Riots Cause Slowdown of Business—Is There Coverage?

The Spring 2020 riots lead to a number of insurance claims. I was interviewed on Fox News about these, as noted in
Business Income and Property Damage Claims Payable After Riots and Civil Commotion. We are now starting to get some coverage opinions on unresolved riot claims.

A recent Minnesota federal court opinion1 analyzed under Minnesota law involved a business income coverage controversy arising from the George Floyd riots. The complaint contained stated the facts:

George Floyd was murdered on May 25, 2020, prompting significant civil unrest. Mr. Floyd’s murder occurred close to NMA’s laundromat. ‘Cement barricades, ad hoc barricades, ad hoc structures, and mementos commemorating George Floyd’s death were placed in George Floyd Square, at and adjacent to the [laundromat’s] premises after May. Specifically, the barricades were placed “by the City of Minneapolis on Chicago Avenue north and south of NMA and on 38th Street to the east and west of NMA . . . [in] response to the evolving civil unrest and accompanying property damage in south Minneapolis.’ The barricades, ‘mementos, and the ad hoc structures remained in place continually for over a year.’ The placement of these barricades, mementos, and structures ‘in the street, in parking spaces, and in the bus stop caused a partial suspension of NMA’s business operations.’ ‘To access NMA via 38th Street or Chicago Avenue, vehicles had to be admitted through a gate or ad hoc barricades.’ ‘NMA also lost parking spaces and a public bus stop when structures were built at and adjacent to the premises and mementos commemorating George Floyd were placed throughout George Floyd Square.’ ‘The barricades and armed and unarmed community members that physically blocked access to NMA with their bodies directed pedestrians, traffic and public transit away from NMA.’

The court noted the general business interruption coverage language as follows:

The actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration’ . . . caused by direct physical loss of or damage to property at premises that are described in the Declarations and for which a Business Income and Extra Expense 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 court also noted the policy definitions applicable to this coverage:

The policy defines ‘operations’ as the insured’s ‘business activities occurring at the described premises.’ ‘Suspension’ is defined in relevant part as: ‘The partial or complete cessation of your business activities.’ And ‘period of restoration’ ‘means the period of time after direct physical loss or damage caused by or resulting from a Covered Cause of Loss at the [insured’s] premises that [b]egins . . . 72 hours after the time of direct physical loss or damage for Business Income coverage.’ The period of restoration ends on the earlier of ‘[t]he date when the property . . . should be repaired, rebuilt or replaced with reasonable speed and similar quality; or [t]he date when business is resumed at a new permanent location.’ The ‘premises that are described in the Declarations’ are the laundromat’s address of 3725 Chicago Avenue South in Minneapolis.

The claim was also made under the Civil Authority coverage which provides in part:

(1) When a Covered Cause of Loss causes damage to property other than property at the described premises, we will pay for the actual loss of Business Income you sustain and the actual Extra Expense you incur caused by action of civil authority that prohibits access to the described premises, provided that both of the following apply:

(a) Access to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage, and the described premises are within that area but are not more than one mile from the damaged property; and

(b)The action of civil authority is taken in response to dangerous physical conditions resulting from the damage or continuation of the Covered Cause of Loss that caused the damage, or the action is taken to enable a civil authority to have unimpeded access to the damaged property.

The policyholder made a rather unique argument that the barriers were the physical damage to the premises:

NMA alleges that it experienced direct physical loss in three ways: ‘(i) placement of mementos commemorating George Floyd in the NMA parking spaces, in the bus stop, and on the sidewalk; . . . (ii) placement of structures in the street and in parking spaces;’ and (iii) the ‘loss of direct vehicle and pedestrian access . . . caused by the actions of armed and unarmed community members that physically blocked access to the NMA premises with their bodies, supplemented the [City-placed] cement barricades with their own ad hoc barricades, and directed vehicle and pedestrian traffic away from the [] premises.’ Second Am. Compl. To be clear, NMA does not allege that the placement of these structural and human barriers caused physical damage to property; NMA alleges that the barriers themselves are physical damage.

The court did not agree that the barriers could be physical damage:

These allegations do not plausibly show loss or damage in the relevant sense to either the laundromat or to the public area surrounding the laundromat. Barriers ordinarily are not themselves physical property damage. They might divert vehicle or pedestrian traffic away from damage or areas in need of repair—like a pothole-ridden street or a closed escalator—but it seems implausible to refer to a barrier itself as physical property damage. NMA cites no case reaching that or a similar conclusion. And as noted, NMA alleges no facts in its Second Amended Complaint suggesting that the barriers or memorials in the Square caused some kind of separate physical damage.

Perhaps realizing that this aspect of its theory regarding the barriers is not strong, NMA pivoted at the hearing to arguing that the duration of the barriers’ presence resulted in direct physical loss. This is not persuasive because the duration of the restricted access caused by the barriers is not physical loss or damage under any definition of those terms. In other words, if the barriers are not themselves physical damage to property on day one, it’s hard to understand how (without more) they become that after day one hundred.

The court did not agree that the Civil Authority coverage applied because no civil order ever prohibited entire access to the premises:

The primary disputed issue regarding the civil-authority coverage provision is whether NMA has alleged facts plausibly showing that the City ‘prohibited’ access to the laundromat. The general rule is that coverage under this provision ‘is only available when access is completely prohibited,’ and that allegations or evidence showing that ‘ease of access was diminished’ do not show that access was prohibited. TMC Stores, Inc. v. Federated Mut. Ins. Co., No. A04-1963, 2005 WL 1331700, (Minn. Ct. App. June 7, 2005); see Southern Hospitality, Inc. v. Zurich American Ins. Co., 393 F.3d 1137, 1139– 1142 (10th Cir. 2004)…

For those readers interested in this coverage topic, I would suggest reading Are Damages to Businesses from the Recent Riots and Civil Commotion Covered Under Property Insurance Policies?, and a post by Shane Smith, Riot or Civil Commotion Coverage.

Thought For The Day

This is a time of shame and sorrow. It is not a day for politics. I have saved this one opportunity to speak briefly to you about this mindless menace of violence in America which again stains our land and every one of our lives.

It is not the concern of any one race. The victims of the violence are black and white, rich and poor, young and old, famous and unknown. They are, most important of all, human beings whom other human beings loved and needed. No one – no matter where he lives or what he does – can be certain who will suffer from some senseless act of bloodshed. And yet it goes on and on.

Why? What has violence ever accomplished? What has it ever created? No martyr’s cause has ever been stilled by his assassin’s bullet.

No wrongs have ever been righted by riots and civil disorders. A sniper is only a coward, not a hero; and an uncontrolled, uncontrollable mob is only the voice of madness, not the voice of the people.
—Robert F. Kennedy, April 5, 1968
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1 NMA Investments v. Fidelity and Guaranty Ins. Co., No. 22-cv-1618 (D. Minn. Sept. 13, 2022).