In the weeks that have followed the death of George Floyd on May 25, 2020,
while in police custody, there have been protests all across the United States.
Most of the protests have been peaceful, but unfortunately, some developed into
riots in which property was destroyed and stores were looted.
The vast majority of commercial property insurance policies cover looting
and property damage due to riots. Most standard commercial property policies
are written to provide coverage for loss from all causes except those that are
specifically limited or excluded from coverage—and, at least in standard
policies written on this basis (using the Causes of Loss—Special Form (CP 10
30)), there are no exclusions of loss due to rioting or looting.
Even under those standard commercial property policies that are written to
provide coverage only from loss from certain specified causes (using the Causes
of Loss—Basic Form (CP 10 10) or the Causes of Loss—Broad Form (CP 10 20)),
"riot or civil commotion" is a covered cause of loss, with
"looting occurring at the time and place of a riot or civil
commotion" expressly included.1 So, businesses
whose property was stolen or damaged in the riots should be able to collect for
those losses under their commercial property insurance policies.
Coverage for Loss of Income
Many commercial property insurance policies include business income
coverage, which responds when the insured's property has been damaged or
stolen and the businesses cannot carry on normal operations while the property
is being repaired or replaced. In a standard commercial property policy,
coverage for business income is added to the policy by including the Business
Income (and Extra Expense) Coverage Form (CP 00 30) or the Business Income
(without Extra Expense) Coverage Form (CP 00 32).
In those forms, and in virtually all commercial property insurance policies
that provide coverage for loss of income, the business income coverage is
"triggered" by direct physical damage to property from a covered
cause of loss. So those businesses whose property was stolen or damaged in the
riots should have coverage for their loss of income during the time needed to
repair or replace the stolen or damaged property (provided that the policy
includes business income coverage and subject to any business income coverage
deductible—typically, 72 hours—and all of the other policy provisions).
In some cases, businesses located in the area where rioting and looting took
place may be able to recover for resulting income loss even if their property
was not stolen or damaged. Commercial property policies that provide coverage
for loss of income normally include a civil authority coverage extension. This
provision extends coverage for loss of income suffered by the insured business
when there is damage to the property of others from a covered cause of loss and
access to the area around the damaged property is prohibited by order of civil
authority because of dangerous physical conditions or to allow unrestricted
access to the area by a civil authority.
Under the civil authority provision in the two standard business income
coverage forms (CP 00 30 and CP 00 32), the insured's premises must be
within that area and not more than 1 mile from the damaged property for
coverage to apply. Coverage begins 72 hours after the civil authority action
and continues for up to 4 weeks unless this has been altered by an endorsement
to the policy.
Calculating the Business Income Loss Amount
Determining whether coverage applies to loss that an organization suffers
due to rioting is likely to be pretty straightforward. However, the calculation
of the business income loss payment amount is often a source of disagreement
between businesses and their insurers. That may be particularly true in this
situation because the business income of many of the businesses affected by the
riots probably had already been negatively impacted by the coronavirus
pandemic. Some of these businesses might even have been closed or operating at
greatly reduced capacity due to governmental directives aimed at reducing the
spread of the coronavirus.
The fact that a given business was closed at the time of the riot does not
necessarily mean that it cannot collect under the business income portion of
its commercial property policy. If that business would have reopened at some
point during the time needed to repair or replace the damaged or stolen
property, coverage should apply to the business income that it would have
earned during that time. As a practical matter, however, these circumstances
probably will make it more time-consuming and difficult for an insured business
to provide information to the insurer in support of its business income loss
claim, indicating when it would have reopened, what its capacity would have
been during the time needed for repairs, what its operating expenses would have
been, and how much income it would have earned if there had been no riot.
The loss determination provision in the two standard business income
coverage forms stipulates that the amount of the business income loss will be
determined based on the following four things.
- The net income of the business before the loss or damage took place
- The likely net income of the business had there been no physical loss or
damage (excluding any extra income that might have been earned as a result in
an increase in the volume of business due to the impact of the covered cause
of loss on other businesses)
- The operating expenses, including payroll, necessary to resume operations
with the same quality of service as before the loss or damage
- Other relevant sources of information
Agreeing with the insurer on these points—especially on what the net income
of the business would have been if the riot had never happened—may be
especially challenging because of the effects of the pandemic.