As mentioned in some of my prior posts, Business Interruption coverage protects an insured against a loss of business income that the insured suffers as a result of a covered peril. However, although an insured may suffer an interruption of business, it does not necessarily follow that the insured actually incurred a recoverable loss.
One way insurers try to reduce an insured’s business income claim is by incorporating any increased sales following a catastrophic event into the loss calculation. In Rimkus Consulting Group, Inc. v. Hartford Casualty Ins. Co., 552 F.Supp.2d 637 (S.D. Tex. 2007), Hurricane Katrina forced Rimkus to shutdown its New Orleans office. However, Rimkus continued to provide its engineering and consulting services out of temporary offices. Because Rimkus worked exclusively for insurance companies, its business following Hurricane Katrina increased dramatically. Hartford introduced evidence that Rimkus’ actual revenues after Katrina were nearly quadruple the projected revenue for that period. However, Rimkus sought business interruption coverage from Hartford, claiming it lost revenue from its regular, pre-storm clientele. Hartford, on the other hand, argued that the difference between pre-storm and post-storm income is meaningless because Rimkus continued to provide its services to the same industry after Katrina.
The Court found that Rimkus received income for its services that should be counted against its business interruption claim. Because its income increased, the court concluded that Rimkus did not suffer a recoverable business income loss. The Court relied on specific policy language that allowed Hartford to reduce amounts payable “to the extent that the reduction in volume of business income from the affected income channel is offset by an increase in the volume of business from other income channels.” Id. at 640.
The Court’s analysis in Rimkus shows that the measurement and extent of business income coverage is heavily dependant on the policy’s language as well as the specific facts of a case. Rimkus serves as a reminder that it is a good idea to read your policy from time to time to ensure that you know what is covered. Although not all insurers attempt to limit or deny coverage, it’s a good idea to read your policy with an eye for denying or limiting coverage. Reviewing your policy this way will prepare you for any pitfalls you might encounter should you ever suffer an insurance-related loss.