The first two E’s of business interruption insurance claim theory were discussed in, The First Two Elements of The Six E’s of Business Interruption Coverage—Extent and Experience. Today, we are going to discuss the elements which are Excluded and Effort. I know I am skipping “Extra” but Extra deserves extra discussion.

As a recap, the Six E’s and essence of the six E’s are the following:

The Six E’s

  1. Extent
  2. Experienced
  3. Excluded
  4. Extra
  5. Effort
  6. Enough

The essence of the Six E’s is that insureds may receive benefits to the Extent of the loss Experienced, not resulting from Excluded causes, and also for Extra expenses incurred, provided that Effort is made to reduce the loss and there is Enough insurance purchased.

The Excluded element certainly refers to the concept that property insurance policies do not truly cover all losses. Certain types of damage and causes of loss are not covered under property insurance policies. Other types of damage are peculiar to business interruption forms and typically center around the increased amount of time to conform to changes in building codes or zoning laws, actions of strikers, and acts of third parties that cancel contracts independent of the loss or provide an opportunity to create revenue.

The Exclusion assessment regarding delays in restoring operations has nothing to do with something the policyholder can control. It can be interference by strikers with the process of rebuilding, repairing or replacing. It can also be with the interference to the resumption of normal operations. Both of these interferences have to occur at the Described Premises for this Exclusion to take effect. “In other words, a strike at the plant of a supplier resulting is a delay in the delivery of equipment, material or merchandise required to start up operations would not be excluded.”1

The expiration of a lease is a frequent cause for an exclusion by a third person. A business lease expiration or cancellation is an opportunity loss. It is extremely important for policyholders and adjusters to obtain leases to property after a loss and examine them for insurance interest issues and also for expiration or potential cancellation issues. Even for leased machinery and equipment, these cancellations can result in excluded losses.

A tip to policyholders and agent: Some of these exclusions can be avoided by specifically purchasing insurance through endorsements for them. The common endorsement regarding the losses caused by the increased time to comply with new building codes is frequently added by endorsement.

Effort refers to the provision that the policyholder’s recovery is limited to the amount of loss that would have resulted had the policyholder used due diligence in an Effort to keep the loss to a minimum. “With ordinary diligence and dispatch” is the language manner many policies refer to as the requirement which I often think of as—“what would the normal prudent business person do to reduce the loss if there were no insurance and had to use that person’s own money?” This is pretty much the “reasonable man” approach, but I usually use the Golden Rule when analyzing this element.

This is also where I suggest using critical path software to look at all the tasks to be completed. Today’s modern insurance company adjusters often forget all the steps and are usually quite ignorant about what needs to be done. They have not been trained like the Commercial General Adjusters of the past and certainly have less authority.

In the field, I have asked to see the insurance company’s critical path analysis and their adjuster’s response usually is, “what are you talking about?” Anybody trained in construction or large-scale projects would instantly understand that commercial planning is required for any complex matter. Planning is at the core of successful business.

It is hard to argue with stupid or ignorant of what it takes to run a successful business. I often find that many modern company adjusters have little experience or academic study of these concepts that their business customers learned a long time ago.

I want to give a special shout-out to the effort of Merlin Law Group New Jersey attorney Jason Cieri’s wife, Ghada. She is a nurse working with Covid patients in the hospital. God bless her and all those taking care of all our sick friends and family while putting themselves in harm’s way. The picture of them on their wedding day is at the top of this post.

Today’s Tuesday at 2 with Chip Merlin will feature three topics:

  1. Business Interruption Concepts Which Will Finish This Series
  2. New Field Tools For Public Adjusters and Contractors
  3. The Use of Class Actions and Covid

Thought For The Day

Leaders are made, they are not born. They are made by hard effort, which is the price which all of us must pay to achieve any goal that is worthwhile.
—Vince Lombardi
1 Business Interruption Insurance: Its Theory and Practice, pages 95-96, Nat’l Underwriter Co., 1986.