6 ADJUSTINGTODAY.COM catastrophes. Underwriters might be prevailed upon to extend the time limit, although requests for extensions might be viewed as “adverse selection” and a substantial added premium required. Can an insured claim a business income loss if the event causing the loss contributed to greater profits overall? ANSWER: This question arises from time to time. In 2011, for example, oil companies had to suspend drilling operations in the Gulf of Mexico after incurring storm damage to drilling platforms, but soon profited from the rise in oil prices that followed from the disruptions. Insurers disputed whether income coverage should be applied in the wake of an event that ultimately benefitted insureds. One could imagine such an occurrence on a smaller scale, such as a home improvement store that is forced to close for a week because of storm damage, but realizes greater-than-anticipated sales upon reopening due to a surge in demand for building materials. In this, as in all cases, policy provisions prevail. If an enterprise with business income coverage must suspend operations due to damage by an insured peril, it is entitled to coverage for loss of income, subject to coinsurance requirements, time element and/or dollar deductibles, and applicable limits. In light of this possibility, many property policies, particularly on hotels, now have provisions limiting income coverage in cases where surges in demand following a shutdown result from the same event causing the shutdown. Even with such a provision, a business that suffered a fire loss at the same time that its community was shut down by a hurricane might still be able to collect its full business income recovery while benefitting from the demand surge following a hurricane cleanup. Furthermore, the impact of a post-event windfall may be reflected in the time period selected for calculating an income loss. Still, barring any explicit provision preventing or modifying recovery on the basis of subsequent earnings, an insured is entitled to the full amount of recovery established in the policy contract. After 2020, can business interruption coverage be written and priced to extend to orders by civil authorities closing off access due to a pandemic? ANSWER: “Never say never,” but don’t count on it. Several things stand in the way of insurers ever accepting much risk (at least voluntarily) for business interruptions caused by a pandemic. Given what we experienced in 2020, we can reasonably expect that public health authorities may be quick to impose restrictions of lesser scope and severity to contain outbreaks of disease. In light of that, business and property owners will understandably ask whether “civil authority” BI coverage could be extended to orders arising from a pandemic. Civil authority coverage is already triggered for a business that has suffered no damage, provided the order arises from damage by a covered peril at some location. What’s the difference with an order arising from a pandemic? A lot, it turns out — and it mostly has to do with underwriting and loss control. Now, some commercial insurers may start to offer some limited coverage for pandemic closures, both as an enticement to buyers and as a means to make sure that any future pandemic claims are clearly routed away from the overall BI limit and toward a (presumably lower) pandemic limit. Beyond that, insurers and policyholders have very little, if any, ability to assess the risk of a pandemic and control its consequences. Viruses circulate freely around the globe and one rarely knows for certain where an individual has contracted a virus.
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