Business Interruption—What Is Speculative Versus Estimated Lost Profits?

A recent case involving claimed damages in excess of $160 million had a significant issue where the insurers claimed that the lost profits were “speculative.” Generally, a policyholder must prove the amount of damage in a business interruption loss. Those damages cannot be speculative.

The case was in South Carolina, and the insurer’s brief noted the following rule of law in South Carolina, which is generally followed throughout the United States:

The crucial requirement in lost profits determinations is that they be ‘established with reasonable certainty, for recovery cannot be had for profits that are conjectural or speculative.’ South Carolina Finance Corp., supra, at 122, 113 S.E.2d at 336. ‘The proof must pass the realm of conjecture, speculation, or opinion not founded on facts, and must consist of actual facts from which a reasonably accurate conclusion regarding the cause and the amount of the loss can be logically and rationally drawn.’

Since every business interruption claim must necessarily make forecasts, I will explore several business interruption cases this week about what constitutes a permissible “estimate” of lost income versus “speculative” damages, which the courts will not allow. However, I suggest always having a credentialed expert make the estimate.

What happened in the South Carolina case? The court ruled the damage was limited to $10m based on another sub-limit of damage, and the appeal will certainly be taken on that coverage issue.

Thought For The Day     

P.T. Barnum said a sucker is born every minute, but his estimate was laughably low.

—Jonathan Gruber