damage to vehicles stored on-site? This is assuming the damage is caused by a covered cause of loss and there is an actual loss of income.”

Keeping in mind that some forms require damage to or loss of “covered property,” we have to note that others only require damage to or loss of “property.” The absence of one little word — covered — can make all the difference in whether a claim arising from damage to vehicles at the premises is covered.

The ISO business income form CP 00 30 states that there must be “direct physical loss of or damage to property at premises which are described in the Declarations ….” (emphasis added). But the form does not define property. Given this, FC&S editors hold that damage to vehicles parked at the described premises would satisfy the requirement for direct damage.

However, if a non-ISO policy required the damage be to “covered property,” other facts would come into play.

Some such policies state that certain types of vehicles (designed for use on public roads, held for sale, etc.) fall within the category of property not covered. If the form in question states that there must be damage to “covered property,” and vehicles are considered “property not covered,” loss to vehicles at the premises would not satisfy the first of the coverage requirements.

Additionally, we cannot forget the second required coverage element: a necessary suspension of business. On the surface it would appear that vehicles — even a great number of them — could be replaced before business operations were suspended for longer than the standard 72-hour waiting period.

But what about a widespread catastrophic event, which could result in replacement vehicles being in short supply? Or a situation in which customized vans or trucks are needed? Again, each of the three elements is required, and the applicable policy must be considered in its entirety when determining coverage.

Another question was posed by a representative from a specialty insurance carrier. “How does an interruption caused by civil-authority coverage differ from ingress and egress coverage? Civil authority provisions seem common, but ingress and egress provisions do not.”

Ingress and egress situations were brought to the forefront after the 9/11 attacks in 2001 and again after the 2005 catastrophic hurricanes, when damage prevented access to or shipments from businesses located within certain widespread areas of damage.

Yes, civil-authority coverage is common; in fact, it is built into the current ISO business income coverage forms. These forms provide up to three consecutive weeks of coverage (for business interruption, beginning 72 hours after the civil authority prohibits access to the property that is covered for business-income purposes).

The civil authority's action must be due to direct physical loss of or damage to property away from the described premises that is caused by a covered cause of loss. Once again, this is the first element of damage to property. But here the damage must occur away from the insured premises.

Ingress and egress coverage, on the other hand, involves the ability to enter or leave the insured premises independent of the actions of a civil authority order. ISO does not offer this endorsement, but many insurance companies do write it as part of their suites of coverage.

The subtle differences may be critical in determining whether coverage applies. For example, take a major fire in half of a shopping mall. Although a retail store at the other end of the mall is not damaged, the fire marshal orders the entire mall and its access roads closed for five days while tests are conducted on the structural integrity of the mall. This would qualify as a business interruption arising from an order of a civil authority.

An ingress/egress situation might be the case of a major windstorm downing numerous trees in a wide swath. A manufacturer cannot ship products or receive components for five days because the trucks capable of doing so cannot maneuver past the downed trees, but the roads aren't actually closed by a governmental official. This type of situation would not, however, qualify for coverage under the provision for business-income losses arising from the action of a civil authority.

Suspended Operations

The second element, the requirement for an actual suspension of business operations, also gave rise to questions at the end of the seminar. One adjuster asked, “What if all operations aren't shut down but part of them — say one assembly line — is not operational because of a fire. Does this type of situation qualify for business-income payments?”

The current ISO forms define a suspension as either a complete cessation of business operations or a partial shutdown. Previous forms, and some carrier-filed forms, may not define that term.

In those cases, the definition may be left to the courts. But, from a practical perspective, if the term is not defined on the policy to mean a complete shutdown of operations, a reasonable argument can be made that partial interruptions — again caused by damage to the requisite property by a covered cause of loss — satisfy the second coverage requirement.

These questions illustrate how much one business-income policy form might differ from another. Perhaps even more than with other types of insurance, it's critical to carefully read the policy form before even getting to the hardest part — the accounting end of just how much business income can be recovered.

Diana B. Reitz, CPCU, AAI, is editorial director of Fire, Casualty, & Surety Bulletins. She may be reached at [email protected].