Business income coverage for disruptions in contractual work

Coverage Q&A: The insured had to pause its operations under a contract after a tornado damaged the business premise.

This week’s Q&A discusses whether business income coverage applies when an insured is non-operational for a short period of time in fulfillment of contract work. (Photo: iStock)

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Editor’s Note: Determining a precise amount to reimburse an insured for business interruption is often more complicated than it sounds. This becomes particularly true when the insured’s operations are based on an established contract to be completed over a period of time. In this week’s coverage question, we have just such a scenario.

Question: Our insured suffered loss to its leased location in a tornado, which occurred on March 3, 2020. The insured’s business operations involved storing and scanning medical documents under a five-year contract that was active at the time of the tornado. Under this contract, the insured was obligated to scan the medical records and store the digitized records for their clients. The agreement provided for a per-page fee for such services that were to be paid when the scanning and digitization services were performed. The income that would have been realized from the scanning of medical records was approximately $4 million.

The insured resumed its operations at a new leased space 18 days following the tornado. The insurer denied any compensation for the claimed income loss related to the records because the income would have been realized outside the 18-day “period of restoration.” The insured contends that the records were literally unrecoverable at the time of the tornado. Therefore, the lost income was caused by a “suspension” of “operations” that occurred within the “period of restoration.”

Is the income loss from the missing records owed under the business income policy (ISO Business Income (and Extra Expense) Coverage Form?

— Wisconsin Subscriber 

Answer: To learn the answer to this week’s coverage Q&A, please log into your FC&S Expert Coverage Interpretation account.

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