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What Qualifies as a “Business Interruption” for Insurance Purposes?

Tue Mar 31st, 2020 on     Insurance Claims,    

If you’ve purchased business interruption (BI) insurance and are planning to submit a claim for benefits — or have already submitted a claim and have been denied — then you may be feeling somewhat confused by the ambiguity of coverage, and how that can be used by the insurance company to deny your claim.

For example, you might have initially believed that your insurance covered you for man-made disasters (i.e., an arsonist-caused fire), only to discover that the plan only covers natural disasters.

Quite simply, when policyholders sign up to business interruption insurance plans, they often perceive the coverage to be broader and more comprehensive than the narrow definitions that the insurance company later applies.  In part, this information disparity is intentional.  By marketing basic plans as more comprehensive than they actually are, the insurance company can sell a plan to budget-strapped customer.

It’s important to recognize that you do not have to accept the adverse determinations made by an insurance company.  In many cases, insurers deny, delay, or undervalue claims in the hopes that the policyholder will be too pre-occupied (recovering from the disaster and the business interruption itself) and will therefore resign themselves to the decision.

We can help you secure the benefits you’re owed.  Here at Ver Ploeg & Marino, P.A., our team is committed to pursuing any and all potential avenues for benefits recovery, whether through an internal claims appeal process or trial litigation.  Contact our experienced Miami insurance law firm for guidance.

Business interruption coverage may not be intuitive to policyholders, so let’s go take the time to explore some basic issues — we’ll be tackling the definition of an “interruption” under most insurance plans, along with related problems.

How Business Interruption Insurance Works

Business interruption insurance pays out for losses sustained due to a “cessation” in the operation of one’s business activities, so long as that cessation/interruption was caused by a covered peril.  In the state of Florida, BI coverage is particularly important given the fact that residents and businesses are routinely challenged by disasters, from hurricanes to mass flooding.

Business interruption insurance pays out an amount (up to the plan maximum) that covers the loss of income during the cessation period, and — depending on how comprehensive the coverage is — potentially tax-related losses, extra expenses for getting the business back on track, and more.

Defining a “Business Interruption”

The fundamental axiom of insurance coverage is this: every plan is different.  Naturally, this leads to quite a bit of definitional variety with respect to what constitutes a business interruption.

It is not always clear when a business will be forced to shut down under the circumstances.  If a tree falls on a portion of a department store, one owner might not feel comfortable with allowing customers into the store until a thorough assessment of tree health and safety is conducted for the entire premises, which could take weeks to months.  A different owner might feel comfortable with cordoning off the impacted portion of the store and allowing normal business activities to resume elsewhere.  To some degree, whether the interruption is necessary is a factual question for which there is no bright line rule (unless explicitly defined in the plan).  Persuasive argument will ultimately win the day.

Central to most business interruption coverage is the concept of “necessary suspension” of business operations.  In the past, this was left ill-defined in the insurance plan, and insurance companies (and courts) would interpret “necessary suspension” as the complete shutdown of business operations.  Partial shutdown would not be covered.

For example, if you operated a retail store outlet and it burned down in a fire, then you would have a loss of income due to the complete shutdown of sales operations.  The circumstances would necessarily force a suspension in normal business activities.

On the other hand, if you operated the same retail store outlet, but only part of the store was damaged by the fire and it could remain open (though some of the store would not be accessible for a while), then a “necessary suspension” — as defined by a complete shutdown of business operations — would not be applicable, and there would not be sufficient interruption to qualify for coverage under the business interruption plan.

It’s worth noting that insurance companies are increasingly offering plans that explicitly cover partial shutdowns (i.e., necessary suspension has been defined to include partial shutdowns that lead to lost income).  In fact, many newer, more expensive, and more comprehensive business interruption plans are beginning to define “necessary suspension” as broadly as a slowdown in business activities.  Cessation of activities (partial or otherwise) may not even be required under your plan.

As such, you’ll want to make absolutely sure whether your insurance plan is ambiguous as to what “necessary suspension” means, or whether there is an explicit definition laid out in the plan — depending on the language of the plan, you could favorably argue for coverage in borderline situations.

Contact VPM Law for Assistance

If you’re planning to submit a business interruption insurance claim — or have already submitted a claim and have had it denied, unreasonably delayed, or otherwise adversely handled by the insurance company — then we encourage you to get in touch with our leading Miami insurance law firm for assistance.

Here at Ver Ploeg & Marino, P.A., our team of attorneys has decades of experience representing the interests of insurance policyholders in challenging claim-related disputes with their insurance providers, including those that are based on ambiguous business interruption coverage.

Unlike many of our competitors, we approach every case as though it will advance to the trial stage.  This ensures that we are well-positioned during early negotiations and can apply pressure on the insurance company — thanks to this “relentless” strategy and focus on trial preparedness, we often secure favorable settlements without having to proceed through the excesses of litigation.

Interested in speaking to a qualified attorney at our Miami insurance law firm?  Contact us today to request a consultation.

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