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We have two questions regarding the following situation:

Our insured carries a commercial property policy with business income and extra expense coverage. The insured rents a space for a cafeteria inside a commercial building. Remodeling was in progress, and during the process, the remodelers found that the building is contaminated with asbestos. As a result, the Environmental Protection Agency closed the building until the asbestos could be removed.

The insured submitted a claim under a business income form (CP 00 30 10 90), alleging that the claim is covered under the following section of the policy:

b.  Civil Authority. We will pay for the actual loss of Business Income you sustain and necessary 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 or resulting from any Covered Cause of Loss. This coverage will apply for a period of up to two consecutive weeks from the date of that action.

After a careful review of this section of the policy, we found that the damage must be sustained to a place other than the described premises. The premises described in the policy is only the specific apartment within the building. Could we consider the rest of the building as other than the described premises for the purpose of the claim?

On the other hand, we also have to consider the applicable exclusions to the loss situation.

Our insured policy carries a Special Causes of Loss form, CP 10 30. We believe the following exclusion could apply:

B. EXCLUSIONS

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  1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

a. Ordinance or Law

The enforcement of any ordinance or law:

(1) Regulating the construction, use or repair of any property; or

(2) Requiring the tearing down of any property, including the cost of removing its debris.

The building in which our insured rents a space was closed due to an Environmental Protection Agency Order, as a result of asbestos.

We also believe this exclusion applies:

2. We will not pay for loss or damage caused by or resulting from any of the following:

    d. (1) Wear and tear;

(2) Rust, corrosion, fungus, decay, deterioration,

hidden or latent defect or any quality in property that causes it to damage or destroy itself;

We believe asbestos could be considered hidden decay.

Our two questions are as follows:

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  1. Could we consider the rest of the building as other than the described premises for the purpose of the claim?
  2. Do you think that the mentioned exclusions could apply to the claim?

Puerto Rico Subscriber

While the rest of the building could be considered other than the described premises, there is no trigger of direct, physical damage or loss for business income coverage to apply. Discovery of asbestos during remodeling does not qualify as direct physical damage.

Even if it is determined that the asbestos did cause damage, it would be excluded from coverage as asbestos is a pollutant. We do not think the wear and tear exclusion would apply in this scenario, but the lack of there being direct physical loss or damage, or the possibility that asbestos caused the loss or damage, would preclude coverage for the situation you describe.

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