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Understanding Business Breaks – Do Not Let The Insurance Company Deny Your Income Claim For False Loss Of Market Exceptions | Legal insurance blog about property insurance



The loss of market exclusion excludes any lost profits due to the disappearance of the company's market from the coverage. The loss of the market can be due to economic downturn, competition or changes in demand that can be attributed to a dramatic event. The question is, as usual, whether this exemption applies to policyholders' claims on lost profits that follow a covered risk. They argue that losses due to a reduction in the customer base or consumer demand caused by the disaster itself should be excluded from coverage as a "loss of the market." This argument has proved to be exaggerated. To overcome this exclusion in Florida, courts have stated that the insured must simply show that the claim claimed was directly caused by the covered risk.

As reported in Dictiomatic, Inc. v. US Fidelity & Guar. Co. : 1

The insurance contract does not pay for and specifically excludes loss or damage caused by or as a result of consequential loss, delay, loss of use or loss of market. Therefore, the loss that is alleged to be a loss of business income from [the insured] was not lost as a direct result of Hurricane Andrew but rather as a result of some other reason, then such loss is excluded from coverage and there can be no recovery.

This case illustrates that the insured must show that the loss can be directly attributed to the risk covered. The burden then passes to the insurer to prove that the loss of market exclusion is applicable, which, as shown below, has largely failed in most jurisdictions.

In New York, for example, the court interpreted the exclusion as valid only in limited circumstances, independent of an otherwise covered danger.

The loss of market exclusion refers to losses due to economic changes caused by e.g. competition, changes in demand or the like; it does not prevent recovery from loss of ordinary business caused by a physical destruction or other covered danger. 2

The Court of Boyd Motors v. Employers Insurance of Wausau ] 3 further limited the extent of the loss of market exclusion, stating:

A market is lost when, for example, due to delays in distribution, changes in consumer habits, etc. a certain type of product is no longer in demand with its intended buyers.

These cases are a common theme in the interpretation of the loss of exclusively from the market; mainly that it is about the market before loss and only excludes the losses that can be attributed only to the market conditions . As precisely stated in an article written by Paul Breene and Anthony Crawford:

The purpose of the loss of market exclusion is to prevent a policyholder from insuring ordinary business risks; for example, changes in demand due to changes in consumer tastes or improvements in technology. Consequently, the loss of exclusively from the market should not be and is not available to insurance companies as a basis for avoiding paying for business interruption losses due to the same disaster for which the policyholder seeks insurance cover. Whether the Court is persuaded by that reasoning, it does in fact represent a reasonable interpretation of the purpose of the exclusion. This leads to a convincing ambiguity argument, and as courts across the country have consistently argued, "[e] exclusive provisions that are ambiguous or otherwise susceptible to more than one sentence must be interpreted in favor of the insured, as it is the insurer who draws up the policy. . ” 5
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1 Dictiomatic, Inc. v. U.S. Fid. & Guar. Co. 958 F. Supp. 594, 604 (SD Fla. 1997). [19659019] 2 Reade v. St. Paul Fire & Marine Ins. 279 F. Supp. 2d 235 (SDNY 2003).
3 Boyd Motors v. Employers Ins. Av Wausau 880 F.2d 270, 273 (10th cir. 1989).
4 Paul E. Breene and Anthony B. Crawford, "Loss of the Market" Exemption for COVID-19 Business Interruption Insurance Claims ( 13 May 2020). Https://www.law.com/corpcounsel/2020/05/13/loss-of-market-exclusions-to-covid-19-business-interruption-insurance-c laims /? slreturn = 20201012105511
5 ] Deni Assocs. from Fla., Inc. v. State Farm Fire & Cas. Ins. Co. 711 So. 2d 1135, 1138 (Fla. 1998).


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