South-Western Legal Studies in Business

Business Income Insurance Applies to Suspension of Operations, Not Reduced Operations
Description California appeals court affirmed that business income insurance, which promised to replace income lost due to suspension of operations due to a casualty loss, such as a flood that affected a law office, did not apply because the office only reduced operations during repairs, it did not suspend operations.
Topic Insurance
Key Words Business Income Insurance; Suspension of Operations
C A S E   S U M M A R Y
Facts The law offices of Buxbaum were flooded due to a water pipe break. Aetna, the insurer, paid $5,160 for property damage. Buxbaum also filed a claim on its business income insurance because during the week the office was being repaired the attorneys billed $6,805 less than usual. The business interruption coverage stated that the insured "will pay for the actual loss of Business Income [the insured] sustains due to the necessary suspension of its 'operations' during the 'period of restoration.'" Since the law firm did not cease operations, but was inconvenienced by the repair work due to the flooding, Aetna refused to pay on the business income insurance. Buxbaum sued. The trial court held for the insurer; Buxbaum appealed.
Decision

Affirmed. Operating a business in a reduced capacity is not a "suspension of operations" as stated in the policy. Suspension of operations means closing the business for a period due to the restoration work. The law firm continued operations and suffered inconvenience due to the repair work, but that was not covered by the policy.

Citation Buxbaum v. Aetna Life and Casualty Co., 126 Cal.Rptr.2d 682 (Ct. App., Calif., 2002)

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