Optical Works and Logistics V. Sentinel Insurance Company – Using Financial Experts to Support Business Interruption Claims

As a result of pandemic-related shutdowns, many businesses have filed claims under their business interruption insurance policies. These claims have resulted in litigation over the scope of coverage and the meaning of key policy terms. A recent case demonstrates the importance of using a financial expert to determine losses when making these claims.

What’s Covered, What’s Not

Some business interruption policies expressly cover or exclude losses caused by viruses or pandemics, but the language of most policies is less clear.

During COVID-19-related claims litigation, questions have been raised about whether coverage is limited to interruptions caused by physical losses — and, if so, whether the potential presence of a virus on the insured premises constitutes physical damage. Alternatively, pandemic-related shutdowns may fall within the scope of policies containing a civil authority clause. Such clauses cover losses incurred when an order of a civil or military authority impedes access to business property.

The existence and extent of the insured’s losses may also be disputed in COVID-19-related claims. Involving financial experts early in these cases can help the parties support or rebut claimed losses.

Case in Point

A recent U.S. District Court case shows how a financial expert can help support business interruption claims. In Optical Works and Logistics v. Sentinel Insurance Company, the insured was an optical media replication start-up. It filed a business interruption claim after a tropical storm caused damage to its equipment and building.

The insurance provider denied the claim. So, the company filed suit, alleging, based on estimates made by an independent financial expert, that its losses could have been only $50,000 to $75,000 had the insurer provided coverage quickly. Instead, the expert estimated that the company’s losses had mushroomed to over $4 million, rendering it insolvent.

The insurance provider moved for summary judgment on multiple grounds. However, the court denied the motion, finding that several disputed material facts required a trier-of-fact to decide the claim’s merits.

For example, the insurance provider argued that the start-up offered no evidence that it incurred expenses before or after the storm. But the court emphasized that the company hired an outside expert to project the expenses it would have incurred had it continued to operate after prompt payment of its claim.

Experts Add Value

Though Optical Works is a pre-pandemic case, it illustrates the critical role experts can play in the early stages of business interruption claims litigation. Using an independent expert can lend credibility to estimated losses and prevent a court from dismissing a claim simply because it’s not supported by objective research and analysis.