Within the current case of Coastal Mud Management, Inc. d/b/a Sanico v. State Farm Fireplace and Casualty Firm, 1 a Mississippi federal court docket parsed a couple of strains of insurance coverage coverage textual content with the precision of an English professor. The consequence ought to ship a chill via each enterprise proprietor who thinks their business insurance coverage coverage will assist them survive a significant loss.
On the heart of this case was the “Lack of Earnings and Additional Expense” protection in State Farm’s Businessowners Coverage. After a fireplace destroyed Sanico’s business 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 battle 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 reduce the “suspension” of enterprise and to proceed “operations”:
(1) On the described premises; or
(2) At substitute premises or at momentary areas, together with relocation bills and prices to equip and function the substitute or momentary areas;
b. To attenuate the “suspension” of enterprise when you can not proceed “operations”; or
c. To:
(1) Restore or substitute any property; or
(2) Analysis, substitute or restore the misplaced info on broken “priceless papers and data”;
to the extent it reduces the quantity of loss that in any other case would have been payable beneath this protection or “Loss Of Earnings” protection.
That final unindented line—the “to the extent” clause—turned the whole case concerning further expense protection.
Sanico argued that the limitation (“to the extent it reduces…”) utilized solely to subpart (c), that means that further bills incurred to maintain the enterprise working (beneath (a) and (b)) must be totally recoverable. State Farm argued the other—that the limitation utilized to all three subparts, successfully capping reimbursement for any further expense on the quantity of revenue the enterprise averted shedding.
The court docket sided with State Farm.
How? By turning to nice 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. Underneath this rule, materials in an unindented line following indented subparts applies to all of them until the textual content clearly exhibits in any other case. The court docket additionally cited English grammar authorities and circumstances deciphering statutes the identical means, 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 a different 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 are usually not statutes, and the physique of regulation acknowledges that insurance coverage insurance policies are adhesion contracts offered to those that are usually not within the enterprise of understanding many nice grammatical distinctions. This kind of ruling and method of insurance coverage contract interpretation invitations insurers to jot down much less protection in probably the most intelligent means.
However, that grammatical selection, 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 averted. The court docket famous that State Farm’s forensic accountant calculated $1.46 million in further bills however solely $884,000 in averted 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 a different way and extra generously.
Within the ISO CP 00 30 Enterprise Earnings (and Additional Expense) type, the “to the extent” limitation seems solely in reference to bills “to restore or substitute 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 crucial working prices, equivalent to momentary relocation, transportation, or renting substitute amenities.
The distinction lies in a single sentence’s placement. Within the ISO types, that limiting phrase sits beneath a subpart, so it applies solely to that clause. Within the State Farm type, it’s pushed all the best way to the left margin, making use of to every part.
That delicate 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 averted. 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 business 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 huge real-world penalties. One unindented phrase modified this coverage from a full reimbursement for survival bills to a restricted cost-offset clause. The court docket’s nice grammatical evaluation exhibits how regulation 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 firms ought to act in good religion on the level of sale and admit after they promote inferior, low-cost protection based mostly on these nice line adjustments.
Second, State Farm’s Businessowners Coverage offers inferior protection for enterprise revenue and further expense in comparison with commonplace business property types. State Farm’s drafting trick, whether or not intentional or not, creates a coverage that offers much less assist to its small enterprise prospects after they’re struggling to reopen after a disaster. Brokers gained’t promote that distinction. No business policyholder will discover till it’s too late.
Cheaper isn’t higher when the nice print decides whether or not your corporation survives a fireplace. 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 nice print of your coverage might 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 Essential Business Coverages–and Usually the Most Missed at Level of Sale and Adjustment.
The case additionally has a dialogue about delayed funds and Mississippi unhealthy 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).
