I have a client who owns a restaurant which suffered damage and was unable to trade for three weeks, resulting in a Gross Profit loss.
Their insurer has accepted the Business Interruption claim, however has noted that the client has another restaurant close by and wishes to apply the 'Turnover Elsewhere after Damage' clause to adjust the claim.
Essentially wanting to take into account whether the other restaurant has seen an uptick in business as a result of the closure of the insured business.
The complication here is that:
1) Each restaurant is owned by separate legal entities (albeit with a similar shareholding).
2) Each restaurant caters for different clientele, the damaged restaurant is a breakfast and lunch restaurant, and the other restaurant is fine dining lunch and dinner. Four days a week there is a small cross over in trading hours over lunch.
3) Each restaurant is run at arm's length. There is no sharing of resources between restaurants.
4) Each insurer is separately insured with different renewal dates.
Taking the above into account, we believe the insurer is adjusting the claim unfairly. However, we wish to know whether there are any precedents, legal or otherwise, for insurers taking this approach?
A typical 'Turnover Elsewhere' wording is as follows:
If during the Indemnity Period, any goods are sold or services are rendered elsewhere than at the Premises for the benefit of the Business, either by the Insured or by others on behalf of the Insured, the money paid or payable in respect of those sales or services shall be brought into account in arriving at the Turnover during the Indemnity Period.
The principle and the intention of the 'Turnover Elsewhere' clause is easily understood. It is to ensure an insured does not re-direct turnover away from its business, to the detriment of the claim. For example, setting up temporary premises in another entity and failing to include the turnover (and additional expenses) in its business interruption claim.
In addition to the 'Turnover Elsewhere' clause, business interruption policies typically include in their 'Claims' Condition the requirement of the Insured to take “prompt steps to minimise any interruption of or interference with the business and avoid or diminish the loss”.
Even if the insured placed signage in its windows, or on social media, to dine at the nearby alternative restaurant, unless the insured was failing to mitigate losses by some other means, it is difficult to see how the insurer is entitled to offset any uplift given the separate entities. The insurer may be confusing the insured entity with the person who owns the two restaurant entities to come to its conclusion.
From the information provided, it would be helpful to clarify with the insurer what its reasoning is to offset any uplift at the nearby restaurant, in case this has not been conveyed to the insured? This is aside from how it would be proposed to measure the increase, given the comments indicate that there is minimal crossover in opening hours, pricing and food offered?
It would be worth reverting to the insurer or getting assistance to review the claim, as it is not obvious from the information provided that insurers are taking the correct approach.
