With the recent shootings countrywide, how are businesses insured if their building is damaged by a police shoot-out or the business is interrupted because a portion of the city is shut down during or after the shootout?
For coverage to apply, whether under a commercial property
form or business interruption form, there must be direct physical damage by a covered peril.
Does damage caused during a shootout constitute direct physical loss by a covered peril?
Commercial property policies are either written on a named peril or special peril (open perils) type form. Under the named peril form, coverage would be subject to the interpretation of specific perils found in the form.
- Riot is defined in the Texas Penal Code as the assemblage of seven or more persons that creates an immediate danger of damage to property or injury to persons, but is defined in Black’s Law Dictionary as an assemblage of three or more persons.
- Civil Commotion refers to a public revolt by a large number of people who cause harm to people or property.
- Vandalism is defined as the deliberate defacing or destruction of property.
- Explosion has been defined by one source as “a rapid and violent expansion or bursting as a result of pressure from within or destruction from a violent external force.” A court in another state found coverage for the discharge of a shotgun by defining “explode” to mean “to burst forth with sudden violence or noise from internal energy.”
If the business has a special (open perils) form then coverage applies if it’s not excluded. Damage caused by these events should be covered. However, any damage caused by law enforcement responding to the threat may not be covered. The governmental action exclusion in a property policy excludes “seizure or destruction of property by order of governmental authority.” The application of that exclusion to recent events has not been litigated. See the technical report on Governmental Action.
Whether or not damage is caused by direct physical loss by a covered peril is essential to determine if business income coverage applies. Coverage is triggered by a loss to the insured property by a covered cause of loss. Additional coverage exists if property within one mile of the described premises is damaged by a covered cause of loss and the authorities prohibit access to the area.
Coverage applies after a 72-hour waiting period even if the insured’s property is undamaged. The waiting period can be reduced or eliminated by attaching endorsement CP 15 56 (Business Income Changes – Beginning of the Period of Restoration).
Extra expense coverage under the Extension is not subject to the 72-hour waiting period. The four-week period of coverage can be extended, and/or the one-mile radius can be increased, by attaching endorsement CP 15 32 (Civil Authority Changes).