LETTERS: COVERAGE EDUCATION APPARENTLY LACKINGPosted On: Jan. 26, 1997 12:00 AM CST
To the editor: I read James H. Costner's article "Clauses Can Interrupt Coverage" (BI, Oct. 21, 1996) with interest. After reading the article, it confirmed why there is needless confusion among insureds and others regarding business interruption insurance. It is obvious there is a dire need for education and communication among all those involved in this phase of insurance, which is perceived to be complex but, when you step away from the trees and look at the forest, it is remarkably simple.
There has been much discussion over the need for an idle periods clause in the business interruption policy. I assume it was originally inserted to clarify and identify situations where an insured would otherwise have been idle and, therefore, would not have manufactured products or conducted operations. This would affect the probable experience of the insured after the physical damage.
There is a school of thought that states the clause is not needed because of the basic actual loss sustained features in business interruption policies. Mr. Costner's reference to ISO's manual confirms that position.
The presence of the idle periods clause-or even when not present-does not serve to totally "avoid" coverage as the author suggests. Certain events, such as strikes, scheduled maintenance-or re-scheduled maintenance-vacations and holidays, among other factors can affect the probable experience of the insured after the loss and physical damages. If the insured would not have produced or operated during those periods, it would not have suffered a loss. To reimburse the insured for such idle periods would unjustly enrich the insured and would violate the principle of indemnity.
Does Mr. Costner believe that an insured is entitled to collect for lost production under a scenario where a fire occurs on a Friday night and the workers go on a four-week strike on Sunday night? Since the insured would not have operated during the strike, it would not suffer a production loss. Is the insurance company avoiding payment for production that would not have occurred or is the insured, under the author's theory, if it claims a loss, collecting for production it otherwise would not have made? This situation is covered under the policy provision of actual loss sustained, whether there is an idle period clause or not. The insurer must address the property damage loss, but is there a loss of production that the insured has sustained during the four weeks of the strike? If the restoration period is longer, the insurer will give consideration to the production that would have been made during the weeks after the strike.
The industry-and that includes not just the insurers, but brokers, agents, risk managers, consultants and insureds-needs to collectively and individually address the education and communication gap that exists. Matters such as these should be addressed with the insureds and insurers as partners rather than in an adversarial manner. They should be resolved among professionals across the table, rather than in court rooms.
Campos & Stratis