The effort to mitigate the damage, gather supporting documents, and present an insurance claim, can for many policyholders prove to be the toughest part of the recovery process. After suffering a loss or business interruption, the main priority of most business owners is restoring their businesses or premises as soon as possible – not preparing an insurance claim. While their goal is to achieve the utmost recovery in the shortest period of time, the loss adjustment process can be long and grueling.
Business interruption insurance covers a company’s lost income when property damage forces a termination or slowdown of operations. As discussed in my previous blog, Period of Restoration – Valuing Business Interruption Claims, Part I, the period of restoration under most business interruption policies is typically defined as the length of time it should reasonably take to repair, rebuild or replace property with reasonable speed and similar quality, or the date when the business is resumed at a new permanent location. In many cases, the period of restoration is determined based on a theoretical time period.
Florida law requires that within 90 days after receipt of initial notice of loss, reopened, or supplemental property insurance claim, the insurance company must pay or deny the claim or a portion of the claim unless the failure to pay is caused by factors beyond the control of the insurance company.1 Although, thousands of simple homeowners’ property claims are resolved and paid without recourse to litigation, due to the complexity of the commercial claims, many business owners find the adjustment process frustrating and beyond the 90-day period applicable under Florida law. For many business owners, it is essential to protect their assets as soon as possible as each passing day may bring their businesses to a halt.
The question is then: Should the loss adjustment process be considered in the time period for which losses are to be paid? As a general rule, the time necessary for an insurance company to adjust the loss is not considered in a business income loss time calculation. However, courts have allowed a reasonable extension of the theoretical period of restoration when delays were attributed to the insurance company or occurred through no fault of the policyholder.
In United Land Investors, Inc. v. Northern Insurance Company of America,2 the policyholder’s business was damaged by fire in November 1981. The insurance company made a payment for lost earnings in December 1981, but the repairs did not commence until March 5, 1982, when the insurance company tendered the full amount necessary to return the property to its pre-loss condition. The repairs were completed 12 weeks later.
The insurance company argued that liability for business interruption losses should be imposed only for a 12 week period commencing on November 8, 1981, the date of loss. The court held that in determining the period of loss, it would have to be a consideration that the policyholder could not commence the repairs until the policyholder received the money to complete the work. The policyholder was in no position to contract for or begin the repairs until the policyholder and the insurance company agreed on an amount to be paid and should recovered the business interruption losses from the date of the loss until the repairs were completed 12 weeks after March 5, 1982.
Thus, an insurance company may “be liable for business interruption coverage for the duration of the reasonable period of time needed for [the insured] to reenter business plus any delay attributable to [the insurance company’s] failure to perform its duties under the policy…”3
Another point to take away from this discussion is that insurance companies and policyholders do share a common goal when it comes to resolving the claim as quickly as possible. The policyholder should anticipate that the submitted loss value may be subject to scrutiny and should be ready to provide adequate information and documentation in support of the claim.
Courts have also found that delays attributed to the insured do not extend the period of restoration. To succeed in the loss adjustment process, consider developing skills that will help you remain in control, including, but not limited to, (1) documenting and organizing your claim, (2) cooperating and communicating with the insurance company, and (3) expect challenges and plan ahead. A policyholder that understands and is able to control the loss adjustment process, may have the ability to reach a favorable resolution of his/her claim and avoid unnecessary delays.
1 Fla. Stat. § 627.70131(5)(a).
2 United Land Investors, Inc. v. Northern Ins. Co. of America, 476 So. 2d 432 (La. Ct. App. 1985).
3 Hampton Foods, Inc. v. Aetna Cas. and Surety Co., 843 F.2d 1140, 1143 (8th Cir. 1988)(citing Omaha Paper Stock Co. v. Harbor Ins. Co., 569 F.2d 283, 290 (8th Cir. 1979)).