In light of the shutdowns caused by the COVID-19 pandemic and resulting executive orders, many businesses are looking to their property insurance companies for coverage for their lost business income. Recently, in a non-COVID-19 case, the NYS Appellate Division, Third Department addressed a business interruption claim by a manufacturer that sheds light on how these policies are interpreted by courts.1
In Binghamton Precast & Supply Corp., a manufacturer of custom-ordered concrete products sought coverage for loss of business income in the form of lost production and lost profits caused by the breakdown of a concrete mixer. The subject insurance policy covered “actual loss of ‘[b]usiness [i]ncome’ during the [p]eriod of [r]estoration,” and “business income” was defined as normal operating expenses as well as “net income that would have been earned or incurred.” In determining the amount of payment, the policy provided that the insurer “will consider the experience of your business before the ‘[b]reakdown’ and the probable experience you would have had without the [b]reakdown.’” The insurer denied coverage on the basis that there was no showing of an actual loss of business income, and the manufacturer filed a lawsuit against the insurer for breach of contract.
Both parties filed motions for summary judgment, and the trial court ruled in favor of the manufacturer, concluding it established its lost business income caused by the breakdown. On appeal, the appellate court reversed in part, concluding that although the manufacturer established a business income claim, a question of fact remained regarding the amount of damages to be awarded to the manufacturer. More particularly, the court held the policy provisions were not ambiguous and the manufacturer established a loss of business income within the meaning of the policy, which was the loss of profits incurred as a result of the days of lost production. The court also held the policy’s “plain language” expressly included profits and losses and made no reference to “specific sale” nor inferred an intent to limit the coverage in this manner.
The court, however, reversed the trial court’s order to the extent that the manufacturer was awarded financial damages. The court held that there remained a question of fact for a jury with respect to the manufacturer’s satisfaction of the mitigation requirements called for in the business interruption insurance policy, which required efforts to “[m]ake up for lost business within a reasonable period of time” and “[m]ake use of every reasonable means to reduce or avert loss, including ... [w]orking extra time or overtime.”
The Binghamton Precast & Supply, Corp. decision is significant for counsel, insurers, and insureds to consider in light of the current public health crisis and resulting stay-at-home orders that have halted all non-essential business and are prompting the assertion of numerous business interruption claims. All parties must be cognizant of the defined terms of all policies in effect while remaining mindful of the “reasonable expectations” of the insured. Further, all policies should be examined for any specific provisions regarding required mitigation efforts.
1 Binghamton Precast & Supply, Corp. v. Liberty Mutual Fire Insurance Company
If you have any questions regarding the content of this alert, please contact Amanda Miller, associate, at amiller@barclaydamon.com or another member of the firm’s Insurance Coverage & Regulation Practice Area.