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

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...of disagreement between insurer and policyholder. How long should the insurer pay such a BI loss?

This article addresses the proper approach for measuring the length of the BI period. There are four major, distinct rules that should be followed in this regard, including the rule that where an insurer acts to delay the BI period by failing to make sufficient partial payments, such delay is included in the BI period. The case law is remarkably consistent in articulating and applying these four rules.

Most policies define the BI period as starting on the date of the covered peril and “ending when with due diligence and dispatch the building and equipment could be repaired or replaced and made ready for operations, under the same or equivalent physical and operating conditions that existed prior to the damage, not to be limited by the expiration of the policy” (emphasis added). Wording varies among policies, but for most policyholders, the BI period ends when its damaged property is physically repaired and returned to operations under the same conditions that existed prior to the disaster.

Most policies also include an “extended period of liability” for any “additional length of time as would be required with the exercise of due diligence and dispatch to restore the Insured’s business to the condition that would have existed had no loss occurred.” Thus, while the “regular BI period” ends when certain physical events have taken place, the “extended BI period” takes the BI period out to the point to restore fully the business itself. After reopening, many businesses gradually ramp up to prior business levels. Most policies limit this extended BI period to a year or less.

It is no surprise that there is disagreement over adjusting the precise length of the regular and extended BI periods. Each additional month could entail thousands and even millions more of covered BI losses. The issue is largely dependent on facts, and policyholders and insurers often see the same facts differently. In any given claim, a number of questions arise. How long did it, in fact, take to complete all repairs and reopen under equivalent conditions? How long should it have taken with all “due diligence...

”It is no surprise that there is disagreement over adjusting the precise length of the regular and extended BI periods. Each additional month could entail thousands and even millions more of covered BI losses. The issue is largely dependent on facts, and policyholders and insurers often see the same facts differently.“


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