The Importance of Communicating With Your Insurance Agent When Obtaining Business Interruption Insurance Cannot Be Overstated

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

With the increasing prominence of the Internet, many businesses are looking to online marketing when purchasing insurance policies.  While the web might be an appropriate way for homeowners to obtain insurance coverage, businesses face unique types of potential losses based on the nature of the company.  While a small accounting agency might need a significant amount of coverage for data restoration or document loss, a manufacturing facility might find it needs less of this type of coverage.  The manufacturing facility might find a greater need for coverage for damage to equipment or loss of utility services.  If you are seeking business interruption insurance, you need to communicate your needs, so your insurance agent can provide a detailed discussion of the types of coverage that might be appropriate for your business.

A case decided in Louisiana, Isidore Newman School v. J. Everett Eaves Inc., provides an example of the importance of effective communication between an insurance agent and policyholder.  An insured needs to carefully discuss potential needs while the insurance agent has a duty to exercise reasonable care when discussing coverage information with policyholders.  In the Isidore case, the carrier provided insurance to a private school for several years prior to the school being temporarily closed because of Hurricane Katrina.  The policy only included $350,000 in business interruption coverage, which had been increased from $250,000 at an earlier point in the relationship. 

While the insurance agent informed school officials that the coverage would compensate the insured for extra expenses experienced while the facility was being repaired, there was no indication that the coverage could replace lost tuition.  After the hurricane, the school lost a substantial amount in tuition.  The school sued the insurance agent for failing to explain that the business interruption coverage included lost tuition, which would have merited purchasing much higher business interruption coverage limits.  The judge agreed that the agent failed to exercise reasonable care by failing to advise the insured that business interruption coverage would include lost tuition from students.  The school’s damages from lost tuition amounted to $3,166,606.

The court found that the school was also negligent because it did not review the coverage during the two year interim after obtaining the $350,000 business interruption coverage.  Because the school did not read the policy, the school was determined to be 70 percent negligent, which resulted in a substantial reduction in damages awarded to the insured.

The key point for policyholders to take away from this case is that an insured also needs to communicate effectively with insurance agents when purchasing a policy.  An insured also should read and periodically review the coverage under the policy. 

You can reach Miami Business Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].

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