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

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It is fair and equitable to include in the BI period delays and contingencies that were not caused by the policyholder. This is in the very nature of the insurance contract, which shifts such risks from policyholder to insurer.

Conclusion

The lesson for policyholders is this: when the insurer measures the BI period using a purely “theoretical” approach, they may be artificially reducing the covered BI period. A correct statement of the “theoretical” rule is as follows: where there are no actual repairs due to a policyholder’s decision not to rebuild, or due to a condemnation or sale of the property, then the proper measure of the BI period is the “theoretical” time it should take to complete repairs with “due diligence and dispatch” (assuming realistic contingencies).

Where there is an actual BI period, the proper approach is to start with such actual time it took to rebuild and reopen. If the actual period is what it is because of delay caused by the insurer or others beyond the control of the policyholder, the insurer cannot subtract from the actual period. The insurer can subtract from the actual period only if it can prove that the policyholder irresponsibly delayed in its repairs, due to its own fault. After all, this is the insurers’ main point — a policyholder should not receive extra BI if it is itself at fault in delaying repairs. That would...

“The lesson for policyholders is this: when the insurer measures the BI period using a purely ‘theoretical’ approach, they may be artificially reducing the covered BI period.”


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