Within the latest case of Coastal Mud Management, Inc. d/b/a Sanico v. State Farm Fireplace and Casualty Firm, 1 a Mississippi federal courtroom parsed just a few traces of insurance coverage coverage textual content with the precision of an English professor. The outcome ought to ship a chill by way of each enterprise proprietor who thinks their industrial insurance coverage coverage will assist them survive a significant loss.
On the heart of this case was the “Lack of Revenue and Additional Expense” protection in State Farm’s Businessowners Coverage. After a hearth destroyed Sanico’s industrial laundry facility, the corporate tried to maintain serving its prospects by trucking a great deal of linens and mats to an affiliated operation in Alabama. These efforts stored the enterprise alive—however they got here at nice value. The combat that adopted turned on one deceptively easy paragraph.
Right here is the coverage language from the State Farm Enterprise Coverage:
Additional Expense means expense incurred:
a. To keep away from or decrease the “suspension” of enterprise and to proceed “operations”:
(1) On the described premises; or
(2) At alternative premises or at short-term areas, together with relocation bills and prices to equip and function the alternative or short-term areas;
b. To attenuate the “suspension” of enterprise when you can’t proceed “operations”; or
c. To:
(1) Restore or change any property; or
(2) Analysis, change or restore the misplaced info on broken “worthwhile papers and information”;
to the extent it reduces the quantity of loss that in any other case would have been payable beneath this protection or “Loss Of Revenue” protection.
That final unindented line—the “to the extent” clause—grew to become the whole case relating to further expense protection.
Sanico argued that the limitation (“to the extent it reduces…”) utilized solely to subpart (c), which means that further bills incurred to maintain the enterprise working (beneath (a) and (b)) needs to be absolutely recoverable. State Farm argued the alternative—that the limitation utilized to all three subparts, successfully capping reimbursement for any further expense on the quantity of revenue the enterprise prevented dropping.
The courtroom sided with State Farm.
How? By turning to wonderful grammar guidelines. The decide utilized the “Scope-of-Subparts Canon” from Studying Legislation: The Interpretation of Authorized Texts, by Justice Antonin Scalia and Bryan Garner. Below this rule, materials in an unindented line following indented subparts applies to all of them until the textual content clearly reveals in any other case. The courtroom additionally cited English grammar authorities and instances decoding statutes the identical manner, together with Castaneda v. Souza, 810 F.3d 15 (1st Cir. 2015) and Frillz, Inc. v. Lader, 104 F.3d 515 (1st Cir. 1997). In plain phrases, as a result of the “to the extent” phrase wasn’t indented, it utilized to each clause above it.
I do not know why the federal decide used these interpretive strategies, since insurance coverage contracts are interpreted in another way as a result of the insurance coverage firm is the drafter. I’ve by no means heard of the “Scope-of-the-Subparts Canon” earlier than this case. Insurance coverage contracts will not be statutes, and the physique of legislation acknowledges that insurance coverage insurance policies are adhesion contracts bought to those that will not be within the enterprise of understanding many wonderful grammatical distinctions. One of these ruling and method of insurance coverage contract interpretation invitations insurers to jot down much less protection in probably the most intelligent manner.
Nonetheless, that grammatical alternative, one line of formatting, meant Sanico’s multimillion-dollar effort to maintain its enterprise alive was reimbursed solely as much as the quantity of misplaced revenue it prevented. The courtroom famous that State Farm’s forensic accountant calculated $1.46 million in further bills however solely $884,000 in prevented revenue loss. State Farm had already paid that quantity.  The case closed, and so will many companies struggling a complete loss insured by State Farm.
Now right here’s the rub that State Farm doesn’t need its prospects or the general public to know. Different insurers write this protection in another way and extra generously.
Within the ISO CP 00 30 Enterprise Revenue (and Additional Expense) type, the “to the extent” limitation seems solely in reference to bills “to restore or change property,” not in the primary definition of Additional Expense. Likewise, the ISO CP 00 50 Additional Expense Protection Kind limits solely these repair-related bills, leaving full protection for different vital working prices, akin to short-term relocation, transportation, or renting substitute amenities.
The distinction lies in a single sentence’s placement. Within the ISO varieties, that limiting phrase sits beneath a subpart, so it applies solely to that clause. Within the State Farm type, it’s pushed all the way in which to the left margin, making use of to all the things.
That refined shift slashes protection when it’s wanted most.
A enterprise proprietor studying “Additional Expense” probably assumes it means all affordable prices to maintain the enterprise going after a catastrophe. However within the State Farm type, the protection is successfully capped by the revenue loss that’s prevented. In different phrases, when you spend extra to remain alive than you’d have misplaced by closing, you gained’t get the distinction.
That’s not what number of industrial insurance policies work. It’s definitely not how most enterprise homeowners assume insurance coverage ought to work.
So what are the teachings?
First, slight variations in coverage wording, and even indentation, can have large real-world penalties. One unindented phrase modified this coverage from a full reimbursement for survival bills to a restricted cost-offset clause. The courtroom’s wonderful grammatical evaluation reveals how legislation and language intertwine. It implies that policyholders, insurance coverage brokers, and claims professionals should learn each line, not simply each phrase.  Insurance coverage brokers have to step up and let their prospects know in regards to the significance of those semantic and grammatical variations. Insurance coverage corporations ought to act in good religion on the level of sale and admit once they promote inferior, low cost protection based mostly on these wonderful line adjustments.
Second, State Farm’s Businessowners Coverage offers inferior protection for enterprise revenue and additional expense in comparison with customary industrial property varieties. State Farm’s drafting trick, whether or not intentional or not, creates a coverage that provides much less assist to its small enterprise prospects once they’re struggling to reopen after a disaster. Brokers gained’t promote that distinction. No industrial policyholder will discover till it’s too late.
Cheaper isn’t higher when the wonderful print decides whether or not your small business survives a hearth. The main points of wording, format, and punctuation matter simply as a lot because the greenback limits on the declarations web page.
For claims professionals, this case is a masterclass in textual interpretation. For policyholders, it’s a warning: the wonderful print of your coverage could decide whether or not you get again to enterprise or by no means do.
I’d counsel studying a weblog I wrote 17 years in the past explaining the significance of additional expense protection, Enterprise Interruption and Additional Expense Insurance coverage are the Most Vital Business Coverages–and Usually the Most Neglected at Level of Sale and Adjustment.
The case additionally has a dialogue about delayed funds and Mississippi dangerous religion, which I’ll focus on in a later weblog.
Thought For The Day
“Precision of language is precision of thought.”
—Jean Piaget
1 Sandras v. State Farm Fireplace & Cas. Co., No. 1:2-cv-5 (S.D. Miss. Sept. 5, 2025).
