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



...and dispatch?” Whose “due diligence and dispatch?” What if the insurer is the cause of the delay? After the physical reopening, what constitutes “due diligence and dispatch” with respect to returning to the expected business levels had the loss never occurred?

Insurers frequently misrepresent the method for adjusting the BI period as revolving on one rule. They commonly claim that the BI period is always that period of “theoretical” time that it ought to take one to complete repairs working with “due diligence and dispatch,” with this theoretical view divorced from any of the actual facts involved in the repairs. The insurers seek to place the focus only on the policyholder, otherwise assuming an ideal world where there are no delays or impediments from contractors, code officials, or the insurers’ adjusters. And the insurers assume there is ample money available for repairs even where the insurers have not provided sufficient advances to allow repairs to proceed.

The insurers erroneously insist on this purely “theoretical” ideal approach to setting the length of the BI period. This gives them the leverage to point the finger at their policyholder and accuse it of failing to move with such ideal “due diligence and dispatch.” Not surprisingly, an insurer’s view of the length of the BI period usually comes out months shorter than what it actually was, leaving the policyholder uninsured for significant amounts of BI losses.

There are, however, four well-settled rules for determining the length of the BI period. These four rules are based on the policy language, case law, and obvious principles of equity and fair play. Policyholders should insist that their insurers observe these four rules.

Rule One: When the Property is Not Actually Repaired

Sometimes a policyholder does not repair its damaged property, such as when the property is a total loss and the policyholder chooses to rebuild elsewhere, when the damaged property is condemned, or when the unrepaired property is sold but the insurance rights are not assigned. In such circumstances where the actual repairs to the property will not take place, then there is no actual or historic information, and by...

“… when one reads the seminal cases addressing a ‘theoretical’ BI period, one finds that the theoretical approach is adopted mainly in such circumstances when there is no actual repair available to otherwise define the BI period.”