A federal appellate court has now affirmed the ruling I previously discussed in Fine Print, Grammar, and the Cost of Getting Back to Business: A Lesson from the State Farm Extra Expense Case.
The decision shows how a few spaces on a page can determine whether a business receives the insurance money it needs to survive a catastrophe.
In Coastal Dust Control, Inc. d/b/a Sanico, L.L.C. v. State Farm Fire and Casualty Company, the Fifth Circuit Court of Appeals affirmed a Mississippi federal trial court’s interpretation of State Farm’s Loss of Income and Extra Expense endorsement. 1 The unpublished opinion was issued on September 8, 2026.
Sanico operated an industrial laundry in Long Beach, Mississippi. It cleaned linens, floor mats, and other commercial items for restaurants, casinos, and hospitality businesses. A fire destroyed its facility and all the machinery and contents inside.
Sanico did what most business owners would hope to do after a catastrophe: It fought to stay alive. It trucked linens and mats to an affiliated laundry in Cottondale, Alabama, subcontracted work to other laundries, rented trucks, purchased fuel and supplies, and leased temporary space. These were not theoretical expenses lawyers developed after the fact. Sanico spent the money to continue serving its customers rather than surrendering them to competitors.
State Farm’s forensic accountant calculated that Sanico incurred approximately $1.467 million in qualified extra expenses. State Farm nevertheless limited payment to about $906,941, representing the income Sanico supposedly would have lost if it had completely shut down. After learning that Sanico’s assets had been sold, State Farm later reduced its calculation to $884,428 and contended that it had overpaid the claim by $22,513.
The dispute centered on the following language:
‘Extra Expense’ means expense incurred:
- To avoid or minimize the ‘suspension’ of business and to continue ‘operations’:
(1) At the described premises; or
(2) At replacement premises or at temporary locations, including relocation expenses and costs to equip and operate the replacement or temporary locations;
- To minimize the ‘suspension’ of business if you cannot continue ‘operations’; or
- To:
(1) Repair or replace any property; or
(2) Research, replace or restore the lost information on damaged ‘valuable papers and records’ to the extent it reduces the amount of loss that otherwise would have been payable under this coverage or ‘Loss of Income’ coverage.
The entire lawsuit came down to the placement of the final phrase beginning with “to the extent.”
Sanico argued that the limitation applied only to subpart c, which concerned repairing or replacing property and restoring damaged records. Under Sanico’s interpretation, expenses incurred under subparts a and b to continue operations were not limited to the amount of business income loss avoided.
Sanico relied on the semicolons separating the three categories, the word “or,” and the last-antecedent rule, which generally applies a qualifying phrase to the language immediately preceding it. Sanico also relied heavily on Midwest Regional Allergy, Asthma, Arthritis & Osteoporosis Center v. Cincinnati Insurance Company, 2 where the Eighth Circuit held that similar limiting language applied only to the repair-and-replacement category of extra expense.
State Farm argued that the placement of the limitation against the left margin controlled the outcome. The phrase was not indented beneath subpart c. It was aligned with the introductory language defining “Extra Expense.” State Farm contended that this formatting showed that the limitation applied to all three categories.
The district court agreed with State Farm and applied what is known as the “scope-of-subparts canon.” Under that rule, unindented language appearing after a series of indented subparts generally applies to the entire series.
The Fifth Circuit agreed. It called the language “basically unambiguous” and found that the unindented qualifier modified all three categories. The court reasoned that the qualifying language had been visually separated from subpart c by returning it to the left margin. It also found that the phrase “to the extent it reduces” referred back to the singular word “expense” in the introductory sentence.
The court rejected Sanico’s reliance on the last-antecedent rule. It noted that a strictly mechanical application of that rule could cause the limitation to apply only to subpart c(2), dealing with damaged records, rather than to both portions of subpart c. Sanico did not advocate that interpretation, but the court found that its grammatical theory could not easily avoid it.
The Fifth Circuit also distinguished Midwest Regional, finding that the policy in that case contained different punctuation and formatting. That distinction is important. Insurance coverage cases often turn on language that looks almost identical but isn’t. Here, the court treated the location of one sentence on the printed page as a substantive difference in coverage.
The court went further and stated that Sanico’s interpretation would create a “runaway of unlimited liability” for certain expenses. It also complimented State Farm’s interpretation as consistent with the prevention of moral hazard.
Whether those broader observations are correct is a different question. This particular endorsement was also subject to an “Actual Loss Sustained—12 Months” limitation, and extra expenses still had to be necessary, caused by the covered loss, and incurred during the period of restoration. The coverage was not without boundaries merely because Sanico disagreed with State Farm’s proposed business-income cap.
Still, insurance policy formatting is not decoration. Indentation, margins, semicolons, and the location of a qualifying phrase can determine whether hundreds of thousands of dollars are covered.
Insurance agents should study this ruling because business owners purchasing “Extra Expense” coverage will ordinarily believe they are buying protection for the reasonable additional costs of keeping their business operating after a catastrophe. If the policy instead limits every dollar of extra expense to the amount of business income immediately avoided, that limitation should be clearly explained at the point of sale. My personal opinion is that a business should not buy a State Farm commercial policy because it clearly intends to limit this crucial benefit.
Public adjusters should obtain the complete policy in its original format. An electronically extracted version of the wording may eliminate the very spacing and indentation upon which coverage depends. In this case, the left margin was worth more than half a million dollars.
The Fifth Circuit’s decision may be a defensible interpretation of this particular State Farm form. It should not automatically be treated as a universal statement about the purpose or scope of all extra expense insurance. Tomorrow’s post will examine that larger issue, including the important distinction between expenses incurred to reduce a covered business income loss and the separate coverage traditionally known as “pure extra expense.”
Thought For The Day
“Although I am over 67 years old, I’ll start all over again tomorrow.”
—Thomas Edison, following the 1914 fire at his West Orange factory
1 Coastal Dust Control, Inc. d/b/a Sanico, L.L.C. v. State Farm Fire and Cas. Co., No. 25-60653, 2026 WL 2641353 (5th Cir. Sept. 8, 2026).
2 Midwest Regional Allergy, Asthma, Arthritis & Osteoporosis Center v. Cincinnati Ins. Co., 795 F.3d 853 (8th Cir. 2015).
