Summary:  Following any major catastrophe there are invariably many businesses that are affected by interruption of business activities. Aside from those businesses that have direct physical damage losses, there are also losses due to supply chain disruptions from affected manufacturers, distributors, suppliers, dependent operations, tiered operations, retailers, and the list goes on and on. Most major catastrophes affect the economy of not only the area where the damage occurred, but can sometimes affect the entire state or even the country as a whole. Such is the potential case with the Baltimore Francis Scott Key Bridge collapse.

Our article, Baltimore Bridge Collapse – A Look at Coverage Implications took a broad look at exposures, potential liabilities and coverage implications of that catastrophic event. Here we look at just business interruption from contingent and non-contingent entities.

Business Interruption

First, we look strictly at business interruption coverage as provided in the standard ISO policies. Commercial property policies provide for business income and/or extra expense losses as a result of direct physical damage to covered property from a covered cause of loss under the policy. For example, a building is damaged by a lightning strike that sparked a fire and the building will need to be gutted and rebuilt. The business income coverage with extra expense would provide for loss of income during the "period of restoration", following a 72-hour waiting period deductible from the time of direct damage. Extra expense coverage would be available for increased expenses that reduce the time for the building to be gutted and rebuilt. This might include the extra expense for overnighting parts, or expediting delivery of building materials, as examples. The key here is that the extra expense must result in reducing the amount of time needed to restore the property from what it would have been without those extra expenditures.

But what happens if there is no direct physical damage to the insured's building, yet the damage that occurred elsewhere resulted in an insured's loss of income from other factors, such as the insured or others not having access to their business, supplies not being able to be delivered to the business, the business not being able to export or deliver their product, or supply constraints, just to name a few. Perhaps some of these circumstances can be overcome at by alternative means, such as changing delivery methods or taking alternative routes, but those methods may take additional time or increased expense to implement.

Civil Authority

Business income policies provide what is typically coined 'ingress/egress' coverage, titled Civil Authority coverage in the ISO forms. This coverage applies if there is property damaged from a covered cause of loss that is off the insured's premises. Limited coverage is provided for up to four weeks if access to the insured's property or the surrounding area within one mile is prohibited by civil authority for any of three reasons: 1) because of dangerous physical conditions due to the damage; 2) if there is a continuation of the covered cause of loss that caused the damage; or 3) to grant the civil authority unimpeded access to the damaged property. The coverage begins 72 hours from the time the civil authority action is taken and continues for the longest period of either when the four weeks is up or the civil authority coverage ends.