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History of Business Interruption Policy in the United States Legal insurance blog for property insurance



History is important. The insurance history gives context and meaning to thoughts and opinions about what should be and why things should be as they were and are. These historical views have been increasingly challenged in social media and highly dynamic processes throughout the United States in recent years. I want to know what people thought and what their intention was with insurance forms. Insurance history and policyholder advocacy is my life.

I have found myself reflecting and studying the history of where business interruption forms came from because of the Covid business interruption lawsuits. The concept of "loss" differs from "damage" is an important theme for these lawsuits. It is really a nerdy exercise to look for old policies and for thoughts on the first forms of coverage. The truth is that there were no "business interruption" forms at the time of the Spanish flu in 1

918. The Spanish flu was a major life insurance bubble with successful insurance companies explaining and announcing how quickly they paid claims to families. If you think about it, these insurers knew how catastrophic it was for the serving members to no longer be able to provide because of a danger that was not specifically excluded for life insurance. But we forget those days.

As far as I can understand, when all the risk forms were made and the business interruption forms were made, the insurance world seemed much more concerned that they needed to rule out floods and nuclear power. the Holocaust and simply forgot the catastrophic issues of the Spanish flu. Thus, the virus outbreak occurred in the 2000s. I do not know why so many types of CPCUs simply do not recognize this except that they are concerned about the ramifications leading to payment – they forgot to rule out a major disaster because they did not think about it.

In our Merlin Team Group Library, We Have a Book, Business Interruption Insurance by Rough Notes in 1950, but then published in 1952. It gives Frederick C. White credit for coining the phrase and providing the title. "business" interruption insurance. "If a nerdy ghost could shake off the timber, I imagine he would not think of me as taking up Fredrick White as the author of this important coverage issue years after his death. Cheers to Frederic!

I researched Fredrick White's name and then found it in a 1920 Cyclopedia of Insurance in the United States regarding "insurance and use" coverage insurance, written by Willis O. Robb of the New York Fire Insurance Exchange: [19659006] USE AND WORK INSURANCE. "Use and nutrition insurance," in the broadest sense, insurance against loss caused by fire in the way of business interruption in a continuing business, has had a relatively small development in the United States, and much of that development has obviously been in the wrong direction. There are two main reasons for this. First, in those states that require or encourage the use of a standard fire policy, there is no separate provision to insure contingent interests, such as rents, profits, use and occupancy, rent, etc., although these interests may obviously not be properly covered by the usual standard fire policy, with its express exclusion of loss due to business interruption, its claim for payment of loss in one and the same amount and its multiple provisions intended only for ordinary property insurance and losses. And in the next place, partly because a higher interest rate is usually charged for so-called profit insurance than for so-called use and occupancy insurance, and partly because you do not understand and measure the real interest you want to cover, form employees have been confused, avoidant or completely adequate.

The first of these handicaps can only be overcome by amending or overriding the statutes that adopt and establish the standard policy; either greater freedom must be given fire in accordance with the law in securing these contingent interests, or riders must to a large extent change the usual provisions of standard policy for a clear protection of such interests and be tolerated. The removal of the second handicap seems to be mainly an educational issue.

Strictly speaking, use and occupancy insurance, which was held in the well-known New York Court of Appeals case Michael vs. the Prussian National Insurance Company the so-called Buffalo Grain Elevator case, only covers the loss of the owner or holder of the ability to use the property described in the policy. In the cases Tanenbaum in the Supreme Court of the same State, it was expressly and undoubtedly properly considered that "use and occupancy", since that term is used in an agreement to obtain an insurance described only by that term, was not and could not be gains from revenue, however ascertainable it was. Obviously, therefore, use and occupancy in their proper sense are essentially the same as the rental value and must be measured in the same way as at insurance value and recoverable loss. But as US insurers generally understand, usage and occupancy insurance is a form of contract that promises to reimburse the policyholder (usually a manufacturer) at a certain rate per day, in the event of a total outage, and at a proportion of that rate in the event of partial interruption, caused by a fire in his premises. Only the most vague understanding of the correct method of determining the unemployment benefit or the total insurance value of the insured interest rate is usually found among either insurers or policyholders. This is because they do not clearly see, or (due to the issue of interest already mentioned) do not want to admit, that what the applicant wants and the sub-author has to provide is simply and merely a form of profit insurance, not use and occupancy insurance. at all, in the true sense of the word: in England, for more than a dozen years, this type of insurance has been treated more correctly than the profit insurance it really is, on a form that has been adopted consistently for its exact purpose, with great result benefit for the general public and insurers, so that a really important new branch of fire insurance has been developed. A new English author on this subject is therefore quite entitled to refer to the American practice in the following brief way:

& # 39; In the United States of America, a system called Use and Occupancy is the system intended to compensate the insured . for loss of profit by fire. The company that issues a policy for use and occupancy agrees to pay a proportionate amount of the insured amount for each day that the business is completely stopped and in proportion in the event of a partial interruption. Needless to say, such a system cannot assess the loss of profits, except in companies where sales do not fluctuate. Such companies are so few that a use and coating policy is of little commercial value.

It is true that this summary dismissal of US usage and coating policies makes it a little less than fair by not perceiving it, however incorrect a yardstick a fixed day can be to measure a fluctuating profit level, it is after all likely to provide a fair average of results that work over a significant period of time. But surely the English method described by the same author (Mr. Alex B. Wright, Insurance Against Loss of Profits by Fire – Consequential Loss "London, 1912, C. & E. Layton) is much more flexible According to that method, the applicant indicates whether he only wants to insure net profits, or only fixed fees, or the two together under the general name of profits, and whether the basis or standard for measuring the loss is & # 39; & # 39 If, for example, profits plus fixed fees are to be insured and turnover is to be standard, he receives insurance for the amount he declares his net benefits plus fixed fees for one year would represent, and in the event of a loss, the actual annual turnover is determined, together with the percentage that the net profit plus fixed fees has constituted of that turnover, and this percentage to applied to the reduction or loss of turnover due to the interruption, which makes the loss of profit pure and simple, to which the items constituting the increased cost of "working" necessarily arise in order to continue the business. Several necessary protection measures are introduced in the contract, so that, for example, if fixed charges did not actually continue after the fire started, the corresponding deduction would be made from the adjustment amount. According to English practice, the liability period, which differs from the insurance period, is limited to a certain number of months after the fire, usually, but not always, less than one year. If in a given case it was longer than one year, instead of taking the annual turnover as a base or adjustment standard, the turnover is used for the longer liability period, while, if the liability period is one year or less, the standard or adjustment basis is only the annual turnover. Usually a review is made once a month after the fire until full restoration of productivity and monthly payments on the account are made by the insurers, but of course the determination of the basis for the whole adjustment, namely the volume of annual turnover and percentage of turnover represented by gains are made immediately after the loss occurs. A number of minor controls, balances and safeguards are introduced into the system, but this summary will adequately indicate the general nature of the English handling of this substance and its obvious superiority over common use in the United States. According to my understanding, "Use and occupancy is the system intended to compensate the insured for the loss of profits with" and for all risks covered by business income. That is why we are in this Covid fight for loss of income. These risks are not specifically excluded and are thus covered.

I am fortunate to be appointed by the judge as chair of the Erie Insurance Company policyholder's steering committee. I have learned so many things from so many very smart policyholder lawyers that I had not met before. I'm a better supporter of all this.

Thought for the day

We are not creators of history. We are created by history.
—Martin Luther King, Jr.


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