A typical business income coverage grant provides that the insurer 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.” An issue that frequently arises, but for which there is very little guidance in the case law, is how this language applies when the insured loses business opportunities during the period of restoration, but the revenue and profit from that work would have been realized and earned after the period of restoration ends, and perhaps years later. The New York Appellate Division recently addressed this issue in an important case, Bernstein Liebhard, LLP v. Sentinel Insurance Co., Ltd., 162 A.D.3d 605, 78 N.Y.S.3d 339 (N.Y. App. Div. 2018), in which the court unanimously reversed the entry of summary judgment in favor of the insured and ordered judgment entered in favor of the insurer, finding that although the insured may have lost clients during the period of restoration, it could not recover for the loss of income the firm would have received years later from cases handled for those clients.
The insured in Bernstein was a law firm with a large mass tort plaintiff’s practice that operated on a contingency-fee basis. The insured suffered a fire, which it claimed disrupted its business and prevented it from advertising for mass tort plaintiffs, resulting in a loss of cases it would have brought in if it were able to advertise, and causing a loss of $27 million in income. The firm looked to its insurer to recover this claimed loss, arguing that its loss of income was “sustained” during the period of restoration, even though the fees from those cases would not have been realized until years later. In addition to the above-referenced coverage grant, the policy at issue, like standard ISO forms, defined “business income,” in relevant part, as the “net income that would have been earned.” Bernstein Liebhard LLP v Sentinel Ins. Co., Ltd., No. 652726/2015, 2018 WL 623535, at *1 (Sup. Ct. Jan. 30, 2018). The parties agreed that “earned” means “become entitled to.” The policy at issue allowed for a 12-month recovery period following the fire loss. Bernstein Liebhard, 162 A.D.3d at 605.