Author: VU Faculty
The tragic December 2007 shooting of innocent shoppers at an Omaha, Nebraska shopping mall brought two quick questions to the VU "Ask an Expert" service. The entire mall was closed for 2-3 days during the peak holiday season and several stores were closed for two weeks, not reopening until the week prior to Christmas day. Does a business income policy respond to this business interruption?
"In light of some of the recent shootings, I was wondering how the companies deal with business interruption, extra expense and loss of income. Is it paid under vandalism? Is it paid under an indirect loss? I’m thinking of the situations like what happened at the Omaha Mall. I heard some of the stores were just reopening today after being closed two weeks. Obviously a consequential amount of business was lost. Just curious as to how these are being handled. Thanks."
"This morning on the radio I heard a story about the department store (Von Maur) in Omaha, NE re-opening after the shooting rampage on Dec 5. They have now been closed for two weeks. I begin to wonder about the insurance implications of this closure. After some research I found that the entire mall (Westroads Mall) was closed on Dec 6 and 7 after the shootings. Would a standard Business Income property policy with special form cause of loss provide coverage for this lost time? The department store may have suffered from "direct physical loss of or damage to property" and therefore may have a claim?
"What about other stores in the mall that didn't suffer any direct physical loss or damage to property? Two days of shopping during the Christmas season could impact a retail store heavily, couldn't it?!? Additionally, if somehow you could conclude that either the department store or other stores in the mall have coverage under the insuring agreement then would any exclusions preclude coverage? Ordinance or Law Exclusion? Governmental Action? The language of these exclusions don't really seem to apply but it is unclear to me. Are there any differences if the business entities are on a Businessowners Policy?"
Not to diminish in any way these tragedies, the mark of a true insurance nerd is someone who, when the initial shock wears off, immediately considers the insurance implications. This was the case for many of us when 9/11 happened. When I enter a restaurant, the first things I look for are sprinklers and emergency exits. Such is the curse of being an insurance geek. The following are some observations of the VU faculty.
Business income is triggered by a covered cause of loss that damages property at the described premises. Based on the limited information available, I don't think the shutdown was caused by damage to property but rather by order of the police because the mall was a crime scene. The "civil authority" additional coverage provides business income if a civil authority prohibits access to the described premises due to direct physical loss of or damage to property other than at the described premises resulting from a covered cause of loss. Unfortunately, I don't see any coverage for this situation.
Unless there are facts unknown to us, there is no coverage. BI requires suspension of operations due to damage to or loss of property at the described premises. Nothing that was done to the premises to suspend operations. The suspension was a voluntary decision of management. No coverage under Civil Authority as there was action of civil authority denying access to premises after the first few hours (and there is a 72 hour waiting period for BI). Beyond the investigation of the crime scene, the closings were a decision of management not of the civil authority as I understand it.
It would be interesting to see how the companies are handling the losses.
From an ISO forms standpoint, if the interruption is from a covered cause of loss to the premises of the insured, then there is coverage. A person shoots up the insured's store...if the coverage is under an ISO BOP, then the area is extended to:
(ii) Any area within the building or on the site at which the described premises are located, if that area services, or is used to gain access to, the described premises.
This could include lobby areas, etc.
If the area is closed by "civil authority," there could be limited coverage, based on the time closed, etc.
This is what the CP 00 30 04 02 says:
The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.
The BP 00 03 07 02 says essentially the same thing:
The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss.
So, coverage boils down to the reason for the suspension. Was it really necessary in order to repair any damage and clean up the facility, or was it done for psychological or other reasons unrelated to any direct physical loss? In any case, unless otherwise modified, there is a 72-hour waiting period that would apply.
The fact that all bullets did not hit patrons but walls, would cause "property damage." The question is whether this property damage CAUSED the interruption of business. I doubt that the repair of the facilities would have taken two weeks, but that's a question of fact.