The Length of the Road Back from Disaster: Four Rules for Measuring the Business Interruption Period



Rule Four: When a Third-Party Causes the Delay

The BI period likewise includes additional time where delay is caused neither by the policyholder nor the insurer, but by a contractor, subcontractor, code official, or by another factor beyond the control of the policyholder or insurer. Although this type of delay is the fault of neither the policyholder nor the insurer, the policyholder’s coverage should not be blunted when a third party caused the delay. The most common example is contractor delay. Another example is a policyholder with a retail store within a damaged shopping complex, where repairs to the store might proceed sooner, but are delayed because repairs to the larger shopping center must first be completed.

In some cases, delay is truly nobody’s fault, such as where a massive disaster depletes an area’s disaster recovery resources. In the aftermath of Hurricane Katrina, or the four successive 2004 Florida hurricanes, the construction and labor market was completely exhausted — there were few if any available contractors, roofers, electricians, etc., to proceed with repairs. In such a case, that reality must be taken into account in setting the length of the BI period. That is fair because in writing property insurance, the insurer agreed to shift the risk of BI losses caused by a disaster from the policyholder to the insurer. In a large disaster like Katrina, an insurer sometimes approaches the “due diligence and dispatch” issue completely in the abstract, as if only that one property is affected and there is an ample supply of contractors at the ready. Such an approach ignores the clear rule that delay and difficulty caused by circumstances beyond the control of the policyholder must be taken into account.

This rule also is easily found in the case law, such as in the following cases: