Do Not Miss Analysis of Civil Authority Coverage at the First Party Claims Conference

The First Party Claims Conference is going virtual this year. While trying to think of a pithy and timely topic to teach, I noticed that insurance defense attorney Shannon O’Malley of Zelle LLP, had just written an article, Commercial Property Insurance Coverage and Coronavirus.¹ Since the article did not indicate that businesses being shut down by COVID-19 would have an easy time collecting under their business interruption coverages, including civil authority coverage, Shannon received much criticism from policyholder attorneys for her views.

Controversy can lead to interest. So, you will notice on the second day of the First Party Claims Conference the following course:

Civil Authority, Ingress/Egress Coverages – Are They
Really a Coverage or Just Words on a Page
William Merlin, Esq., Merlin Law Group; Shannon O’Malley, Esq., Zelle LLP

Our presentation is going to be novel and will include one civil authority coverage case with two decisions: Assurance Company of America v. BBB Service Company.²

The first appeal noted that the BBB owned several hamburger restaurants in Florida and Georgia. Hurricane Floyd resulted in Brevard County, Florida, issuing the following evacuation order:

WHEREAS, a state of local emergency has been declared because of the serious threat to the lives and property of residents… I hereby order evacuation of areas of Brevard County… in order to protect the citizens of Brevard County from the effects of Hurricane Floyd…Due to the uncertainty of the path of devastating winds and storm surges…persons….are hereby ordered to evacuate….

BBB’s policy had “Civil Authority” coverage, which provided:

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 your premises due to direct physical loss of or damage to property, other than at the ‘covered premises,’ caused by or resulting from any Covered Cause of Loss. This coverage will apply for a period of up to 4 consecutive weeks from the date of that action.

The appellate court remanded the case back to the trial court noting that there was no evidence in the Order that determined it was issued due to physical loss or damage to property somewhere else:

The dispositive issue is whether Brevard County’s action prohibiting BBB’s access to its restaurants was due to the direct physical loss of or damage to premises other than those restaurants. The trial court,…without explanation, concluded that the use of the word ‘devastating’ somehow indicates that property damage was actually occurring somewhere and was thus a reason for the order.

We disagree with that conclusion….there is nothing in the evacuation order indicating that those winds had in fact devastated any property. More importantly, there is no language in the evacuation order establishing that the actual devastation of some property somewhere was the basis for the order.

On the contrary, it appears from the plain language of the evacuation order that the county did not issue the order due to the direct physical loss of or damage to any property. Rather, … the plain language of the order provides that a state of emergency was declared due to the threat of injury to people or property posed by Hurricane Floyd, and that evacuation was ordered to protect the citizens of Brevard County from the effects of the hurricane. There is no reference in the order to already damaged property as the reason for the evacuation. Given that the plain language of the order refers only to the threat of injury, we find that the trial court improperly expanded the meaning of the word ‘devastating’ to conclude that the order was based on actual damage to property somewhere. Accordingly, the trial court’s grant of summary judgment to BBB on that basis was erroneous.³

So, back the trial court went the case where more evidence could be obtained determining if property damage had occurred to other property which caused the evacuation order. The second court ruling finding coverage noted that testimony was taken from officials about why they issued the evacuation order:

BBB introduced photographs of the hurricane’s landfall in the Bahamas… BBB also presented the testimony of members of the Brevard County ‘Policy Group,’ who were assembled to make emergency decisions regarding weather-related problems. One member of that team…testified that the group had ‘watched [the storm] progress from the Atlantic, [and] there was a lot of damage being done to the south of us at the various islands that it crossed.’ He stated that the fact that the storm had been causing damage in its path, the forecast that the storm was headed to Brevard County, and the anticipated impact of the storm if it reached Brevard County were factors that led the team to advise the Chairman of the County Commission to sign the evacuation order. And another member of the ‘Policy Group,’ a Public Safety Director, confirmed that the Chairman made the ‘actual decision’ to order the evacuation, ‘based on [the team’s] recommendation.’ The court ruled in favor of BBB, thus implicitly finding that a basis for the evacuation order was actual damage to property other than the insured premises.⁴

The implication from this case is that testimonial evidence may be needed to prove that physical damage to other property caused, at least in part, the civil authority order.

It also should be noted that the policy language in BBB does not have a limitation about how far away from the insured premises the other property damage has to be. Many polices have language requiring that the other property be “adjacent to” or not farther away than a certain number of miles—usually 1 to 10 miles from the insured premises.

Here is a link to register for the First Party Claims Conference. I promise that every person attending my session on Civil Authority will receive something special.

Thought For The Day

Football is like life – it requires perseverance, self-denial, hard work, sacrifice, dedication and respect for authority.
—Vince Lombardi
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¹ Shannon O’Malley. Commercial Property Insurance Coverage and Coronavirus. Mar. 11, 2020.
² Assurance Co. of America v. BBB Svc. Co., 259 Ga. App. 54, 576 S.E.2d 38 (Ga. App. Dec. 23, 2002); Assurance Co. of America v. BBB Svc. Co., 265 Ga. App. 35, 593 S.E.2d 7 (Ga. App. Dec. 2, 2003).
³ BBB Svc. Co., 259 Ga. App. 54, 56.
⁴ BBB Svc. Co., 265 Ga. App. 35, 36.