In September 2025, a US State Court of Appeals held that cover under an Equipment Breakdown policy that included an “extra expense” provision covered additional audit fees incurred during the restoration period of the data lost by the insured even after the end of the policy period.

The insured experienced a power surge at its corporate headquarters that damaged multiple disc drives and caused the failure of its accounting system. It lost financial data for 2016 and 2017. The loss of financial data jeopardised their credit agreement with a lending bank requiring it to submit annual audits of its financial position to avoid default. The insured called in its independent auditors who had to change its normal auditing procedures resulting in an additional 2 200 hours of work costing an extra $450 000 plus overtime pay for the insured’s own employees, and money spent to avoid default on its line of credit with the bank.

It was not in dispute that the loss of financial data constituted “property” under the ordinary meaning of that term nor that the enhanced audit procedures constituted a reasonable form of “repairing, replacing, or rebuilding” the lost data.

The policy covered “only the expenses that are necessary during the ‘restoration period’ that the insured would not have incurred if there had been no direct physical loss or damage to property”. The “restoration period” under the policy included the “time it should reasonably take to resume ‘business’ to a similar level of service starting from the date of physical loss of or damage to property … and ending on the date the property should be rebuilt, repaired or replaced”. The property included the company’s data and the auditor’s extra costs to recreate lost financial data occurred during the restoration period and amounted to “extra expenses”. The extra expenses were “necessary” because they were incurred so that the insured could avoid default under its credit obligations with the bank as a result of the damage caused by the power surge. The restoration period therefore extended beyond the policy period.

A similar decision would probably be reached on the same facts and policy wording in South Africa. The decision demonstrates how an expense no-one foresaw at the time the policy was entered into can fall within wording of the cover and extend the loss period.

[Arizona Beverages USA, LLC v Hanover Insurance Company, United States Court of Appeals for the Second Circuit case no 23-1177]

Ariz. Beverages USA, LLC v. Hanover Ins. Co. | 23-1177 | 2d Cir. | Judgment | Law | CaseMine