The U.S. District Court for the Middle District of Louisiana held that “actions of civil authority” that do not prohibit access to an insured’s premises do not trigger civil authority coverage under a first-party policy. Kean, Miller, Hawthorne, D’Armond, McCowan & Jarman, LLP v. National Fire Ins. Co. of Hartford, No. 06-770-C, 2007 U.S. Dist. LEXIS 64208 (M.D.La. Aug. 29, 2007) (adopting the recommendation of the magistrate judge, available at 2007 U.S. Dist. LEXIS 64849). Accordingly, government declarations of a state of emergency and local authorities’ mere requests that citizens stay indoors are insufficient; the “actions of civil authority” must prohibit access to the insured premises, not merely make such access more difficult.

Factual Background

As Hurricane Katrina approached the Gulf Coast, the Louisiana governor declared a state of emergency and Louisiana state police and local government officials issued statements requesting that residents remain at home on August 29, 2005. The Baton Rouge-based law firm of Kean, Miller, Hawthorne, D’Armond, McCowan & Jarman, LLP (“Kean, Miller”) officially closed its office as a result, and sought civil authority coverage for income lost during the closure. Kean, Miller based its argument for coverage on a provision providing:

We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of, or damage to, property other than at the described premises, caused by or resulting from a Covered Cause of Loss. (emphasis supplied).

Kean, Miller’s insurer, National Fire Insurance Co. of Hartford, denied coverage because there was no “order prohibiting access to your location.” Additionally, the insurer determined that there “was no damage in the area such that the other provisions [of the Business Income coverage] would have been met (e.g. no physical damage that prevented access, etc.).” Kean, Miller filed for declaratory judgment that the request made by government officials triggered the “civil authority” clause of their business interruption protection, and that National Fire was obligated to indemnify them.

The matter came before a magistrate judge on cross-motions for summary judgment. In response to Kean, Miller’s argument that the officials’ request was sufficient to trigger “civil authority” coverage, National Fire maintained that Kean, Miller could not produce evidence of actions by authorities that “prohibited access” to their law offices. Instead, it argued, evidence showed that access was more than theoretically possible, as two Kean, Miller employees had gone into the office to restart the computer system.

The Magistrate Judge’s Report and the Court’s Ruling

The magistrate judge’s report found that the governor’s state of emergency declaration and other officials’ statements qualified as “actions of civil authority.” However, the magistrate determined the declaration and statements did not prohibit Kean, Miller’s access to its offices. Accordingly, the magistrate found that coverage was properly declined. In reaching this decision, the magistrate cited Southern Hospitality, Inc. v. Zurich American Insurance, 393 F.3d 1137 (10th Cir. 2004) for the proposition that there must be a “ ‘direct nexus’ between the order/action and the suspension of the insured’s business for the Civil Authority Provision to apply.”

The district court wholly adopted the magistrate’s recommendations without additional comment.

Implications

This decision reconfirms that the “civil authority” clause provides coverage only where actions by civil authorities prohibit access to the insured’s premises. Thus, coverage should not be available when such actions are advisory or are consistent with persons, including employees, gaining access to the premises