Unprecedented CDC warning to avoid neighborhood -- does business interruption insurance cover it?

   When CDC issued a formal warning for pregnant women to avoid the Wynnwood arts district neighborhood of Miami because of the discovery of six Zika cases from mosquito transmission there, it triggered concern for the disruption of business in that tourism-dependent area.

   Business owners who pay for business interruption insurance may feel this should be covered, but an interesting analysis of the typical insurance provision by John Camp and Carlton Fields shows this is a wrong assumption. Here's what they wrote:

A typical provision covering lost income reads something like this:

We will pay the actual loss of ‘business income’ you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration.’ The suspension must be caused by direct physical loss of or damage to Covered Property and result from a Covered Cause of Loss.

Thus, a typical provision contains critical limitations: not every “suspension of operations” will trigger coverage. Rather:

• the business interruption must have been caused by physical loss or damage;

• the damage must be to covered property; and

• the damage to covered property must be the result of a covered cause of loss.

For Wynwood businesses harmed by the Zika outbreak, the critical missing element is direct physical loss of or damage to covered property. Courts have routinely held that an insured seeking business interruption coverage must establish that the loss was caused by property damage, and not by some other factor or factors. See, e.g., Roundabout Theatre Co., Inc. v. Cont’l Cas. Co., 302 A.D.2d 1 (1st Dept. 2002); Harry’s Cadillac-Pontiac-GMC Truck Co., Inc. v. Motors Ins. Corp., 486 S.E.2d 249, 252 (N.C. Ct. App. 1997).

  While there is a federal statute to cover loss of agricultural animals in a declared quarantine, if certain conditions are met, there appears to be no federal "fix" for CDC's warnings that can cause business devastation. In general, government warnings which cause business loss, like the various vegetable "scares" over the past decade, are generally not covered by insurance business interruption or even market interruption clauses, according to these authors.
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