While reading perhaps hundreds of articles and court cases surrounding the COVID-19 pandemic and the issue of business income insurance coverage, I often read that courts have generally held that a “suspension” of operations requires a complete suspension in order to trigger coverage.

Most recently, in attorney Randy Maniloff’s email newsletter, he cites Hastings Mutual Ins. Co. v. Mengel Dairy Farms, No. 20-4090 (6th Cir. July 16, 2021) where the court held that there was no coverage because of a lack of a complete suspension of business.

I address this issue in my book “20/20 Vision: Why Insurance Doesn’t Cover the COVID-19 Pandemic”:

Business income coverage requires a complete suspension of operations

Similar to the last topic, I’ve read articles that claim that business income coverage only applies if a loss results in “…a complete suspension of [a business’s] operations. Mere partial closures or reduced hours have not been found by the courts to constitute a suspension of operations.” That is not an accurate statement, at least with regard to current ISO forms, and has never been the intent of such forms, though there apparently have been court cases finding on that basis.

In 2000, ISO added a definition of “suspension” of operations to its business income forms that said that “suspension” means:

“The slowdown or cessation of your business activities; or…That a part or all of the described premises is rendered untenantable, if coverage for Business Income including ‘Rental Value’ or ‘Rental Value’ applies.” [emphasis added]

Until that filing, the undefined term “suspension” was often interpreted to mean that only a complete cessation of operations was covered by these forms. In the filing, ISO referred to this as a “Clarification or Procedural Change,” effectively confirming that the intent of the word “suspension” had always been to apply to curtailments of operations and not necessarily complete shutdowns.

A similar myth exists that an insured is not entitled to recover unless the business is actually resumed. For example, a business owner suffers a major loss and decides to retire and not continue operations. The insured is still entitled to coverage because the ISO CP 00 30, for example, says that the “period of restoration”…

“Ends on the earlier of…The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or….The date when business is resumed at a new permanent location.” [emphasis added]

The controlling language is “should be,” not “is” or “must be.”

I’m assuming that the form in question is not a pure ISO form or it predates the change in ISO’s coverage 21 years ago. In my “20/20 Vision: Why Insurance Doesn’t Cover the COVID-19 Pandemic” book, I discuss a number of these policy language revisions over the past 35 years.

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information