Background
A March 2023 fire destroyed Sanico’s industrial laundry facility in Long Beach, Mississippi. To continue serving customers, Sanico transported linens to an Alabama facility and subcontracted work to other companies. Its State Farm business policy included a “Loss of Income and Extra Expense” endorsement covering certain expenses incurred to avoid or minimize a suspension of operations.
State Farm interpreted the endorsement as limiting recoverable extra expenses to the amount of income Sanico would have lost had it completely shut down. After a jointly retained forensic accountant calculated the avoided loss at $906,941, State Farm paid that amount. Sanico sued for breach of contract, negligence, and bad faith, arguing that expenses incurred to continue operations under subpart a of the policy definition were not subject to the limiting phrase “to the extent it reduces the amount of loss that otherwise would have been payable.” The district court granted summary judgment to State Farm on the contract claim, and only that ruling was at issue on appeal.
The Court’s Holding
The Fifth Circuit affirmed. Applying Mississippi law, the court held that the endorsement was unambiguous and that the “to the extent” qualifier applied to all three categories in the policy’s definition of “Extra Expense,” including expenses incurred to continue operations. The qualifier therefore capped Sanico’s recovery at the amount by which its expenses reduced the loss otherwise payable under the extra-expense or loss-of-income coverage.
The court relied on the provision’s structure: the limiting phrase appeared as unindented text aligned with the definition’s lead sentence and structurally separate from the lettered subparts. It rejected Sanico’s punctuation and last-antecedent arguments, finding that they disregarded the formatting and could produce an unreasonable reading with effectively unlimited coverage for some expenses. Because State Farm had paid all amounts owed under the court’s interpretation—and had slightly overpaid after a later accounting adjustment—summary judgment was proper.
Key Takeaways
- Formatting and indentation can determine whether limiting language applies to every subpart of an insurance-policy definition.
- Under Mississippi law, disagreement between the parties does not itself make policy language ambiguous.
- Sanico’s covered extra expenses were capped at the income loss those expenses helped it avoid, rather than recoverable without limit.
Why It Matters
The decision shows that courts may treat a policy’s visual organization as substantive evidence of meaning, particularly when a qualifier is set apart from an indented series. Insureds and insurers evaluating business-interruption claims should read extra-expense provisions as a whole, including their layout and hierarchy.
The ruling also limits attempts to invoke contra proferentem or the last-antecedent canon when structural signals yield a clear reading. Here, those interpretive doctrines could not expand coverage beyond the policy’s avoided-loss cap.