Dan is sitting in the sandwich shop he owns twiddling his thumbs. Although it's noon on a Thursday, the sandwich shop is deserted. Ordinarily at this hour, the restaurant, called Tasty Treats, is packed with customers. Sadly, this week has been anything but ordinary.

Dan's restaurant is located in an office complex. Ten days ago a fire broke out in the office building next door. The fire caused significant damage to the office building, but thankfully Dan's restaurant was unharmed.

Still, the fire has had a major impact on Dan's business. At the order of the fire marshal, barricades were erected around the damaged building and the immediate area. Dan's restaurant is located within the area that has been blocked off.

Repairs to the damaged office building won't begin for a few weeks. Meanwhile, the public is barred from entering the area. Dan is concerned about the income he has lost, and will continue to lose, until access to his restaurant is restored.

Tasty Treats is insured under a commercial property policy that includes business income coverage. Dan understands the basic purpose of this coverage. It will cover an income loss he sustains if his restaurant operations are suspended due to physical damage to property described in his policy. An income loss is covered only if the physical loss results from a peril insured by Dan's policy.

Dan's restaurant property was not damaged by the fire. His income loss has resulted from the actions of the fire marshal. Will the loss be covered by his business income coverage?

The answer is probably yes.

Civil Authority Coverage

If you have purchased business income coverage under a commercial property policy, your policy likely includes a coverage called Civil Authority. This coverage applies when access to your premises is prohibited by a civil authority (such as a police or fire department) because of damage to property other than property located at your premises. The physical damage must be caused by a peril covered by your policy. 

In the previous scenario, Dan's restaurant has suffered a loss of income because access to his business has been blocked by the fire marshal (a civil authority). The fire marshal's actions are in response to damage by fire (a covered peril) to property not located at Dan's restaurant. Dan's loss of income should qualify for coverage under Civil Authority coverage.

Waiting Period

Under some commercial property policies (including the ISO policy), business income coverage is subject to a waiting period. A typical waiting period is 72 hours (three days). A waiting period is a type of deductible. If a waiting period applies to business income coverage, it is also likely to apply under Civil Authority coverage. If the waiting period is 72 hours, Civil Authority coverage will begin 72 hours after the fire department or other civil authority has acted.

For example, suppose that the property policy covering Tasty Treats specifies a 72-hour waiting period for Civil Authority coverage. Dan's loss of income coverage will not begin until three days after the fire marshal has blocked access to Dan's restaurant. The waiting period serves as a 3-day deductible. Dan has no coverage for income he loses during the first three days after the fire marshal has barred access to his restaurant.

The waiting period applies to business income coverage only. If your policy includes extra expense coverage, the waiting period will not apply to that coverage.

Period of Coverage

Civil Authority coverage applies for a limited time period, typically a maximum of three or four weeks. In the previous example, suppose that Dan's property policy affords four weeks of coverage under Civil Authority. Suppose that the fire occurred on August 12 and that the fire marshal closed access to the area the following day. Dan's Civil Authority coverage will begin on August 16 (three days after the fire marshal's order). His policy will cover income he loses while access to his restaurant is blocked. However, the period of coverage will not exceed four weeks.

Distance Limitation

Under some property policies, Civil Authority coverage applies only if your covered property is located within a specified distance (such as one mile) from the damaged property. For instance, suppose that Dan's policy includes a one-mile distance limitation. Dan's loss of income will be covered only if his restaurant is located no more than one mile from the office building where the fire occurred.