Catastrophic Loss
7/31/2009 10:57:28 AM EST
H. Richard Chattman and Gregory D. Miller of Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, P.C. on “Measuring Business Interruption Loss in Wide-Impact Catastrophes: Insurance Against Catastrophes or Only Against Insured Damage"
Attorneys, Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, P.C.
In their article appearing in the July/August 2009 issue of Coverage, “Measuring Business Interruption Loss in Wide-Impact Catastrophes: Insurance Against Catastrophes or Only Against Insured Damage from Catastrophes?” H. Richard Chattman and Gregory D. Miller initially note that unlike an ordinary loss causing damage to a single location, a wide-impact catastrophe (e.g., hurricane, earthquake, 9/11 attack) can cause substantial, lasting economic changes, so that pre-catastrophe business levels are often unreliable indicators of probable post-catastrophe earnings. Yet the courts are split on whether these extraordinary economic changes should be considered in measuring the compensable loss under a business interruption insurance policy or whether they should be excluded from the calculation and instead loss should be measured strictly against pre-catastrophe earnings.
This article analyzes the developing case law measuring business interruption loss in wide-impact catastrophes, and critiques the divergent rationales for the different measurements the courts have applied. Some business interruption measurement provisions provide that “due consideration shall be given to experience of the business before the loss and the probable experience thereafter had no loss occurred.” The article evaluates whether some courts have been correct in equating “had no loss occurred “with “had no catastrophe occurred.” Other business interruption measurement provisions instead use the phrase “had no interruption of production or suspension of business operations or services occurred.” The article opines that different measurement approaches for those differently phrased provisions are not justified. The authors state, “[T]he most appropriate principle ─ the one that considers the actual impact of the post-catastrophe economy on the insured’s business ─ flows logically from the basic business interruption coverage provided for earnings lost as a direct result of insured or other trigger damage.”
The article further identifies evidentiary issues that have arisen from the controversy as to how to measure a business interruption loss caused by a wide-impact catastrophe.
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