Many insurance company adjusters deny, disclaim or reduce the amount of a business interruption claim, stating that amount of the loss is speculative or has not been “adequately” supported. A conjured or baseless claim should never be covered, and policyholders should always provide competent proof of an actual loss of income as a result of a slow down or suspension of operations. However, sometimes losses are based on real circumstances which were not necessarily documented for bookkeeping purposes and the proof cannot always be found in a spreadsheet. Rather than impulsively denying a claim for lack of "adequate" support, insurance companies should explore the nature of the circumstances and give the benefit of the doubt to the policyholder when warranted.
For instance, in O.T. Food & Liquor v. Hartford Insurance Co., 1996 WL 131805 (N.D. Ill. Mar. 21, 1996), the policyholder operated a retail grocery and liquor store that suffered substantial damage to its real property and inventory when a fire occurred in an adjacent building. The policyholder remained closed the morning of the fire and then reopened. The insurance company hired an adjuster to work with the policyholder’s adjuster to segregate destroyed inventory from the "damaged" inventory. The policyholder believed much more inventory was damaged than the amount the insurance company found and subsequently sold the damaged inventory during a "2 for 1" sale. The policyholder kept no records of that sale. The policyholder then submitted a Business Income claim for destroyed and damaged inventory. In the coverage action, the insurance company argued that the policyholder’s failure to keep records of the damaged inventory meant that the policyholder could not demonstrate the amount of its loss. The court noted that this failure was not a breach of the insurance contract and that, at a minimum, the jury should determine the amount of the loss based on the evidence introduced at trial:
It is true that under Illinois law, which the parties assume controls this diversity action, the plaintiff bears the burden of providing its damages by a preponderance of the evidence. However, "[i]n virtually every type of case involving proof of damages, whether based upon negligence or upon the provisions of a policy, the assessment of damages claimed by the plaintiff is primarily a question of fact within the discretion of the jury." In the instant case, the [policyholder’s] witnesses claim that all of the inventory in the store was damaged by the fire, but that only some of it was so destroyed as to be unfit for sale. The remainder was either partially damaged or cosmetically altered such that it could not be sold at full price…[T]here is at least some non-speculative, non-conjecture based testimony supporting the [policyholder’s] claim of damage. Thus, viewing this eyewitness testimony of [the policyholder] and [the public adjuster] in a light most favorable to [the policyholder], we cannot conclude as a matter of law that the remainder of [the policyholder’s] inventory was completely undamaged. Although [the policyholder’s] failure to keep detailed records of its "2 for 1" sales, and its decision to move undamaged goods into the store from another location, certainly hampers its ability to prove its damages, we do not believe that it so undermines the [policyholder’s] case as to warrant a grant of summary judgment.