Arizona business interruption insurance claims

Sometimes a commercial enterprise loses income because of physical damage to property that is necessary to conducting business. Insurance companies sell "business interruption insurance" policies, also called BI insurance policies, to protect against revenue losses from the time the property is damaged until it can be reasonably restored, when the business should become operational again.

Property damage

Typical kinds of property damage anticipated under BI insurance are those from natural disasters involving wind, water, fire and so on. For example, a store may need to close after its interior is gutted by fire damage, and its BI policy would cover profits lost until it can be reasonably repaired and reopened to the public. The potentially devastating nature of such property damage is precisely the reason that business owners will choose to pay large sums, every month for years, in exchange for the promise of protection from such losses.

Policy language

One of the main problems that can arise for a business policyholder seeking to collect a claim under BI insurance is a disagreement with the insurance company over ambiguous language in the policy. A similar issue can be whether the particular event that happened, or the nature of the damage, is covered by the policy, given the wide variety in types and breadth of coverage. Even when the policy language is clear and unambiguous, it is not uncommon for policyholders to find themselves in disputes with their insurers that seemingly stem from the money-centric desire to avoid paying costly claims.

Examples of legal coverage issues in BI insurance:

  • Whether the particular damaging force was a "covered peril"
  • Whether partial business operation negates any coverage because business has to completely cease
  • How to fairly project what profits or income would have been without the interruption
  • Whether the particular property damaged was covered
  • How long is the period of restoration
  • Whether the damage truly necessitated suspending business operations
  • And more

Legal interpretation

The Arizona Court of Appeals has said, in one of the few Arizona cases on BI insurance, that when interpreting a contract words are to be given their ordinary meaning, and that insurance policies are to be understood as a layperson does, not from the point of view of a lawyer or insurance professional. The court also quoted the Arizona Supreme Court as instructing that an ambiguous insurance clause should be considered in light of "legislative goals, social policy, and the transaction as a whole."

Legal guidance

Arizona courts have not yet dealt widely with business disruption policies, which makes it even more important for an Arizona businessperson with a BI claim to consult with an experienced Arizona insurance attorney. Legal counsel will be familiar with the policy language and how it has been construed by courts in similar situations. This understanding will allow the lawyer to deliver meaningful and informed advice about how the insurance company is likely to treat the claim and, perhaps more importantly, whether the insurer is in violation of its insurance contract.