Many insurance company adjusters like to pull the “speculative” card under the consequential (or remote) loss exclusion to deny, disclaim or reduce the amount of a business interruption claim when they do not feel that a claim has been “adequately” supported. The adjuster’s judgment call can, however, be called into question, depending on the facts or circumstances of the claim.

As a matter of Florida law, business interruption losses should be determined in a practical way, having regard for nature of business and methods employed in its operation, in order to give practical effect to intentions of parties and purpose of insurance as evidenced by terms, conditions, and provisions of policy. See, Travelers Indem. Co. v. Kassner, 322 So.2d 80 (Fla. 3rd DCA 1975).

The holding in Travelers does not mean that “anything goes” in business interruption claims. A speculative claim will never be covered by a policy and it is always the insured’s burden to provide competent proof of an actual monetary loss as a result of the suspensions of its operations.

In some instances, losses under a business interruption provision may be based on profit expectancies, in the absence of profit prior to the loss, when such expected profits are not based on speculation but on real circumstances. Thus, while profit expectancies must be supported by evidence before a recovery may be had, the fact that an insured cannot prove some profit prior to the loss does not preclude it from collecting business interruption damages pursuant to an insurance policy; such losses may be based on profit expectancies properly established by real circumstances.

For example, in National Union Fire Ins. Co. v. Scandia of Hialeah, Inc., 414 So. 2d 533 (Fla. 3rd DCA 1982), the Third District Court of Appeal affirmed a jury award for business income losses even though the insured did not resume operations and did not have the most sophisticated accounting records.

Loss for payroll expense for key personnel which insured would have had to incur during the time it would have taken to go back into business with the same quality of service which existed immediately preceding loss of business by fire is properly a question for the trial court to consider. The fact that an insured decides not to resume business and did not actually pay key personnel during the business interruption does not mean that that item cannot be considered for the purpose of determining the amount of recovery. Where the insured does not go back into business, the deduction from gross earnings for the purpose of determining actual loss would be all of the payroll expense less the amount the insured would have necessarily had to expend to retain key personnel in order to resume business.

The Court further stated:

There is evidence as to the amount of time it would have taken to restore normal operations, the number of personnel that the restoration effort would have required, competent evidence that the future experience of the business would have been much better than the past experience if the loss had not occurred, and accounting evidence, though conflicting, of estimated gross earnings less charges and expenses which would not have continued during the period of business interruption. Having examined the evidence introduced on behalf of the appellee we conclude that it was sufficient to justify submission to the jury. If there is evidence tending to prove an issue though that evidence be conflicting or will admit of different reasonable inferences, it should not be taken from the jury and passed upon by the court as a question of law.

Note that Nat’l Union Fire Ins. Co. interpreted a business interruption provision within the building policy and not a separate business income endorsement that may have had profit experience requirements.

In order to avoid the “speculative” pitfall, small businesses should consider retaining forensic accountants to help them review their financial statements and general business objectives and prepare reports in support of their claim.