(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the part of a series she is writing on business interruption claims).
In general, business interruption insurance is intended to return to the insured’s business the amount of profit it would have earned, had there been no interruption of the business or suspension of its operations. However, business interruption coverage ought not be used to put the insured in a better position than it would have occupied without the interruption. Most policies will therefore typically exclude coverage for any consequential (or remote) losses, delay, loss of use or loss of market, which do not directly flow from a covered loss.
Truth be told, certain business interruption claims are hard to quantify. Policyholders should be aware of the accounting methodologies employed in the calculation of a business loss to avoid presenting the ubiquitous “speculative” claim that could be easily denied under the consequential (or remote) loss exclusion.
In Florida, courts have held that in order to recover under the business interruption policy, an insured must prove that it sustained damage to property, that the damage was caused by a covered loss, that there was an interruption to the business (“suspension of operations”) which was caused by the property damage, and that there was an actual loss of business income during the period of time it took to restore the business and that the loss of income was caused by the interruption of the business and not by some other factor or factors. See, Dictiomatic, Inc., v. U.S. Fidelity & Guar. Co., 958 F. Supp. 594 (S.D. Fla. 1997), citing Ramada Inn Ramogreen, Inc., v. Travelers Indemnity Co., 835 F.2d 812 (11th Cir. 1988).
In Dictiomatic, the court denied the insured’s business interruption claim as a matter of law after it found, as a matter of fact, that the insured failed to prove it would have realized business income (selling hand-held electronic translators) which was lost solely as a result of Hurricane Andrew. The insured also failed to establish that it would have enjoyed income during the time of restoration, sufficient to pay normal operating expenses or to generate profits.
In my opinion, the policyholder’s demise in Dictiomatic was most likely the result of improper calculation of the actual business loss, since the numbers presented to the court were perceived as inflated and contradictory. Surely, a more thorough review of the evidence before it was presented to the trial court could have avoided a judgment after the insured’s case in chief and potentially resulted in an opportunity to challenge the carrier’s case. If there is one thing to be learned from the “hand-held electronic translator” business, it is to be careful and accurate in presenting a claim for business interruption.
