Am I Required to Mitigate Losses Under Business Interruption Insurance?

Nearly all commercial insurance policies impose a duty on the policyholder to mitigate their losses and claims for Business Interruption (BI) coverage are no different. Once a business has provided its carrier a notice of claim for losses caused by business interruption, they will have to show that they took reasonable measures to reduce or contain these losses.

In the context of the COVID-19 pandemic, the duty and definition of “mitigation of losses” is likely to be a contentious issue. Insurers may argue that businesses failed to take practical steps to reduce company losses amidst widespread closures and restrictions, thus avoiding financial liability.

Duty to take practical steps to reduce losses

Businesses that breach their obligation to mitigate losses under their BI policy may find themselves backed into a corner, with few options to seek full recovery. There will likely be disagreements over whether commercial policyholders took sufficient measures during the coronavirus outbreak.

The burden of proving that policyholders failed to take reasonable steps to mitigate business interruption losses lies with the insurance carrier. However, given the growing litigation surrounding pandemic-triggered BI claims, there is merit in keeping detailed records for all actions geared toward loss mitigation.

When it comes to mitigating losses for BI coverage, claimants are required to act reasonably. The question of “reasonableness” is going to be a prime area of contention with insurance companies. Efforts to reduce revenue losses triggered by a disaster like the COVID pandemic can take many forms. Still, as case law has previously demonstrated, they do not have to be heroic.

Loss mitigation in business interruption policies

A duty to mitigate losses– in its most general terms– is an obligation to minimize economic fallout by reasonable means. The specific language in commercial property insurance policies will vary, which is why it’s crucial to review all verbiage with a fine-tooth comb.

Your average business insurance policy describes a duty of loss mitigation as follows: Each indemnified party shall, and cause its affiliates to, use their respective reasonable efforts to mitigate any loss upon becoming aware of any event that would be reasonably expected to, or does, give rise thereto, including incurring commercially reasonable costs in respect of such indemnifiable loss.

When reviewing a COVID BI claim, adjusters want proof that a policyholder formulated a loss mitigation strategy, consulted with their insurer about the plan, and then put it into action. Policyholders that could not pivot to new business models or those that sat idly by could be at a disadvantage.

Review your claim with Douglas & London

Business owners should make reasonable attempts to mitigate losses from forced closures and consult with an experienced New York City business interruption insurance lawyer when in doubt.

At Douglas & London, we can help you determine the best course of action and offer results-focused representation on a contingency basis. Reach out today to schedule a free consultation regarding your insurance claim.