Despite the emergence of global markets and internet economies, physical location is probably the most important factor for the success of many businesses today. Therefore, when a catastrophic loss occurs, many business owners are faced with the tough decision of rebuilding or replacing the property at the same location or relocating the business elsewhere.
In the past, BI policies included broad forms of coverage that allowed policyholders to consider value of the business location by setting the Period of Restoration – the period during which BI is owed – as the hypothetical time needed to repair or replace damage property at the original location. If the policyholder relocated during that period, the insurance company got the benefit of any income earned by the substitute operations, but relocation did not end the Period of Restoration. Modern forms, however, now define the Period of Restoration as the “lesser” of the time to repair or replace the physical damage at the original location or the time at which operations are resumed at a “new permanent location.” Unfortunately, insurance companies will often use this restrictive language to devalue the policyholder’s pre-loss location and cap the loss at the point of relocation, despite the fact that the loss continues at an inferior replacement location.
With respect to whether relocation is temporary or permanent, at least one court has held that if a policy does not define the term “permanent location”, the policyholder’s subjective intent may control when the period of restoration ends. Shore Pointe Enterprises, LLC v. Michigan Millers Mut. Ins. Co., 2004 WL 2914131 (Mich. App. December 16, 2004). In Shore Pointe, the insured property sustained a fire loss. The policyholder signed a lease and relocated the business at a different location for ten months, the policyholder then moved to yet another location. During litigation, the insurance carried was able to persuade the trial court that period of restoration ended when the policyholder relocated the first time. The appellate court, however, reversed the lower court’s finding and held that since the term “permanent” was not defined, the policyholder’s subjective intent created an issue of fact that precluded summary judgment in favor of the insurance company.
Defendant argues that interpreting the phrase “permanent location” from an insured’s subjective viewpoint would inappropriately allow an insured to dictate the length of time it could obtain insurance coverage for business income losses “purely my moving from one location to the next, asserting each move is only temporary in nature.” However, this is a result oriented argument that lacks a reasonable connection with the ordinary meaning of the term “permanent” as used in the insurance policy. Even if the insurance policy as drafted provides an undesirable incentive for an insured to use temporary locations following a covered loss, that does not provide a legal basis for slanting construction of the term “permanent” in favor of defendant.
In sum, the issue of whether relocation is permanent or temporary is, of course, debatable. A careful reading of the policy is warranted when considering rebuilding or replacing the property at its original location or relocating the business, given the fact that the value of the business loss claim may be capped at the point of relocation.
