Hurricane Business Interruption Insurance Claims

The aftermath of a hurricane can lead to substantial business interruption losses, with companies forced to close and question whether their insurance will cover the resulting loss. These cases need individual assessment and can be highly fact-specific. The primary issues revolve around coverage and the extent of coverage.

I. COVERAGE ISSUES

A. Business Interruption Insurance

The first consideration is whether the company had business interruption insurance, typically offered as a rider or separate policy. If such a policy exists, its provisions and coverage details are examined. If not, the question becomes whether business losses fall within general coverage or are subject to policy exclusions.

B. Business Closure

During hurricanes, many businesses are forced to close. Generally, however, business interruption policies require a complete business suspension due to a covered peril for a recovery to be valid.

C. Policy Exclusions

Policy documents may contain exclusion clauses. It’s important for businesses to review their policy terms. In cases of ambiguity, exclusions are typically interpreted against the insurer to align with the insured’s reasonable expectations of coverage.

D. Notice

Most policies include provisions necessitating the insurer to be notified of the loss and granted the opportunity to inspect the premises.

II. AMOUNT AND DAMAGES

A. Purpose and Policy

If the insurer agrees to provide coverage, the next question is the amount of coverage. Business interruption insurance is designed to safeguard profits and legitimate ongoing expenses in case of property loss or damage. The calculation often involves using the company’s historical profits if the policy covers lost profits.

B. Lost Profits

In cases where a business had been operating at a loss, many courts allow recovery through solid evidence, even if prior losses exist.

C. Mitigation of Damages

The insured company is generally required to take reasonable steps to resume business operations and minimize the insurer’s obligation. Most policies include a “resumption of operations” provision, making it a condition of insurance that any reduction in the loss through business resumption must be factored into the loss amount.

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