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Business Interruption-Civil Authority or Physical Loss

If your business sustained physical damage which renders your business not operational, then your business would likely have insurance coverage for business interruption. This coverage provides payments for your business’ lost income arising from Hurricane Ida. At the present time, many business owners who are unable to operate due to lack of power and water are being denied business interruption coverage due to the lack of physical damage and the insurance company’s refusal to activate “Civil Authority” provisions of business policies.

If your business did not sustain physical damage, then the only other mechanism to activate business interruption insurance coverage is under “Civil Authority”. This provision is applicable you are prohibited from accessing your business due to governmental decree. Civil Authority coverage is activated if all of the following elements are met:

  1. Government authority prohibits access to the insured property;
  2. The prohibition was issued as a result of physical loss or damage caused to property within a one-mile radius of the insured property; and
  3. The expiration of the stipulated waiting period (usually between 24-72 hours).

For Hurricane Ida, “Civil Authority” will be a complicated and highly contested legal question because Parishes in the greater New Orleans area did not officially order a mandatory evacuation (except for outside levee protection and low-lying areas). Conversely, government officials stated it was too late for a mandatory evacuation but implied that an evacuation order would have been issued otherwise. Government officials recommended that residents and businesses owners leave and further recommended that residents who left stay away. Also, curfews were imposed. It is anticipated that many insurance companies will allege that the Civil Authority coverage is not activated since a mandatory evacuation was not formally issued.

In response to the anticipated denial of business interruption claims, we believe that the communications of government officials constituted “de-facto” application of Civil Authority. Specially, governmental officials recommended residents leave, if possible, to stay away pending restoration of power/utilities, access to gas, clearing obstructions to roads and the imposition of curfews. Accordingly, we will vigorously argue that the requirements for “Civil Authority” were effectively satisfied to activate business interruption insurance coverage.

Finally, there may be “contingent business interruption” coverage due to disruptions to certain suppliers and/or customers which result in losses. A few policies even provide coverage for disruption of power.

It is important to note insurance policies differ significantly from policy to policy. Therefore, you must read the specific terms and conditions to identify primarily and secondary coverages for your business insurance policy. The specific terms and conditions within each policy will ultimately determine if coverage is available. 

Our firm has prosecuted over 2000 wind and flood claims since Hurricane Katrina for homeowners and businesses. You can call me, at no obligation, if you have any questions about any aspect of your hurricane claim.