Denial of Access

In our previous blog we had discussed the material damage provision being- deemed extended to a premises of   Supplier/Customer ( beyond the Insured manufacturing unit) for purposes of trigger for LOP liability.  Denial of access follows the same logic, extending the physical loss or damage to "vicinity" (which may be defined as specified Kilometers radius or may be left undefined). 

In its simplest form -the Denial of access coverage is- any damage in the vicinity of a business premises which prevents the Ingress or egress from the premises- is the deemed trigger for liability under the LOP policy. So, any consequential fall in Insured Unit’s turnover/ profits can be claimed under the LOP policy.

The variation in the wordings extend cover for denial of access due to:

• A harmful device (say a bomb) in the vicinity preventing access to the premises  or
• Police or local authorities restricting/ prohibiting access to the premises due to harmful device in the vicinity.

So, the components that need to be established for purpose of a claim are 

• Ingress or egress from insured property is prevented
• The access prevention is due to an event in the vicinity
• This access restriction results into lower production and hence lower profits for the Insured Unit
• Prevention may be a physical restriction or a restriction imposed by local authorities.

Following the World Trade Tower incident, an interesting issue came up before the Courts in USA. The policy wording involved in the case was -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 your premises due to direct physical loss of or damage to property, other than at the "covered premises," caused by or resulting from any Covered Cause of Loss.

The suit was filed by two New Orleans hotels who claimed that the closure of the Airport and flight cancellations prevented guests from getting to New Orleans and to plaintiff's hotels. The court did not find merit in this argument and ruled that authorities did not prohibit  any one  from travelling by other means or from going to any hotel.

Let us  also look at the - “Extra Expense” cover which takes care of “reasonable and necessary extra costs” that a company may incur beyond what is spent in normal times. Such costs could be in form of increased costs to receive goods for sale, the increased cost to transport and distribute goods, and increased labour costs to re-establish logistics systems etc.