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Conflicting policy provisions regarding the duty of relief in claims for business interruption | Property insurance Blog about coverage



Virtually all property insurance policies have a specific section on the insured's liabilities after loss. Regardless of whether it is explicitly stated in its own insurance provision or implied from the wording in other provisions on liability for loss, it is almost generally agreed that an insured has an obligation to mitigate his or her claims after a loss.

The way in which this obligation to mitigate the work depends on whether the insurance in question is either an insurance for property owners or a commercial property insurance. In homeowner policies, the insured's mitigation obligation may be covered by insurance claims for building damage, personal property, etc. In commercial insurance, the insurance's mitigation obligation may be covered by insurance claims for building damage, business personal property and income and extra costs.

This blog post focuses in particular on one of the last coverages under commercial policies: business interruptions and their connection with the insured's obligation to mitigate. My colleague, Nicholas Conklin, has previously written a blog post about court rulings across the country that have analyzed the overlap of business interruption coverage and the insured's obligation to mitigate: Can an insurer rely on an insurance's mitigating efforts to deny coverage? ? Conversely, this blog post is not intended to analyze factual issues on the subject, but rather the policy language itself with emphasis on basic principles for interpreting agreements.

A potential source of conflict that may arise under this coverage. , with regard to the insured's obligation to mitigate and the language of the insurance, is the time of the insurance's relief and repair work. To better understand why a dispute may arise in this type of scenario, it is important to look at standard policies that are generally included in such commercial property insurances:

BUSINESS EXCLUSION

***

In the event of such direct physical loss or damage, [THE INSURER] is responsible for the actual loss sustained by [THE INSURED] as a result of such necessary interruption of operations, but which does not exceed the reduction in gross profit, as defined below, less fees and expenses that are not necessary during the business interruption , for a period not exceeding the minimum of:

(a) the time required, in the exercise of due diligence and dispatch, to repair, rebuild or replace the part of the property which has been destroyed or damaged

or

(b) twelve (1

2) calendar months, starting from the date of such direct physical loss or damage and not limited by the end thereof policy.

***
TERMS
***

2. RECOVERY OF OPERATION

If [THE INSURED] could reduce the loss due to the business interruption

a) By resuming operation of the property and / or

) By using goods, warehouses (raw, in-process or ready-made) or other property in [THE INSURED’S] or elsewhere,
and / or

then such a possible reduction should be taken into account when reaching the amount of loss

Often this additional provision is incorporated into the same policy, and you can begin to see where it gets foggy: [19659005] 1) DUE DILIGENCE
[THE INSURED] shall exercise due diligence and do and agree to do all
things that are reasonable to avoid or reduce loss of or damage to
insured property.

By reading the above three provisions in combination with each other, it becomes clear that a commercial policyholder would be confused with what efforts can be made after the insured property suffers a loss and when the efforts can begin.

In a hypothetical example, let's say that there is a policyholder for commercial real estate that acts as skiing. holiday hotel insured under a commercial property insurance with all three of the above provisions inside. The policyholder suffers from a significant loss as a result of a fire covered by the property. Because the policyholder's ski resort is located in the mountains of Colorado, the insured recognizes a well-known time period throughout the year as their "low season" (even in the summer when skiing and snowboarding are not viable for tourists). The insured's loss occurs at the beginning of the autumn season.

After reading through his commercial property insurance policy, the insured decides that it needs to make repairs to mitigate the damage and use due diligence to reduce costs to the best of its ability. After this assessment, the insured continues with immediate mitigation measures until the following summer season, and this reduces the insured's insurer's liability. Since the remedial action and repairs began during the summer season, the amount of damage to business interruptions would be much less, to the benefit of the insurer.

What follows should be obvious at this point. In fact, the insurer subsequently uses the insurance's delayed counteracting efforts against it, with reference to the above – mentioned extension of business interruption and applicable time period for recovery periods.

So what happens now? Well, here there may be an argument to answer for the position of the insurer, which would ultimately go back to one of the basic principles of interpretation of contracts: Ambiguous policy provisions are interpreted strictly against the insurer who formulated the policy and liberally in favor of the insured . 1 A policy is also considered ambiguous where conflicting provisions would make the coverage "illusory", ie. where the insurer tries to grant rights in a provision and then revoke the same rights elsewhere in the policy. 2

Consequently, when, as here, two or more provisions in an insurance deal are on the same subject, (insured's obligation to mitigate and do 3

The conflicting nature of to accept these insurance terms would essentially place the insured in a Catch-22: is the insured required to commence repairs as soon as possible after the loss (entails major business interruption), or is the insured obliged to "use due diligence and make and agree" in doing everything reasonable to avoid or reduce loss of or damage to the property insured? ”

In the hypothetical ski resort, the insured tried to reduce the damage to the insurer's advantage by repairing the damaged property at a later time during the low season and instead By doing so, the business interruption losses were much lower due to the insured's due diligence and efforts to literally mitigate the damage.

To achieve fairness and justice, is it appropriate to use the insurance's genuine attempt to mitigate the damages (to the insurer's advantage) against it? I leave you with this quote from Insurance Litigation Reporter:

The purpose of insurance is meant to be loss protection. If an insurance is written in such a way that the insurers will be able to avoid paying for losses, the social function of the insurance is undermined. 4
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1 USA. Fire Ins. Co. v.J.S.U.B., Inc. 979 So. 2d 871, 877 (Fla. 2007).
2 Purrelli v. State Farm Fire & Cas. Co. 698 So. 2d 618 (Fla. 2d DCA 1997).
3 e.g. Rucks v. Old Republic Life Ins. Co. 345 So. 2d 795 (Fla. 4th DCA 1977).
4 S ee 26 No. 3 Ins. Litig. Rope. 97.


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