Consequential Loss Exclusions - Understanding Business Interruption Claims, Part 13
(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the part of a series she is writing on business interruption claims).
In general, business interruption insurance is intended to return to the insured's business the amount of profit it would have earned, had there been no interruption of the business or suspension of its operations. However, business interruption coverage ought not be used to put the insured in a better position than it would have occupied without the interruption. Most policies will therefore typically exclude coverage for any consequential (or remote) losses, delay, loss of use or loss of market, which do not directly flow from a covered loss.
Truth be told, certain business interruption claims are hard to quantify. Policyholders should be aware of the accounting methodologies employed in the calculation of a business loss to avoid presenting the ubiquitous “speculative” claim that could be easily denied under the consequential (or remote) loss exclusion.
In Florida, courts have held that in order to recover under the business interruption policy, an insured must prove that it sustained damage to property, that the damage was caused by a covered loss, that there was an interruption to the business (“suspension of operations”) which was caused by the property damage, and that there was an actual loss of business income during the period of time it took to restore the business and that the loss of income was caused by the interruption of the business and not by some other factor or factors. See, Dictiomatic, Inc., v. U.S. Fidelity & Guar. Co., 958 F. Supp. 594 (S.D. Fla. 1997), citing Ramada Inn Ramogreen, Inc., v. Travelers Indemnity Co., 835 F.2d 812 (11th Cir. 1988).
In Dictiomatic, the court denied the insured’s business interruption claim as a matter of law after it found, as a matter of fact, that the insured failed to prove it would have realized business income (selling hand-held electronic translators) which was lost solely as a result of Hurricane Andrew. The insured also failed to establish that it would have enjoyed income during the time of restoration, sufficient to pay normal operating expenses or to generate profits.
In my opinion, the policyholder’s demise in Dictiomatic was most likely the result of improper calculation of the actual business loss, since the numbers presented to the court were perceived as inflated and contradictory. Surely, a more thorough review of the evidence before it was presented to the trial court could have avoided a judgment after the insured’s case in chief and potentially resulted in an opportunity to challenge the carrier’s case. If there is one thing to be learned from the “hand-held electronic translator” business, it is to be careful and accurate in presenting a claim for business interruption.
Michelle,
This case is a little before your time. The Merlin Law Group was retained in the Dictiomatic case. We withdrew after the first examination under oath.
Ethics prohibits me from discussing what I know about the case. However, anybody studying the case can learn certain things.
First, John Pappas did a terrific job for the insurer. Most of my colleagues from the policyholder's side love to make fun of the insurance company attorneys. Insurance companies are repeat customers and they generally pick good attorneys that win. John Pappas punished the arrogant attorneys that became involved after I withdrew. Never underestimate anybody, especially those that have been there and have been doing it for awhile. Chances are that the opponent is not sending cases repeatedly to a loser.
Second, provide documents that support the case. The court was asking for them and so was the insurance company. It is amazing how much money will be paid if some documents and plans support an expert opinion in a business income claim.
Third, admit when your theories of recovery are based on speculation and do not believe that others will view your version of reality without hard evidence. Juries and judges do not give money away because they do not believe in windfalls. Prove that the insurer abused a policyholder when monies were owed, and the jury or judge may punish the insurer. Do not be surprised when it happens to a policyholder arrogantly acting the same way.
Good post. Important case.
Michelle and Chip - agree good post and world class blog. Your insight and willingness to be pragmatic and candid are refreshing and a service to our industry - to all sides. All the best to you and yours as we enter this most holy week. Enjoy your precious time with family-
I was co-counsel with John Pappas on behalf of USF&G in that case and trial and subsequent proceedings 14 years ago.
The reason the case went the way it did was absolutely not the result of an "improper calculation." It was the exact opposite.
There was no history of success, but that only scratches the surface. Judge Payne's opinion granting judgment to USF&G after two weeks of the Plaintiff presenting their case and his opinion under 28 USC Section 1927 make that clear. Any analysis of Dictiomatic, which is cited quite often, requires a review of all the opinions in the case.
Chip's quite accurate comments indicate to me that he agrees.