Nearly each property insurance coverage coverage has a particular part relating to the post-loss obligations of the insured. Whether or not or not it’s expressly acknowledged in its personal coverage provision or implied from the wording of different post-loss obligation provisions, it’s virtually universally agreed that an insured has an obligation to mitigate their damages after a loss.
The way in which that this responsibility to mitigate works relies upon upon whether or not the coverage in query is both a householders property insurance coverage coverage or a industrial property insurance coverage coverage. In house owner insurance policies, the insured’s responsibility to mitigate could come up underneath insurance coverage claims for constructing damages, private property, and many others. In industrial insurance policies, the insured’s responsibility to mitigate could come up underneath insurance coverage claims for constructing damages, enterprise private property, in addition to enterprise earnings loss and additional expense.
This blogpost focuses significantly on the one of many final coverages underneath industrial insurance policies: enterprise interruption losses and their reference to the insured’s responsibility to mitigate. My colleague, Nicholas Conklin, has beforehand written a blogpost on courtroom opinions throughout the nation which have analyzed the overlap of enterprise interruption protection and the insured’s responsibility to mitigate: Can an Insurer Depend on an Insured’s Mitigation Efforts to Deny Protection or Preclude a Enterprise Interruption Declare? Conversely, this blogpost is meant to not analyze caselaw on the topic, however moderately the coverage language itself with emphasis on primary contract interpretation rules.
A possible supply of battle which will come up underneath this protection, with respect to the insured’s responsibility to mitigate and the coverage’s language, is the timing of the insured’s mitigation and restore efforts. To higher perceive why a dispute would possibly come up in one of these state of affairs, you will need to take a look at normal coverage language that’s typically included in such industrial property insurance coverage insurance policies:
Typically, this extra provision is integrated into the identical coverage, and you can begin to see the place it turns into foggier:
With a studying of the above three provisions along side each other, it turns into fairly evident as to how a industrial policyholder could be confused with what efforts will be made after the insured property suffers a loss, and when the efforts will be commenced.
In a hypothetical instance, let’s say there’s a industrial property policyholder working as a ski-resort resort insured underneath a industrial property insurance coverage coverage with all three above provisions inside. The policyholder suffers a considerable loss because of a hearth, which is roofed underneath the property. As a result of the policyholder ski-resort is situated within the mountains of Colorado, the insured acknowledges a widely known time interval all year long as its “low season” (aka, in the summertime, when snowboarding and snowboarding are usually not viable to vacationers). The insured’s loss happens at the start of the autumn season.
After studying by means of its industrial property insurance coverage coverage, the insured determines that it must make repairs to mitigate damages and use due diligence in doing so to scale back the prices to one of the best of its potential. After this evaluation, the insured then holds off on quick mitigation efforts till the next summer time low season, and by doing so, the insured reduces the legal responsibility of the insurer. As a result of the mitigation efforts and repairs started in the course of the summer time low season, the quantity of enterprise interruption damages could be a lot much less, to the good thing about the insurer.
What follows subsequent ought to be apparent at this level. Certainly, the insurer thereafter makes use of the insured’s delayed mitigation efforts in opposition to it, citing to the abovementioned enterprise interruption extension and the relevant interval of restoration deadlines.
So, what subsequent? Effectively, right here there could also be an argument to be made in response to the insurer’s place, which might finally return to one of many primary tenets of contract interpretation: Ambiguous coverage provisions are construed strictly in opposition to the insurer that drafted the coverage and liberally in favor of the insured.1 A coverage can be deemed ambiguous the place conflicting provisions would render protection “illusory,” i.e., the place the insurer makes an attempt to grant rights in a single provision after which retract the exact same rights elsewhere within the coverage.2
Accordingly, when, as right here, two or extra provisions of an insurance coverage coverage cope with the identical material, (the insured’s responsibility to mitigate and make repairs), the one affording higher rights to the insured will prevail.3
The conflicting nature of accepting these coverage provisions collectively would basically place the insured in a Catch-22: is the insured required to start repairs as quickly as doable after the loss (incurring higher enterprise interruption losses), or is the insured required to “use due diligence and do and concur in doing all issues affordable to keep away from or diminish any lack of or injury to the property insured?”
