Hurricane Gustav was approaching New Orleans and there was a
mandatory evacuation of the city. Dickie Brennan & Company, Inc. (Brennans) was, therefore, unable to operate
their restaurants.Brennans suffered no
property damage and no businesses in the area had any property damage but they
did lose income due to the evacuation order. Brennans submitted a loss of
income claim to its insurance provider, Lexington Insurance,Co. (Lexington)
under Business Income and Extra Expenses coverage. That coverage form included
limited coverage for income loss caused when a civil authority prohibits access
to the described premises due to a direct
physical loss at other than the described location.
Lexington’s denial of the claim was upheld in District Court
because Brennans was not able to show a close link between the evacuation order
and damage to property “other than the described premises”. Brennans appealed and argued that damage in the
Caribbean qualified as “other than described premises” because this information
was known when the civil authority imposed the mandatory evacuation. However,
the civil order only described future
damage and anticipated high winds with floods.
The court determined that Brennans,
under the civil authority provision, needed to establish that the loss of
business income was a result of all of the following criteria:
·
Caused by an action of civil authority
·
The action prohibited access to the described
premises
·
The action was put in place because of direct
physical damage to property other than described in the policy, but in
proximity of the insured premises
·
The direct physical damage was the result of a
covered cause of loss.
Although Brennans did
suffer a business income loss, the appellate court upheld the lower court’s
decision. There was no coverage under the policy because there was no damage to
property in proximity of the insured premises.
Dickie Brennan & Company, Inc., et al v. Lexington
Insurance Co., 10-30381, United States Court of Appeals, Fifth Circuit, March
22, 2011
