Insurer Causes Delay
The Length of the Road Back from Disaster Four Rules for Measuring the Business Interruption Period
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Nearly every case addressing this issue can be understood in this simple fashion: if there are not actual repairs, the court resorts to the theoretical approach; if there are actual repairs, the court adopts the actual time period as the presumptive starting point. From there, the insurer can attempt to prove that the policyholder unfairly delayed and added to the BI period. Rules three and four, however, are critical to the analysis.
Rule Three: When the Insurer
Causes the Delay
Where delay is caused not by the policyholder, but by the insurer, the BI period includes such delay. For example, the insurer might hold up repairs because it is taking extra time to issue approvals for certain work or contractors, or the insurer's adjuster is failing to be attentive to the claim. Commonly, repairs are held up because the insurer has failed to provide sufficient advances to pay for them, and the policyholder does not happen to have surplus cash to front the repair costs. The main ingredient for any repair job is money, and insurers control when and how much of it is supplied. In short, just as the insurer should not pay extra BI where the policyholder delays, the policyholder should not receive less BI where the insurer delays. Both rules, a simple mirror of each other, are fair and equitable.
Thus, courts have consistently held that where repairs are delayed because of insurer delays—either in funding or in adjustment activity—the BI period is lengthened:
In SR International Business Ins. Co., Ltd. v. World Trade Center Properties et al., 2005 U.S. Dist. Lexis 13001, *20 (S.D.N.Y. 2005), with respect to the World Trade Center Buildings, the court acknowledged that the BI period can be extended by “delays attributable to actions taken by the insurers, not the insureds.”
Rule Three: When the Insurer
Causes the Delay
Where delay is caused not by the policyholder, but by the insurer, the BI period includes such delay. For example, the insurer might hold up repairs because it is taking extra time to issue approvals for certain work or contractors, or the insurer's adjuster is failing to be attentive to the claim. Commonly, repairs are held up because the insurer has failed to provide sufficient advances to pay for them, and the policyholder does not happen to have surplus cash to front the repair costs. The main ingredient for any repair job is money, and insurers control when and how much of it is supplied. In short, just as the insurer should not pay extra BI where the policyholder delays, the policyholder should not receive less BI where the insurer delays. Both rules, a simple mirror of each other, are fair and equitable.
Thus, courts have consistently held that where repairs are delayed because of insurer delays—either in funding or in adjustment activity—the BI period is lengthened:
In SR International Business Ins. Co., Ltd. v. World Trade Center Properties et al., 2005 U.S. Dist. Lexis 13001, *20 (S.D.N.Y. 2005), with respect to the World Trade Center Buildings, the court acknowledged that the BI period can be extended by “delays attributable to actions taken by the insurers, not the insureds.”
In Streamline Capital, L.L.C. v. Hartford Casualty Ins. Co., 2003 U.S. Dist. LEXIS 14677, *7 n.5 (S.D.N.Y. 2003), where a tenant's offices were destroyed in the World Trade Center, the court acknowledged that cases “support the view that a delay in payment may have a direct effect on the timing of an insuredﾒs resumption of business.”
In Sabbeth Ind. Ltd. v. Pennsylvania Lumbermans Mut. Ins. Co., 656 N.Y.S.2d 475, 477 (1997), where an insurer's delay in investigation and payment caused the policyholder to shut down its business, the extra BI loss was recoverable as a consequential damage.
In Western American, Inc. v. Aetna Casualty & Surety Co., 915 F.2d 1181, 1184 (8th Cir. 1990), a fire destroyed a manufacturing plan; the BI period, although “theoretical,” was held extended as a result of insurer delay in performing its duties under the policy.
In Sabbeth Ind. Ltd. v. Pennsylvania Lumbermans Mut. Ins. Co., 656 N.Y.S.2d 475, 477 (1997), where an insurer's delay in investigation and payment caused the policyholder to shut down its business, the extra BI loss was recoverable as a consequential damage.
In Western American, Inc. v. Aetna Casualty & Surety Co., 915 F.2d 1181, 1184 (8th Cir. 1990), a fire destroyed a manufacturing plan; the BI period, although “theoretical,” was held extended as a result of insurer delay in performing its duties under the policy.
In Bard's Apparel Mfr., Inc. v. Bituminous Fire & Mar. Ins. Co., 849 F.2d 245, 251 (6th Cir. 1988), the policyholder's machinery was damaged due to vandalism. Where the policyholder's due diligence was impacted by insurer delay in payment, that could be taken into account in fixing the BI period. A court will “allow for an extension of the theoretical replacement time for a reasonable period for any delay in the insured's ability to reenter business that was due to the insurer's unreasonable failure to timely perform its duties under the policy.” Id.
In Hampton Foods, Inc. v. Aetna Casualty & Surety Co., 843 F.2d 1140, 1143-44 (8th Cir. 1988), a store was forced to evacuate due to imminent collapse caused by weather conditions. The BI period was held extended by the insurer's refusal to pay. While the BI period is “theoretical,” it is extended where repair delay is due to the inaction of the insurer. The court also allowed coverage for interest on loans that had to be taken out during the BI period due to lack of insurer funding. Id.
In Hampton Foods, Inc. v. Aetna Casualty & Surety Co., 843 F.2d 1140, 1143-44 (8th Cir. 1988), a store was forced to evacuate due to imminent collapse caused by weather conditions. The BI period was held extended by the insurer's refusal to pay. While the BI period is “theoretical,” it is extended where repair delay is due to the inaction of the insurer. The court also allowed coverage for interest on loans that had to be taken out during the BI period due to lack of insurer funding. Id.
