October 31, 2012
Hurricane Sandy has unfortunately provided opportunities for different kinds of what we frequently label as “Business Interruption” Insurance Coverage. Policy wording differs greatly. Policy language differs, sometimes from policy to policy it seems.
Look for descriptive words in the policy language such as:
- “Business Interruption”.
- “Business Income”.
- “Gross Earnings”.
- “Time Element Earnings”.
There is some common policy language in the case law, and always connect the Business Interruption (“BI,” in this instance) Coverage provisions with the lead-in language of the Policy, as in H & H Hospitality LLC v. Discover Specialty Ins. Co., 2011 WL 6372825 *2-*3 (S.D. Tex. December 20, 2011). That case involved a HURRICANE IKE CLAIM for a Super 8 Motel on I-45 in Spring, Texas and a typically lengthy set of provisions for B/I Coverage. This lead-in language is also typical in requiring suspension of business operations “caused by or result[ing] from direct physical loss of or damage to property“. [Emphasis added.]
So, the first universally required feature of Business Interruption Coverage is:
1. Physical damage.
- Source Food Technology, Inc. v. United States Fid. & Guar. Co., 465 F.3d 834, 838 (8th Cir. 2006) (closing Canadian/U.S. border after Mad Cow disease did not inflict physical damage).
- Roundabout Theatre Co. v. Continental Cas. Co., 302 A.D.2d 1, 2, 7-10, 751 N.Y.S.2d 4, 5, 8-10 (N.Y. App. Div. 1st Dep’t 2002) (not merely “loss of use”).
In a similar way, a second universally required feature of B/I Coverage is:
2. The thing which was physically damaged is covered property.
Howard Stores Corp. v. Foremost Ins. Co., 82 A.D.2d 398, 401, 441 N.Y.S.2d 674, 676 (N.Y. App. Div. 1st Dep’t 1981), aff’d per curiam “for reasons stated” by the Appellate Division, 56 N.Y.2d 991, 439 N.E.2d 397, 453 N.Y.S.2d 682 (1982). The New York Appellate Division held in this case that water damage at a retail clothing store was covered under the BI policy at issue, though not at locations which were not on the policy but which incurred claimed losses: “A business judgment was made to divert the merchandise intended for those [two other, non-covered] stores. Plainly the policy in suit was not intended to include business interruption, if any, to these other stores where no physical damage occurred.”
Third, BI Coverage requires that the cause of physical damage to covered property was:
3. A covered peril which caused the physical damage to covered property during the policy period.
National Union Fire Ins. Co. v. Texpak Grp. N.V., 906 So. 2d 300, 302 (Fla. 3d DCA), review denied, 919 So. 2d 436 (Fla. 2005)(no BI coverage where business interruption at issue was caused by design and installation defects which were not covered perils). Those perils or causes of loss were excluded in the policy at issue in this case. That is why they were not “covered perils” there.
The remaining 3 of 6 features which help identify Business Interruption Coverage are the focus of our next post.