2 ADJUSTINGTODAY.COM Under the language of most property policies, there are three simple rules: • First, following a sale, the policyholder/seller can still collect business interruption (BI) proceeds beyond the sale date and through what would have been the end of the “theoretical” BI period. That is because the BI loss is determined at the time of loss and the insurers themselves employ a theoretical measure of the BI period based on “due diligence and dispatch,” regardless of the actual repair period. • Second, the policyholder/seller can also collect repair or replacement costs estimated but not yet actually spent at the damaged property as of the sale date, as most replacement-costvalue (RCV) policies permit an election to apply RCV proceeds to another insured location or to other capital expenditures unplanned as of the date of the loss. • Third, in the alternative, the seller can simply assign all or part of a claim to a purchaser, which is the law in nearly every state. The “antiassignment” clause in a typical policy means only that the policy itself cannot be assigned without insurer consent, but a post-loss claim is assignable notwithstanding the clause. The scope and nature of an assignment is negotiable between the seller and purchaser. In other words, when properly documented and planned, the sale of a damaged property does not create a windfall opening for the insurer to escape from some or all of its insurance obligations, no matter how rights to insurance proceeds are negotiated and allocated between the seller and purchaser. This is fair and logical. Without the sale, the insurer is obligated to pay a certain amount to its policyholder/seller; with the sale, the insurer remains obligated to pay the exact same amount, no more or less. An insurer cannot take unfair advantage of a sale and artificially cut off its insurance obligation. The law prohibits such opportunistic claim adjustment. These three rules are examined further below. 1. Business Interruption Past the Sale Date The sale of an income producing property subsequent to an insured loss does not limit or end the seller/policyholder’s own BI claim for that loss. A policyholder can enforce an insurer’s contractual obligation to pay BI through the full “theoretical” BI period, provided that the policyholder had an “insurable interest” in the property at the time of the loss. An owner of a property that suffers a calamity obviously had a full insurable interest at the time of the loss in the property and its income stream.1 A federal court deep in the heart of the hurricane zone carefully considered this issue and came to the correct result. In BA Properties v. Aetna Cas. & Sur. Co., the policyholder owned the Ritz-Carlton
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