To illustrate how the three elements dovetail, consider the following losses resulting from ingress and egress obstruction losses, which are triggered by the three required elements.
One instance of an obstruction of ingress and egress business income loss comes from a reader whose insured's business was located next to a building that was being demolished and reconstructed. The sidewalks and street in front of the insured's business were also being repaired, and access to the insured's business was obstructed. As a result, sales were down 60 percent.
Applying the first element-the requirement that business income was lost-the business experienced a 60 percent loss in sales, thus a loss of income.
The next element specifies that the lost income must result from the necessary suspension of operations. Because the premises were obstructed by the construction, a slowdown occurred. Thus, depending on the policy's definition of suspension (or, if lack of one, the jurisdiction), the loss could be determined to meet this element.
However, the loss does not meet the third element. There was no direct physical loss or damage to the insured's premises. And although ingress and egress coverage does not always require a direct physical loss to the insured's property, there must be a loss to property described in the declarations.
Even if the building next door were described in this insured's declarations, it suffered no loss. The building was purposely demolished and rebuilt. So, no coverage exists for the loss of business income.
Another ingress and egress matter was disputed in a recent court case, City of Chicago v. Factory Mutual Insurance Company. In this case, the city of Chicago satisfied the first element by suffering a loss of business income when the Federal Aviation Administration ordered all takeoffs and landings to halt following the Sept. 11, 2001, terrorist attacks.
The second element was met because three airports-O'Hare, Meigs Field and Midway-were closed between Sept. 11-14, 2001, and operations were suspended.
The city sought coverage for its loss under an ingress/egress provision within its Factory Mutual commercial property and business income policy. The provision stated that the policy covers the actual loss sustained "due to prevention of ingress to or egress from the Insured's property, whether or not the premises or property of the Insured shall have been damaged." The interruption still required physical damage, just not necessarily to the insured's premises.
Factory Mutual argued that the cause of loss was the FAA's grounding of all flights. The city, though, alleged that the grounding was an indirect result of the terrorist acts that caused physical damage to the World Trade Center and the Pentagon. The city also reasoned that, because Factory Mutual used the phrase "direct physical loss or damage" in other policy provisions but not in the ingress/egress provision, that indirect causes of business interruption, such as the grounded flights, should be insured.
The court pointed out that "indirect or remote loss or damage" was excluded by the policy. While it agreed that ingress and egress to the airports was prevented by the Federal Aviation Administration, which was an indirect result of the damage caused by terrorists to the World Trade Center and the Pentagon, it was a type of damage explicitly excluded by the policy.
Further, the court said the physical damage did not fall within the territorial limitation-the kind of property covered either was property in which the city had an insurable interest or that was located within 1,000 feet of city property. The actual property damaged did not fall into either category.