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Business Income and Other Time-Element Coverages: Issues Likely to Arise from the 2007 California Wildfires Claims

By John N. Ellison, Richard P. Lewis and Matthew D. Rosso

The Southern California wildfires, which began on or around Oct. 21, 2007 and lasted for more than a week, devastated seven counties, destroyed more than 2,700 homes and commercial buildings, and charred roughly 500,000 acres. The fires prompted California Governor Arnold Schwarzenegger to declare a state of emergency in seven California counties and President Bush to declare an emergency in the state of California and order federal aid to supplement state and local response efforts. The fires also forced evacuations of epic proportion and closures of major state highways, schools, and businesses.

With property losses estimated at more than $1 billion, the 2007 California wildfires are expected to result in thousands of insurance claims. Policyholders who have suffered physical damage, including fire damage, smoke damage, water damage, and damage from brushfire ash, should turn to their property insurance to seek recovery for their losses, including business interruption losses. Policyholders who did not suffer physical damage but who were prevented from operating their business may have insurance coverage for loss of business income. This article examines the nature and purpose of business interruption insurance and forecasts the anticipated coverage issues likely to arise from the 2007 California wildfires. It also highlights a number of other business income coverages that may be implicated for wildfire victims.

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