Wade Clark Mulcahy LLP

With recent COVID-19 related coverage cases being filed on a daily basis, the ongoing question of how courts will interpret business interruption provisions remain.
<p style="text-align: justify;">Business interruption insurance is designed to indemnify the insured against losses arising from the inability to continue normal business operation and functions due to the damage sustained as a result of the hazard insured against. Such a provision was interpreted in <em><a href="https://www.wcmlaw.com/wp-content/uploads/2020/06/Binghamton-Precast-Supply-Corp.-v.-Liberty-Mut.-Fire-Ins.-Co.pdf">Binghamton Precast &amp; Supply Corp. v. Liberty Mut. Fire Ins. Co</a></em>, 182 A.D.3d 721 (N.Y. App. Div. 2020). In this case, the plaintiff was a manufacturer, seller, and distributor of concrete products covered by an Equipment Breakdown Policy. When the plaintiff’s concrete mixer broke, plaintiff was forced to close his business for two days until the mixer could be repaired. As a result, the plaintiff filed a claim for loss of business income. The defendant insurance company argued that because the plaintiff could not establish a loss of specific sales resulting from the breakdown, there could be no recovery under the policy. The policy provided coverage for the “actual loss of business income during the period of restoration.”</p>
<p style="text-align: justify;">The Appellate Division noted that the key to interpreting this particular policy is to focus on the expectation of the parties. An insurance policy must be interpreted so that clear and unambiguous provisions are afforded their plain and ordinary meaning. In plaintiff’s case, because the provision’s plain meaning expressly includes profits and losses when defining ‘business income’ and not specific sales, defendant’s reliance on such a contention would not be consistent with the insured’s expectations.</p>
<p style="text-align: justify;">However, the Appellate Division agreed with defendant that a triable issue of fact remained as to whether the plaintiff mitigated his losses. Pursuant to plaintiff’s policy, the insured is required to “reduce its losses by undertaking efforts to make up for lost business within a reasonable period of time and to make use of every reasonable means to reduce losses.” The Court held that plaintiff’s decision to make up for lost production during its normal work hours rather than by scheduling overtime shifts on the weekends, is a triable issue of fact.</p>
<p style="text-align: justify;">In relation to business interruption insurance for businesses effected by the COVID-19 pandemic, this case articulates an example of how the courts might place importance on the intent of the provisions within each policy and on the efforts an insured made to mitigate their damage.</p>
Thanks to Gabriella Scarmato for her contribution to this post.  Please email <a href="mailto:gcoats@wcmlaw.com">Georgia Coats</a> with any questions.