Civil Authority Clause

A civil authority clause, also known as a public authority clause, is an insurance policy provision which outlines how the loss of business income coverage applies when a government entity denies access to the covered property.

One of the primary responsibilities of civil authorities (local, state, or federal governments) is protecting individuals and businesses, especially from catastrophes, such as hurricanes, wildfires, or floods. A civil authority clause also protects an insured from damages caused by firefighters and police officers when dealing with a situation on a property.

Catastrophic dangers can impact a large area and affect thousands of residents and businesses. If a civil authority determines that a threat is impending and potentially severe, it may require residents to evacuate an area. For example, a local government may prevent residents and business owners from returning to back home after a flood, fire, or hurricane due to concerns for safety.

When civil authorities decide to evacuate an area or prevent people from returning, business owners may experience losses while their businesses remain closed. Property insurance policies often include provisions that provide loss of income coverage while a business is closed due to property damage. They may not, however, include provisions that cover the loss of income because the business owner is unable to reopen after an evacuation. Whether this type of loss is covered depends on the policy’s civil authority clause.

Civil authority clauses are standard in property insurance policies for both businesses and homeowners. They outline the situations in which business interruption coverage is extended. The clause indicates whether the insurer will pay for business income losses in the case that a civil authority prevents the policyholder from accessing the premises covered by the policy. The clause requires that the loss of income be caused, at least proximally, by the civil authority’s order. Rather than apply to a situation in which an insured peril damages the policyholder’s property, the clause will consider damage to nearby properties. A company may choose to purchase additional business interruption insurance policies to increase its level of protection. 

For example, several days of heavy rain has caused the river in a small town to reach historically high levels. Expecting that there is likely to be a flood, the town government orders its citizens to evacuate. A flood does occur; authorities prevent residents from returning home while they determine the extent of the damage. Because residents are not allowed back for several weeks, local businesses are forced to remain closed. Even though the flood did not damage his property directly, the owner of an auto body shop located in town can receive part of his lost income because his property insurance policy contains a civil authority clause.