While many businesses can and do make it through an extreme weather event without significant direct physical damage, evacuation orders and storm-related curfews may impede business operations or suppliers and customer’s ability to gain access to a business location. Damage to the supply chain can also lead to production slowdowns and delays that impact a business’ bottom line. 

Civil authorities (local, provincial, state, federal governments) may evacuate or prohibit access to certain areas after an extreme weather event occurs. For example, they may deem that an area poses a legitimate public safety threat in the aftermath of a hurricane, tornado, wildfires or flooding.

Should civil authorities decide to take such action, the financial implications for businesses operating in the area to be evacuated and closed off can be huge. In effect, business owners will be forced to shut down their operations, resulting in a loss of potential business income for an extended period of time.

Business losses related to a loss of access to an insured’s business property are not always automatically offered under a “standard” Business Insurance policy. However, some insurance companies offer several types of coverage that are designed to address this situation. Two of these types of coverage are known as Civil Authority Coverage and Prevention of Ingress and Egress Coverage. 

Civil authority coverage compensates a business for the loss of business income that results when an order of civil authority (a government order) is issued as a direct result of physical damage that prevents access to the business owner’s property. These can include evacuation orders or curfews.  The resulting business income losses may be recoverable even if the company’s own property has not been damaged provided that the government order is as a result of an insured peril i.e. a flood.

A scenario depicting a civil authority involves many days of heavy rain that causes a river in a town to reach historically high levels. Expecting that there is likely to be a flood, the municipal government orders its citizens to evacuate. As it turns out their worst fears are realized, prompting the municipality (the civil authority) to issue another order, this time to prevent residents from returning home while they determine the extent of the damage.

Because residents are not allowed back for several weeks, local businesses are forced to remain closed. Even though the flood did not damage business property directly, the owner of a restaurant located in the town can receive part of his lost income because the owner’s business insurance policy contains a civil authority clause.

Prevention of Ingress and Egress Coverage is similar to Civil Authority Coverage, but it does not require an order of civil authority to trigger coverage; rather, it covers loss sustained when, as a direct result of an insured peril, ingress to or egress from the business property, is prevented. This may include losses when entry to or exit from a business property is prevented or hindered by property damage, such as downed trees covering a road. Simply put there exists an inability to enter or leave the business premises i.e. customers not being able to access a store, product is unable to be shipped out, or raw materials are unable to be shipped in.

Prevention of Ingress and Egress Coverage is very dependent on specific non-standard insurance policy language. Two frequent issues for litigation are whether Prevention of Ingress and Egress Coverage requires physical damage to be triggered, and whether there is a territorial limitation on the coverage. The answer to both of these questions is, more often than not, “it depends.” 

The key distinction between these two coverages is that Prevention of Ingress and Egress Coverage is not limited to circumstances where the government (civil authority) prevents access to the premises by way of law, ordinance, or emergency order. In other words, a civil authority’s interference is not required to trigger Prevention of Ingress and Egress Coverage.

Business insurance policies may provide specific coverage for damages arising from Prevention of Ingress and Egress. However, not all insurance companies are the same and some may or may not automatically offer this kind of business insurance coverage. If they do the scope and terms of coverage may also vary from one insurer to another, so a careful analysis of the business owner’s insurance contract and endorsements is critical. Given the magnitude of wildfires, floods, mudslides and devastating windstorms and the disruption these events caused in 2021 business owners should ask their risk managers, insurance advisor, insurance brokers and insurers the following questions: 

• Will insurance protect the business if as a result of an insured peril access to the property is denied as a result of (and in the absence of) a civil authority directive? 
• Will the insurance coverage also extend to include a supplier’s location?