United States: Mutual Dependency: Recovering Business Interruption Losses From Damage To Related Business Units

Last Updated: September 8 2017
Article by Nneka Egwuatu

Typically, business interruption coverage is only available where a covered peril causes property damage to an insured property, causing an interruption in the property's business operations. In Studley Box & Lumber Co. v. National Fire Insurance Co. the New Hampshire Supreme Court expanded the scope of business interruption coverage based upon the principle of mutual dependency. In light of Studley Box, what constitutes "mutual dependency" sufficient to allow an undamaged business unit to recover for business interruption losses?

Business interruption insurance provides coverage for losses arising out of the inability to continue the normal operations and functions of the business. Typically, business interruption coverage is only available where a covered peril causes property damage to an insured property, causing an interruption in the property's business operations. In Studley Box & Lumber Co. v. National Fire Insurance Co. the New Hampshire Supreme Court expanded the scope of business interruption coverage based upon the principle of mutual dependency. Mutual dependency recognizes that where separate properties are interrelated such that damage to one property disrupts the business operations of another property, the recoverable business interruption loss will not be confined to the particular property that was damaged. In light of Studley Box, what constitutes "mutual dependency" sufficient to allow an undamaged business unit to recover for business interruption losses?

In Studley Box the insured property was a lumber manufacturing plant that consisted of several buildings, including a stable that housed horses used in the operation of the plant.1 A fire destroyed the barn and killed several horses. The policy provided business interruption coverage for the loss of profits due to total or partial suspension of the business resulting from a fire. The court found that the buildings were mutually dependent because a fire loss to any of the plant's buildings affected the business in its entirety and not merely the particular part of the business carried on in such unit.2 Due to this interdependency between the business units, the court held that the insured could recover for all of its business interruption losses.3

Since Studley Box, two lines of cases have emerged. Some decisions distinguish themselves from Studley Box by finding that mutual dependency does not exist unless there is an actual suspension of business operations by the undamaged business unit. Other cases have allowed recovery if there is a decrease in production or sales following property damage to an interrelated business unit.

The first line of cases has determined that property damage to one business unit must require the undamaged unit to partially or totally suspend operations. In the absence of this necessary suspension of operations, mutual dependency does not exist. For example, in Ramada Inn Ramogreen, Inc. v. Travelers Indemnity Co. of America, a fire damaged the insured's hotel restaurant, but the four buildings containing hotel rooms were not harmed.4 The insured argued that it was entitled to recover under the business interruption provisions of its insurance policy for the decline in occupancy of the hotel rooms because it was a result of the closing of the restaurant, and the restaurant and hotel were mutually dependent upon each other.5

The insurance policy provided coverage for "loss of earnings resulting directly from the necessary interruption of the insured's business caused by loss or damage by a peril insured against to a building or personal property on the premises designated in the declarations." Id. However, the court held that business interruption recovery is intended when the loss is due to an inability to use the premises where the damage occurred and since the hotel buildings were able to accommodate the same number of guests after the loss, they were not mutually dependent on the restaurant.6,7

Cases such as Ramada Inn appear to be in the minority. Other courts have allowed recovery based upon mutual dependency when a business unit suffers a decrease in production or sales, so long as the insured can prove that the decrease was caused by property damage to another business unit.

In Wood Goods Galore, Inc. v. Reinsurance Association of Minnesota the insured filed a business interruption claim for declined sales at its retail stores after a fire occurred at the manufacturing facility.8 More than half of the furniture sold at the two stores was manufactured at the damaged facility. The policy's business interruption coverage section stated that "if your business operations or occupancy are necessarily interrupted because of direct physical loss of or damage to real or personal property at the described premises, we will pay your actual loss or earnings."9 The court held that the manufacturing and sales portions of the insured's business were dependent upon each other, so under the standard interpretation of business interruption coverage the insured was entitled to recover for losses suffered at both retail stores.10

The court reached a similar conclusion in Del Monte Fresh Produce, Inc. v. Ace Insurance Co.11 The insured business sold bananas that were grown on its plantation. The insured filed a claim after the plantation was flooded during a hurricane and a substantial number of banana plants were damaged or destroyed. The damage caused a decrease in production and sales.12 The court found that although the plantation's operations were not completely suspended during the period of reduced banana production, the lost banana yield constituted "interruption of business" within the meaning of the policy. This loss was caused by the flood because the business operations were dependent upon the banana plants. And since the policy did not require a total suspension of operations, the insurer was required to provide coverage.13,14

Some insurance policies directly address mutual dependency and the scope of coverage. For example, Arthur Anderson LLP v. Federal Insurance Co. involved an all-risk policy that contained an interdependency coverage provision.15 The provision stated "[t]his policy is extended to cover the total loss sustained by the Insured anywhere in the world caused by loss, damage or destruction by any of the perils covered herein during the term of this policy to any real or personal property as described in Clause 9."16 Real or personal property was defined as property not otherwise excluded that the insured owned, leased or used, or in which the insured had an insurable interest.17

The insured, an accounting firm, argued that it was entitled to receive coverage for a loss in earnings that occurred in the three and a half months following the September 11, 2001 terrorist attacks. The insured did not lease or own any property in the World Trade Center or the Pentagon, so the dispute centered on the meaning of "insurable interest."18 The term was not defined by the policy. The insured argued that an insurable interest was any economic interest in the continued existence of a property, which would exist if the loss of the property could cause the insured an economic loss.19 The court found that the expansive definition was in conflict with case law. Instead, the court defined an insurable interest as one that exists when the insured derives a pecuniary benefit from the continued existence of the property or will suffer a direct pecuniary loss if the property is damaged.20 Under that definition, the court held that the insured could not prove it had an insurable interest and coverage was due.21

The case law indicates that the mutual dependency doctrine is enforced in many jurisdictions. Courts continue to recognize Studley Box and reject the notion that recoverable business interruption losses should be confined to the particular property that was damaged. Instead, recovery based upon mutual dependency is often allowed, so long as the insured can prove that the business interruption was caused by property damage to another insured business unit. More often than not, this business interruption can take the form of a decrease in production or sales rather than a suspension of the business operations of the undamaged business unit. Insurance companies can attempt to avoid the uncertainty created by the split in authority on mutual dependency by requiring a total suspension of business operations or directly addressing the doctrine in their policies.


[1] 154 A. 337, 338 (N.H. 1931).

[2] Id. at 338.

[3] Id. at 340.

[4] 835 F.2d 812 (11th Cir. 1988).

[5] Id. at 813.

[6] Id. at 814.

[7] See also Royal Indem. Ins. Co. v. Mikob Props., 940 F.Supp. 155, 159-160 (S.D. Tex. 1996). (finding the insured's inability to rent apartments in two buildings at pre-fire rental rates and occupancy levels after fire destroyed a third building that contained amenities for the apartment complex was not a "necessary suspension of operations or tenancy" as required by the policy).

[8] 478 N.W. 2d 205, 207 (Minn. Ct. App. 1991).

[9] Id. at 210.

[10] Id.

[11] No. 00-4792-CIV- Martinez, 2002 WL 34702174, at *11 (S.D. Fla. Oct. 3, 2002).

[12] Id. at *3-*4.

[13] Id. at *11.

[14] See also Aztar Corp. v. U.S. Fire Ins. Co., 223 Ariz. 463, 474 (Ariz. Ct. App. 2010) (finding a casino's decrease in patronage after the collapse of its expansion building was a "necessary interruption of business" as required for business interruption coverage).

[15] 3 A.3d 1279 (N.J. Super. Ct. App. Div. 2010).

[16] Id. at 1282.

[17] Id. at 1283.

[18] Id.

[19] Id. at 1289.

[20] Id.

[21] Id. at 1289-1290.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.