Where Do We Go From Here?
Property insurance issues raised by the Ferguson riots.
On the Saturday afternoon of Aug. 9, 2014, African-American teenager Michael Brown was shot and killed by a white police officer in the St. Louis working-class suburb of Ferguson. The circumstances of that shooting are not yet fully known, but given the inherent fallibility of human perception and the simple fact that one of the parties to the shooting died, they might never be. Regardless, Michael Brown’s shooting death unleashed a torrent of anger, frustration, and grief that led to nightly demonstrations, clashes with police, looting, vandalism, and imposed curfews.
The event is, needless to say, a great personal tragedy for Michael Brown, his friends and family, and his community. Brown’s violent death also has caused great upheaval for the city of Ferguson, St. Louis County, and the state of Missouri. The region’s leaders and civil servants have drawn sharp criticism from all quarters for their handling of the turmoil and the perceived racial divide that has fueled it.
Rightly so, media coverage, commentary, and political rhetoric over the past weeks has focused mainly on fundamental issues of race and justice and on the unfolding investigation into the shooting. But on a more practical level, the nightly demonstrations have had a disastrous impact on some in the local business community. The night after the shooting, the town of Ferguson exploded into rioting and looting. A QuikTrip convenience store was looted and burned and quickly became an iconic image of these protests. Other local businesses suffered a similar fate, including looting, smashed windows, and other vandalism. Ferguson Market & Liquor was looted twice despite the shop owner’s efforts to board up the windows, hurricane-style. A nearby McDonald’s restaurant was forced to close early each night and delayed opening several mornings in order to clean up debris from the previous night’s clashes. A midnight to 5 a.m. curfew imposed by Governor Jay Nixon for two nights further hampered business as usual in Ferguson. Looting and vandalism spread to the nearby town of Dellwood and to other locations around the St. Louis metropolitan area.
Anecdotal evidence suggests that the wider business community has seen a lull in business activity. As the Wall Street Journal reported, a local muffler shop suffered damage when a car with faulty brakes plowed through the front window. The negative stigma attached to businesses impacted by the rioting and looting was apparent as the manager of the muffler shop spray-painted the plywood that temporarily covered the shattered window with a message, “Bad Brakes Did This.”
Further away, in the county seat of Clayton, protesters staged numerous marches on the Buzz Westfall Justice Center to call on the county prosecutor to recuse himself from the investigation into the shooting. Along the marchers’ route, businesses on Central Avenue closed shop for several hours while the demonstrators passed by as a way of protecting property and patrons. Even shopping malls and department stores far from the demonstrations closed early, fearing that the unrest would spread.
With tensions seemingly easing, businesses most significantly impacted are picking up the pieces and salvaging what they can in an effort to stay afloat. One question most of them are now forced to consider for the first time is whether their property insurance policies will cover the damage caused in the course of this civil unrest. The answer, as with most legal matters, is “It depends.”
Building and Business Personal Property Coverage
Insurance policies vary, of course, and one can only speak in generalities until a claim is actually made. With that caveat, however, it can be said that commercial property insurance typically covers direct physical loss to covered property so long as the loss is caused by a covered risk. The clearest limitation to this insuring agreement in the circumstances of the Ferguson riots is the definition of “covered property.”
In most policies, damage to the building itself, windows, fixtures, and permanently installed machinery and equipment are included as part of the building coverage. Business personal property also is covered, including merchandise held for sale. Thus, the thousands of dollars worth of liquor, snacks, and beauty supplies hauled away from businesses along Ferguson’s protest route are covered property. But currency, food stamps, checks, and other evidence of indebtedness are not. We can, therefore, assume that as news video captured a looter casually walking away with a local market’s cash register, the device itself likely is covered, but the cash inside is not.
Each morning after the most intense nights of demonstrations, well-meaning residents from Ferguson and around the region showed up to assist local shop owners with cleaning up. With a variety of limitations, this cleanup, too, typically would be considered a covered expense. Damage to fences, landscaping, and signage also may be covered but sometimes is subject to policy sub-limits.
Most commercial property policies will cover damage caused by the kind of rioting or civil unrest seen in Ferguson. Even those policies that exclude such causes of loss still may cover the damage caused by looters, as protesters have sought to emphasize that the theft and destruction seen on television was caused not by the demonstrators but by a small group of criminals using the unrest as cover for property crimes.
Many commercial property policies also provide coverage against business income loss. In general, such coverage applies to business income losses caused by direct physical damage to covered property as the result of a covered risk. Thus, businesses actually damaged and looted in the course of the demonstrations may be able to recoup at least part of their lost incomes. On the other hand, businesses that were undamaged but forced to close simply because the presence of demonstrations made them inaccessible would not be covered. The many businesses that closed up shop temporarily as a precaution while demonstrations took place also would not be covered.
Business income coverage also is limited to the period of time when business is suspended at the insured premises. Those business owners who have been returning in the morning, sweeping up glass, and returning to work may find that even though business is greatly diminished, they have no coverage for business income losses sustained during that period of time. The same would hold true for businesses that limited their hours for the sake of safety if they then looked to their commercial property coverages to recoup their lost incomes.
Finally, business income coverage will be limited to the “period of restoration,” fluidly defined as the time it should take to rebuild. As demonstrators disperse and life returns to normal, some business owners are considering whether they should repair their shops and return or relocate out of the Ferguson area. Such reflection may take time, but the meter on the period of restoration begins running when damage is sustained, and business owners may find that they do not have the luxury of time for soul-searching and careful planning.
In addition to business income coverage for businesses closed due to physical damage, property policies also commonly provide coverage when businesses are closed as the result of a government order. After Hurricane Katrina, for example, various municipalities issued mandatory evacuation orders that forced businesses to close and residents to flee. So-called civil authority coverage paid some of the business income losses that businesses suffered during the time the evacuation orders were in force.
Civil authority coverage generally has significant limitations. First, such coverage is triggered when access to the insured premises is prohibited by the action of a civil authority because of direct physical loss of or damage to property other than the described premises and is caused by a covered risk.
When Missouri’s governor enforced a midnight curfew in an effort to stem violence and looting, it could be argued that civil authority coverage was triggered in the town of Ferguson. After all, the curfew was enacted because of damage in the area caused by rioting, generally a covered risk. Certainly, too, the curfew would have prohibited access to area businesses. However, civil authority coverage commonly includes a 72-hour waiting period before covered losses begin. Thus, any businesses impacted by the five-hour curfew periods over two days probably cannot look to their civil authority coverage to compensate for those losses.
Both business interruption and civil authority coverage include “extra expenses” attendant with suspension of business caused by a covered risk. These include the costs of generators, storage facilities, plywood to cover broken windows, moving trucks, and the costs associated with setting up shop at a temporary location.
The Los Angeles Riots in 1992 caused insured losses of $775 million. Property damage caused in the wake of the Ferguson Riots is not yet known, but will certainly reach into the millions even if, as we hope, the worst is behind us. Fortunately for the local business community simply caught in the crossfire, much of this loss will be covered by commercial property insurance policies. So while the community heals, they will have the wherewithal to pick themselves up, dust off, and get back to business.