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By Joseph D. Jean & Matthew D. Stockwell, Lowenstein Sandler LLP
In the aftermath of a widespread devastation, such as caused by Superstorm Sandy, companies look to their business interruption insurance to recover profits that were lost due to the cessation or suspension of their business operations. The measurement of the business interruption losses which they are entitled to recover under their insurance policies is often controversial and leads to complex and litigated insurance coverage issues.
This commentary discusses various pertinent insurance policy provisions as well as recent case law addressing the measurement of business interruption losses. In doing so, it focuses on the differing "Economy Considered" and "Economy Ignored" perspectives and shows how neither approach necessarily favors an insured or an insurer.
The commentary observes:
The 'Economy Considered' approach assesses business interruption loss based on what economic environment the business would have encountered had it been able to continue its operations after the catastrophe struck. The 'Economy Considered' approach seeks to ensure that the business maintains the same position that it would have held in the post-loss environment had it suffered no damage.....
"By contrast, the "Economy Ignored" approach looks strictly at a business's history prior to the catastrophe, and does not consider the impact of post-loss conditions on the economy, market or demand. Courts using the Economy Ignored approach typically justify its application because they claim that the insured will experience a "windfall," conveniently, at times, focusing on the "event" and ignoring the "damage" or "loss" that the insured suffered."
The commentary turns to hypothetical examples to illustrate the differences in the two approaches and their consequences. The commentary notes that there are scant court precedents on the issue in the jurisdictions most heavily impacted by Superstorm Sandy--New Jersey, New York and Connecticut. Accordingly, the commentary looks to relevant court decisions in other jurisdictions. Features of the commentary include lists and analyses of court decisions using the two approaches in reaching their decisions.
Joseph D. Jean is a Partner at Lowenstein Sandler, LLP in New York and New Jersey where he represents policyholders against their insurance companies. Mr. Jean specializes in property and business interruption insurance for commercial property owners in the education, pharmaceutical, manufacturing, mining, retail and multifamily housing industries. Matthew D. Stockwell is Counsel to Lowenstein Sandler, LLP in New York and New Jersey and focuses his practice on representing commercial policyholders against insurance companies and on construction disputes.
Lowenstein Sandler LLP on Measuring Business Interruption Losses in the Wake of Superstorm Sandy. Additional fees may be incurred. (approx. 12 pages)
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