A recent California appellatecourt ruling overturned a long-held understanding and applicationof business income policies in situations where an insured that wascompletely shut down after an insured event was projected tooperate at a net loss during the period of restoration. The rulingwill potentially have an impact on Calif. insurers and insureds,and it may also have an impact on claims outside of the state.

In Amerigraphics, Inc. v. Mercury Casualty Company, theinsured suffered flood damage to its leased premises and printingequipment and made a claim for its continuing operating expensesduring the period of restoration. An analysis of the insured'soperating history and other information regarding anticipated salesdetermined that absent the flooding, Amerigraphics' operatingexpenses would have exceeded revenues resulting in a projectedoperating loss of approximately $159,000. The actual operatingresults during the period of restoration produced an operating lossof approximately $47,000. Based on these projections and actualresults, Mercury determined that the insured had not suffered abusiness income loss because the actual operating loss was lessthan the projected operating loss and that the actual restorationperiod operating expenses were less than the projected operatingloss.

Faulty Interpretation