How to determine business interruption losses after a hurricane
Coverage Q&A: In this claim arising from Hurricane Maria, business income losses were due to direct damage from a covered loss.
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Question: This claim relates to a car dealership in Puerto Rico.
This insurer, MAPFRE, alleges the insured was able to open their facilities eight days after Hurricane Maria passed over Puerto Rico on Sept. 20, 2017. After that period of time, MAPFRE is applying the “Loss Of Market Exclusion,” because MAPFRE says no one was buying cars at that time.
Insured alleges they did open their facilities but were not fully operational because of:
- Severe damages in their buildings;
- Lack of employees as many were solving personal issues due to the hurricane; and
- No electricity on basically the whole island, partial operation depended on an electric generator.
There also were issues with using generator electricity, including:
- Difficulty finding mechanics to maintain generators;
- Lack of available generator parts;
- Difficulty finding diesel for generators; and
- Prices on the available generator fuel skyrocketed to $9 per gallon or more.
…Not to mention communication challenges in the aftermath of the storm. These included:
- All systems including phones, internet and cellular, were down in some cases for months. People had to go in their cars to different parts of the island to find coverage just to communicate with their families. You would see lines of cars in some areas just to use the cell phone coverage.
- It was very difficult to recharge cellular phones, and there were not many solar chargers available.
- Banking communications also were down so it was not possible for banks to review or qualify loan clients as they would in normal times.
- All communication and electricity towers collapsed and took many months for repairs.
And if these issues were challenging enough, the lack of diesel and gasoline made it difficult to use messengers, or to make personal deliveries.
Radio stations and TV stations also were down for a long period of time, and battery radios were difficult to find.
Our allegation is that the business was not fully operable at that time. What is your opinion?
— Puerto Rico subscriber
Answer: In reference to the exclusion for loss of market, you are correct that the policy is not intended to cover economic loss. This exclusion excludes any prospective, or anticipated, profit of the insured, or loss of market.
The commercial insurance policy in question also provides for Extended Business Income. This coverage is designed to enable the insured to recapture its market position following the completion of repairs and the resumption of operations.
For example, if the insured sustained a long closure of their operations for repairs, they may not see their customers return right away. The loss of income during this period would be covered by the extended period of indemnity provided for in this Extended Business Income provision.
However, Extended Business Income does not apply to loss of business income incurred as a result of unfavorable business conditions caused by the impact of the Covered Cause of Loss in the area where the described premises are located.
In your case, there seems to be a number of true extended business income losses that are not a result of the unfavorable business conditions resulting in economic loss. Your case states that the business was not fully operational, and notes that two of the reasons were damage to the buildings and lack of employees, which should be covered business income losses. There may also be some covered extra expense for necessary expenses incurred to avoid or minimize the period of the suspension and to continue their operations, such as the generator and communications expenses.
Only the portion of the extended business income loss that was due to economic conditions caused by Hurricane Maria would be excluded, such as the lack of people buying cars.
However, you do not present this as an issue, since people were buying cars. So, in essence, there was not a “loss of market,” but rather business income losses due to direct damage from the covered cause of loss.
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