Commercial Property Policies Generally Cover Loss Due to Riots

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.

¹ The only exception within the Insurance Services Office, Inc., commercial property policy portfolio of forms is the Standard Property Policy (CP 00 99), which covers loss from fire, lightning, and explosion only, unless coverage for additional causes of loss is indicated in the policy declarations. This restrictive policy form is intended for use only in situations when insurers are unwilling to provide broader coverage due to underwriting considerations.