Should My Business Losses Be “Stacked”? – Understanding Business Interruption Claims, Part 48

Business Income policies have multiple coverages that may be all triggered after a single occurrence or event. In these cases, insurers will oft argue that the coverage run concurrently, but depending on the language of the provisions at issue a policyholder should be entitled to “stack” such coverages and recover the full amount owed under each, capped at the amount of the loss.

An example from the Practising Law Institute Litigation and Administrative Practice Course Handbook Series is illustrative:

Assume a policyholder’s factory is destroyed along with a neighboring factory which is the policyholder’s main supplier, leading to a Business Income Claim and Contingent Business Income claim. Assume further that the policyholder’s Business Income coverage is capped at 12 months and its Contingent Business Income coverage is capped at $1 million. If the loss runs $1 million a month, and the Period of Restoration is 24 months, what is the recovery? The insurance company will seek to allocate loss in the first 12 months between Business Income and Contingent Business Income, and take the position the maximum recovery is $12,000,000. The policyholder, however, should be permitted to claim only Business Income for 12 months, and then seek uneroded Contingent Business Income limits in month 13, entitling it to $13,000,000.

In Audubon Internal Medicine Group, Inc. v. Zurich American Ins. Co., 2008 WL 2718928 (E.D.La., 2008) plaintiffs filed business income losses after the passage of Hurricane Katrina. Plaintiff’s claimed that they had at least three insured business income losses totaling 53 days under three provisions of the policy in the “Building and Personal Property Coverage Form:” (1) Off Premises Power or Water Failure; (2) Civil Authority; and (3) Contingent Business Interruption. Plaintiffs argued that the 21-day maximum coverage allowed under the Civil Authority provision and the 30-day maximum coverage for Business Income From Dependent Properties (“BIDP”) should be “stacked” to afford a total of 51 days coverage.

The defendant argued, however, that the coverages run concurrently because the “period of restoration” begins when damage is sustained, the maximum 30 day period of the BDIP is also measured from the date when damage is sustained.

The BIDP provision in this case read as follows:

III. A. 1. Business Income From Dependent Properties-We will also pay for the actual loss of “business income” you sustain due to the necessary suspension of “operations” caused by direct physical loss of or damage by a Covered Cause of Loss to “dependent property” at premises you do not own, lease or operate.
a. We will only pay for loss of “business income” that occurs within the lesser of:
(1) The “period of restoration” at the “dependent property” where the direct loss or damage occurs; or
(2) 30 days.

The Civil Authority provision read as follows:

III.A. 4. Civil Authority-We will pay for the actual loss of “business income” you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the “described premises” due to direct physical loss of or damage to property, other than at the “described premises,” caused by or resulting from any Covered Cause of Loss.
This coverage will begin after the action by civil authority for a period of up to three consecutive weeks after coverage begins.

The Court interpreted the policy provisions and facts in question and held that:

In this policy, different provisions have different trigger and end dates. The MCC’s Civil Authority provides the trigger and end time in a single sentence; the definition of “Period of Restoration” provides the beginning time and alternative end times; and the BIDP provision provides two alternative maximum terms of coverage, one with its own begin and end time and the one in dispute, defined only by its duration, 30 days. MCC cannot simply graft a trigger date where none appears.

The severity of plaintiffs’ losses indisputably triggered two independent coverage provisions. Katrina has caused many legitimate claims of coverage under both homeowner’s and flood policies without running afoul of the law. “As a general rule the claimant may recover under all available coverages provided that there is no double recovery.”