§ 3.12 Business Income

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 3.12 Business Income

In Shadow Creek Apartments, L.L.C. v. Hartford Fire Insurance Co.⁷⁸ the Fourth Circuit Court of Appeals considered whether the insured was entitled to recover for lost business income with regard to lost rents under the policy. The insured owned property on which it built an apartment complex. The insured purchased a rider to cover lost rent and soft costs for the complex with a $500,000 coverage limit. The rider provided, in part, that the insurer "will pay for the actual loss of 'Rental Income' you sustain as a result of delay" caused by a covered loss. The rider further stated that "the amount of 'Rental Income' will be determined based on: (1) the Net 'Rental Income' of similar rental properties before the direct physical 'loss' occurred; [and] (2) the likely Net 'Rental Income' of the property if no 'loss' occurred."⁷⁹

A series of fires occurred and burned several of the buildings on February 1, 1999. At the time of the fire, the construction was still ongoing and the builders were scheduled to be completed on a staggered basis between March and August 1999. Because of the delay caused by the fires, however, the first building was not completed until mid-May 1999 and the other buildings were completed on a staggered basis from July 1999 to January 2000. The insurer reimbursed the insured for much of the loss. However, the parties disputed how the loss rent was calculated - the insurer calculated lost rent at $200,000, while the insured calculated it to be $527,000 and submitted a claim for the $500,000 policy limit.⁸⁰ The insurer used a method that included gradually increasing the number of rentals until July 31, 1999⁸¹ to determine the lost rents rather than using a 92% rental rate from day one, as espoused by the insured. While the court determined that the insurer's proposed methodology was correct, the insurer was not entitled to a grant of summary judgment because the date of calculation should not have ended at July 31, 1999. The court explained:

The uncontested facts in this case render this assumption questionable to say the least. As explained above, both parties agree with the general proposition that the Shadow Creek apartment complex would not immediately reach its stabilized occupancy rate. Rather, as each building opened, occupancy rates would slowly increase until at some point the rate stabilized at around 92 percent. At oral argument, Shadow Creek referred to the time between the initial opening of an

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