HURRICANE SANDY BUSINESS INTERRUPTION INSURANCE CLAIMS

 

 

The largest financial impact of Hurricane Sandy may well involve business interruption losses.  Companies forced to close may suffer substantial losses with the question of whether insurance will cover all or part of that loss.   Cases need to be individually evaluated and can be fact sensitive.  The basic issues concern cover and the amount provided. 

I. COVERAGE ISSUES  

A. Business  Interruption Insurance

The first question is whether the company had business interruption insurance, which is generally sold as a rider or separate policy.  "As is often the case, many business owners in the storm’s path had not bought insurance beyond standard business protection — nothing for floodwaters or business interruption."  Business Owners Tally the Storm Damage and Ponder Its Lessons, New York Times, Nov. 7, 2012.  If there is a policy, one looks at its provisions and coverage.  If not, the question is whether business losses are included within general coverage or subject to a policy exclusion.  

          B. Was the Business Completely Closed 

Many business were closed during Hurricane Sandy.   Generally, however, there can be no recovery under a business interruption policy where a covered peril merely causes the
volume  of the insured's business to diminish, rather than brings about an actual business suspension." 

          C. Exclusions  

Policies sometimes contain exclusions, and the business should review its actual terms.  Companies cannot easily mislead the insured and any exclusionary clauses are generally 
construed against the insurer, to meet the insured reasonable expectations of coverage.    

D. Notice

     Most policies have provisions requiring the insurer to be notified of the loss and afforded an opportunity to inspect the premises.       

II. AMOUNT AND DAMAGES

       A. Purpose and Policy 

 Assuming the insurer agreed to provide coverage for the loss, the question becomes what amount.  The purpose of such insurance is to  protect the payment of profits and legitimate continuing charges or expenses in the event of loss or destruction of the property.  Wilson & Toomer Fertilizer Co. v Automobile Ins. Co. ( 283 F 501 (5th Cir. 1922) insured.

        B. Lost Profits

 A basic formula is to take the company's past profits and if the policy provides for lost profits reimbursement, utilize a historical amount to calculate it.But what happens if the business had been operating at a loss. Then many courts permit recovery through competent proof notwithstanding prior losses.  

        C. Mitigation of Damages

The company must usually take reasonable steps to return to business and limit the insurance company's obligation.  " The typical policy or endorsement includes a "resumption of  operations" provision, making it a condition of the insurance that if the insured could reduce the loss by resuming operations at the covered location, whether damaged or not, or by making use of merchandise, stock, or other property at the covered location or elsewhere, such reduction must be taken into account in arriving at the amount of the loss."  Annot, business Interruption Insurance, 37 A.L.R. 5th 41.