Time is often the most important and controversial element in evaluating a business income claim. Determining an adequate Period of Restoration is sometimes as counterintuitive as solving a quantum mechanics formula. In the book, Business Interruption – Coverage, Claims and Recovery, 2nd Ed. (2011), the authors illustrated a real world challenge in determining an adequate Period of Restoration and a savvy business owner that made the most of his time.

When the Red River flooded and inundated the city of Grand Forks, North Dakota, the entire business district suffered extensive damage. To make matters worse, the power company had not shut down power to the entire area; electrical short circuits in the system because of the rising floodwaters caused a fire that further damages substantial amounts of property in the area. As a result, city leaders redlined an area including the business district, putting off any reconstruction work until final plans could be made to construct retaining walls and take other measurements to prevent future floods.

The vast extent of the damages coupled with the relatively remote location of Grand Forks, created a situation in which there simply were not enough contractors or materials to undertake cleanup, repair, restoration, and replacement. Those factors created controversy as to what period of time was appropriate for businesses in the area to complete their recovery efforts- and by extension the period of indemnity. In one significant situation, a policyholder’s entire operations were located within three buildings inside the redlined zone. All were flood-damaged, and some had experienced fire damage as well. While the company’s representatives were able to visit the sites to assess the damages, they were unable to remove major equipment for repair or to begin other recovery efforts at the properties. When the policyholder began discussing these issues with the loss adjuster, it was distressed to learn that the insurance company’s view was that the redlining issues (which they felt were not technically “code” changes as covered under the policy) were irrelevant to the loss adjustment. Furthermore, the adjuster’s construction expert had ignored the geographic lack of resources and materials in preparing his estimates of cost and timing for reconstruction activities. Thus allowing 6-8 weeks of time element coverage from the date the flood waters receded.

The policyholder had already begun plans to move most of its operations outside the flood plain of the Red River. In the process of trying to line up architects, engineers and contractors for that purpose, the policyholder determined that it was impossible to even procure the necessary resources to begin this work within the time period allotted. At a meeting to discuss an amicable resolution, the policyholder pointed out that the redlining issues should be considered code changes because they created new rules for access to loading docks and other areas due to the soon-to-be-constructed levees and retaining walls. In addition, the policyholder made a compelling argument regarding the availability of contractors and materials. Finally, the policyholder pointed out that construction in the new location was being done using methods that were likely to reduce the actual cost of replacement of the property. The policyholder in the end was successful in negotiating a longer period of indemnity.