(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the fifth part in a series she is writing on business interruption claims).
As a matter of general practice in business interruption claims, the insured’s books and records are admissible and its accounting practices are to be considered in determining the actual loss sustained. However, the “books” are not necessarily controlling in the valuation determination. The valuation should be determined in a practical way, with regard to the nature of the business and the methods employed in its operation, giving practical effect to the intentions of the parties and the purpose of the insurance as evidenced by the terms, conditions, and provisions of the policy. AmJur Insurance, § 1533 (2010).
Specifically, the extent of the loss recoverable can be, and usually is, established by earnings projections prepared by the insured, especially where they were formulated in the regular course of business prior to the loss.
In American Medical Imaging, Corp. v. St. Paul Fire and Marine Ins. Co., 949 F.2d 690 (3rd Cir. 1991), the lower court, sua sponte (on its own) granted summary judgment in favor or the carrier holding that rent for the Plaintiff’s alternative space, extra compensation for overtime work, and excess telephone charges were “too speculative” to prove damages or to support a recovery for lost earnings and extra expenses. The appellate court, however, reversed the lower court’s ruling in favor of the carrier and held that:
“Inherent in the concept of business interruption insurance is the necessity of insureds making claims for lost earnings based in large part on estimates of things that have not happened, i.e., on estimates of what would have happened had there been no fire or other covered cause of loss. Moreover, throughout the world of business, such estimates are invariably based on the results of past performance projected and adjusted on the basis of present business conditions.”
It is important to note that the appellate court did not weigh the sufficiency of the evidence for purposes of recovery, but rather stated that the insured’s evidence should have precluded summary judgment and the issue should have gone before a jury.