The insurance claims that arose from the attacks of September 11, 2001 (“9/11”) and Hurricane Katrina were a watershed for the way in which insurance companies handle Business Income insurance claims. Those events also set loose a spree of judicial opinions regarding the scope of coverage for Business Income and other time element losses. Indeed, although Business Income coverage has been around for more than a century, about half of the time-element cases have been decided since September 11, 2001.
Historically, Business Income and other time element insurance claims were resolved generally by negotiation or appraisal. There are many reasons why such claims increasingly are being litigated, but perhaps the primary reason is the circumstances surrounding 9/11 and, to a lesser extent, Hurricane Katrina. Those catastrophes gave rise to insurance claims that: (1) were often, individually, very large, a condition that by itself led to disputes; (2) were collectively massive, putting at least an initial strain on the industry and its individual players; (3) were quite similar to other policyholders’ claims, which inclined claims handlers to be conservative, lest policyholders discover favorable claims positions and demand similar treatment; (4) involved forms of recent vintage, with little or no case authority to provide guidance or constrain insurance company claims handlers; (5) involved broad coverage forms, a product of the “soft market” just beginning to lift in early 2001; and (6) arrived at a time when the financial markets, in which insurance companies are huge investors, were retrenching dramatically. The confluence of these factors, combined with the growing role of outside coverage attorneys in shaping the response to first-party claims, led insurance companies to take newly restrictive coverage positions on policyholders’ time element claims.
This commentary will provide an overview of the issues that have been the focus of Business Income disputes between policyholders and their insurance companies since 9/11, with special attention paid to the ways in which insurance companies’ claims handling approach has changed during that period. The article will also suggest how policyholders can avoid the traps recently laid by the insurance industry and its lawyers.