Issues with Business Interruption Coverage in Case of Loss

            Many insurers issue a business owner’s policy in case of accidental loss. The policy generally provides a number of different types of coverage, including business interruption coverage.  Business interruption coverage provides that, that in case of a loss that affects business income, the insurer will pay for the actual loss sustained due to the necessary suspension of operations during the period of restoration. Unfortunately, the calculation used to determine coverage often allows insurers to avoid paying the full amount of actual lost business income.

            If you are a business owner that has suffered a loss, such as a fire, we invite you to Contact Us to speak with an attorney about your situation and ensure that you receive all of the reimbursement you are entitled to under your policy.

The Formula Used by the Insurance Industry

            The standard used by the insurance industry to calculate business income loss is designed to calculate the loss in net income/lost profits.  The insurer collects the gross receipts over a given historical period, such as the prior twelve (12) months of operations.  It then subtracts the revenues actually earned during the period in question.  This is known as lost revenue.  The insurer then subtracts the cost of goods sold from the lost revenue.  What is left is the net income/profit that the business would have earned if the loss had not occurred.

The Formula Used by the Legal Profession

            While insurers use their own formula to determine their reimbursement amount, that formula typically does not align exactly with the language used to define “business income” within the policy itself.  The text of one standard provision reads, “Business Income means the: (a) Net Income (Net Profit or Loss before income tax) that would have been earned or incurred if no direct physical loss or physical damage had occurred; and (b) Continuing normal operating expenses incurred, including payroll.”  A plain reading of this language suggests that in time of suspended operations, a business is entitled to payment from an insurer for both the net income lost, plus normal operating expenses actually incurred.

            The interpretation of this policy language was at issue in Polymer Plastics Corp. v. Hartford Cas. Ins. Co.[1] In Polymer Plastics, the plaintiff, a business that sustained a loss to its facility because of storm damage, argued that it was entitled to “continuing normal operating expenses” in addition to “net income” as per the express language within the policy.[2] The court found this interpretation of the policy was not supported because the policy states that the insurer will only pay for the loss of business income sustained due to the suspension of operations caused by the loss.[3]  The court essentially conflated the common definition of the phrase “loss of business income” with the policy definition of the term “business income” to come to the desired result, despite the obvious fact that “business income” was expressly defined within the policy and there was no rational support for the contention that the parties intended for two definitions of the same term to co-exist simultaneously.

            The Court then articulated a formula for calculating business interruption loss that is slightly different that the one used by the insurance industry.  Specifically, the court stated that the “formula for ‘actual loss of business income’. . . is: Net Income (that would have been earned/incurred) plus Continuing Normal Operating Expenses (actually incurred) minus Gross Income (actually earned).”[4] Of note, the Ninth Circuit Court of Appeals upheld the Nevada District Court’s decision in an unpublished opinion.[5]

            By way of example, let’s assume that Business A suffered a fire in one of its facilities and, while it had a historic monthly income of $100,000 per month, during the suspension of operations it has only been able to generate $50,000 per month.  Let’s also assume that Business A has a cost of goods sold that equals seventy percent (70%) of gross income.

            Using the district court’s formulation of the policy provisions to calculate business interruption loss, Business A’s net income would have been $30,000 ($100,000 – $70,000 = $30,000), which added to the normal operating expenses actually incurred of $35,000 ($50,000 x .7 = $35,000), minus the gross income actually earned of $50,000, totals a lost business income of $15,000 ($65,000 – $50,000 = $15,000).  Of note, while the Federal district court framed the business interruption loss formula differently than it is commonly framed by the insurance industry, both formulas achieve the same result.

Tactics Used by the Insurance Industry to Reduce Your Business Interruption Payments

            Application of the business interruption loss formula is simple in theory, but in practice, insurers are in the business of making money, and one of the ways they do this is by adjusting the value of the claim downward.  The insurance adjuster may calculate historic monthly income by considering the average monthly income over an extended period of time in order to reduce the historic average monthly gross revenues, even though it is plain from the balance sheet that there has been significant recent growth.

            For example, six months prior to the loss, Business A may have grown from $100,000 in gross monthly revenue to $150,000 in gross monthly revenue through acquisition of an additional store.  However, if the insurance adjuster calculates the average gross monthly revenue using the prior twelve (12) months, the average gross monthly income will total $125,000, not $150,000.  This will reduce the amount of lost profit a business owner would otherwise be entitled to under the policy.

            Alternatively, the insurer may reduce the amount owed to a business owner under the terms of the policy by inflating the cost of goods sold so that the monthly net income that would have been generated is diminished.  This is done through artificial inflation of payroll, utilities, taxes, and other costs associated with the provision of goods or services by the business, or by failing to properly account for extra expenses occasioned by the loss.  Unfortunately, in practice most insurers will not show the math they used to calculate business interruption loss and expect the business owner to blindly accept that the insurer paid what was owed.

Tactics Used by the Insurance Industry to Increase Their Own Profits

            Further complicating business interruption loss is the fact that a business can suffer a cash-crunch as revenues plummet because of contracted operations caused by the loss.  Insurers oftentimes sit on payments they know are due and owing until the end of the restoration period, knowing immediately payment is required for continued liquidity and viability of the business.  They also delay restoration of normal operations by failing to timely authorize payments to contractors for repairs, or to timely authorize payment to replace equipment.  Again, insurance companies are in the business of making money, and one of the ways they do that is by delaying payment as long as possible on as many claims as possible so that they can reap the time-benefit of invested premiums.  This can result in significant permanent damage to a business and can even render it insolvent, yet insurers will not acknowledge the decreased value of the business caused by the delay in payment, and will maintain that they are only required to cover the net income lost during the period of restoration.


            If you have suffered a covered loss for which you are entitled to business interruption payments, it is very difficult to know whether an insurer is correctly calculating your business income loss.  Chances are, they are not, and most of the time they will not show you their calculations.  Often, on your own, you may be limited in your ability to prevent your insurer, who has agreed to protect your interests, from instead harming you by putting their own interests first.

            If you are a business owner that has suffered a loss, such as a fire, we invite you to Contact Us and speak with an experienced attorney about your situation.  Doing so can make the difference between the ultimate viability or insolvency of your business.


[1] 2006 U.S. Dist. LEXIS 103077 (D. Nev. Sept. 26, 2006).
[2] Polymer Plastics, 2006 U.S. Dist. LEXIS 103077 at *17.
[3] Id.
[4] Id. at 22.
[5] Polymer Plastics Corp. v. Hartford Cas. Ins. Co., No. 08-17497 (9th Cir. 2010).

Continue Reading

What is the Deadline for Receipt of Final Pay on Termination or Resignation?

            Whether by involuntary termination, or by voluntary resignation, Nevada law establishes strict rules for payment of final wages to employees upon separation from employment. Employers are required to make payment of all wages owed to an employee within certain deadlines, depending on whether the separation was voluntary or involuntary, and failure to do so may entitle the employee to recover substantial “waiting time” wages, in addition to the unpaid final wages.[1]

            If you resigned or were terminated and did not immediately receive your final pay in full, we encourage you to Contact Us to meet with an attorney and discuss your situation.

Involuntary Termination

            Whenever an employer discharges an employee, the wages and compensation earned and unpaid at the time of such discharge shall become due and payable immediately.[2] If an employer fails to make immediate payment of all compensation owed to an employee at the time of termination, the employee is entitled to additional waiting time wages in the amount of the employee’s regular daily rate of pay for each day from the date of termination until receipt in full of the unpaid compensation, or for 30 days, whichever is less.[3]

            Although the unpaid wages are due immediately, Nevada law provides a safe harbor period for the employer to tender payment in full. So long as the employer makes payment within three days after the date of termination, the employer is not subject to payment of any additional waiting time wages to the employee.[4] However, if payment in full is not made within the safe harbor period, waiting time wages will be owed for each day final wages remain unpaid, beginning with the date of the termination.

            The final pay requirements and waiting time provisions of Nevada law apply only to private employers, and are inapplicable in the case of separation from employment with a state or Federal employer.[5]

Voluntary Resignation

            When an employee voluntarily resigns from employment, the wages and compensation earned and unpaid at the time of the employee’s resignation must be paid no later than the next regularly occurring pay day, or seven days after the employee resigns, whichever is earlier.[6] If an employer fails to make payment of all wages owed to an employee who has resigned on the date such wages are due, the employee is entitled to additional waiting time wages in the amount of the employee’s regular daily rate of pay for each day from the date the wages were due until receipt in full of the unpaid compensation, or for 30 days, whichever is less.[7]

            The final pay requirements and waiting time provisions of Nevada law apply only to private employers, and are inapplicable in the case of separation from employment with a state or Federal employer.[8]

Interaction with Other Wage and Hour Laws

            Nevada law requires that an employer pay all wages and compensation owed to an employee who is terminated or resigns within certain deadlines, or be liable for payment of additional waiting time wages to the separated employee.[9] As such, employees who are owed unpaid wages for off-the-clock work, failure to pay at least the minimum wage for all hours worked, or failure to pay wages at the applicable overtime rate where required, or who are owed any other wages or compensation not included in the final paycheck, are entitled to recover waiting time wages even in cases where the final paycheck is received within the deadlines set forth by statute.


            If you resigned or were terminated and did not immediately receive your final pay in full, we encourage you to Contact Us to meet with an attorney and discuss your situation.


[1] Neville v. Eighth Judicial Dist. Court of Nev., 406 P.3d 499, 504 (Nev. 2017)(holding that NRS 608.140 implies the existence of a private right of action to enforce, inter alia, NRS 608.020-608.050).
[2] NRS 608.020.
[3] NRS 608.040(1).
[4] NRS 608.040(1)(a).
[5] AGO 154 (7-8-1920); AGO 81-9 (9-24-1981).
[6] NRS 608.030.
[7] Fn. 3, supra.
[8] Fn. 5, supra.
[9] See NRS 608.020, et seq.

Continue Reading

When is a Sales Employee Exempt from Overtime?

            The Fair Labor Standards Act (“FLSA”) is a Federal law that requires employees be paid overtime for all hours worked in excess of 40 in a workweek. Certain sales employees may be exempt from the overtime provisions of the FLSA if they are subject to the “outside sales exemption”[1] or the “retail service establishment exemption.”[2] If you believe you may be misclassified as an overtime exempt, salaried employee, we encourage you to Contact Us to meet with an attorney and discuss your situation.

The Outside Sales Exemption

            The overtime requirements of the FLSA do not apply to, “. . . any employee employed . . . in the capacity of outside salesman. . . .”[3] In order to be considered employed “in the capacity of outside salesman” an employee must satisfy ALL of the following conditions:

  1. The employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer;[4] and
  2. the employee must be customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.[5]

What Does “Primary Duty” Mean?

            A task performed by an employee is considered that employee’s “primary duty” for the purposes of exemption from FLSA overtime requirements when it is the, “. . . principal, main, major or most important duty that the employee performs.”[6] As a general rule, if more than 50% of the hours worked by an employee in any given workweek are spent performing exempt, outside salesperson tasks, then that employee will be considered overtime exempt.[7]

Where is the Employer’s “Place of Business?”

            Outside sales means the process of soliciting at the customer’s place of business or, if selling door-to-door, at the customer’s home. Outside sales excludes sales made by mail, telephone, or the internet. Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, regardless of whether the employer actually owns or rents the property.[8] So even a salesperson that has never been to the employer’s brick and mortar location, but makes telephonic sales entirely from their home, would not be considered an outside salesperson under the FLSA.

Is There a Minimum Salary Requirement for Exempt Outside Salespersons?

            Of note, the minimum salary requirements that apply to professional, executive, and administrative employees who are exempt from overtime under the FLSA, discussed at When is a Non-Sales Employee Exempt from Overtime?, do not apply to outside salespersons.[9] There is no minimum salary required to be classified as an exempt outside salesperson, so long as all of the other requirements are met.

The Retail Service Establishment Exemption

            The FLSA provides for an exemption from its overtime requirements for inside salespersons who meet certain requirements. In order for an inside salesperson to be considered overtime exempt under the FLSA, the employee must be employed by a retail or service establishment; AND must be paid (when computed on an hourly basis) more than one and one-half times the applicable minimum wage; AND more than 50% of the employee’s total compensation in a given month must consist of commission payments.[10] Tips are not considered commission payments for the purposes of this exemption, only bona fide commission payments will qualify.

            For the purposes of the FLSA, a retail or service establishment is defined as, “. . . an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.”[11]


            The protections of the FLSA are designed to ensure that you receive the full value of the work you perform on behalf of your employer. Determining whether you are subject to one of the exemptions to FLSA overtime requirements requires careful, individualized inquiry. If you believe you may be misclassified as an overtime exempt, salaried employee, we encourage you to Contact Us to meet with an attorney and discuss your situation.


[1] 29 U.S.C. § 213(a)(1).
[2] 29 U.S.C. § 207(i).
[3] Fn. 1, supra.
[4] 29 C.F.R. § 541.500(a)(1).
[5] 29 C.F.R. § 541.500(a)(2).
[6] 29 C.F.R. § 541.700(a).
[7] 29 C.F.R. § 541.700(b).
[8] 29 C.F.R. § 541.502.
[9] 29 C.F.R. § 541.500(c).
[10] Fn. 2, supra.
[11] 29 C.F.R. § 779.411; 29 C.F.R. § 779.24 .

Continue Reading

When is a Non-Sales Employee Exempt from Overtime?

            The Fair Labor Standards Act (“FLSA”) is a Federal law that requires employees be paid overtime for all hours worked in excess of 40 in a workweek. The FLSA also establishes three narrow “exemptions” from the overtime rule. Certain employees paid on a salary basis may be exempt from overtime, if the majority of tasks they perform in each workweek are properly classified as: “professional,” “executive,” or “administrative.”[1]  Each of these exemptions requires that an employee be compensated at a weekly rate of not less than $455.00 per week for work performed prior to January 1, 2020, and not less than $684.00 per week for work performed thereafter.[2]

            In addition, certain sales employees may be exempt from the overtime provisions of the FLSA if they are subject to the “retail service establishment exemption”[3] or the “outside sales exemption.”[4] These exemptions are discussed at: When is a Sales Employee Exempt from Overtime?

            There are other, limited circumstances in which an employee may be exempt from the overtime requirements of the FLSA. If you believe you may be misclassified as an overtime exempt, salaried employee, we encourage you to Contact Us to meet with an attorney and discuss your situation.


The Professional Exemption

            The professional exemption applies only to employees such as licensed accountants, engineers, attorneys, doctors, or others who perform work that is traditionally regarded as part of a recognized professional occupation, and which customarily requires the employee to complete a “prolonged course of specialized intellectual instruction” or which requires “invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”[5] Additionally, the employee must be compensated at a weekly rate of not less than $455.00 per week for work performed prior to January 1, 2020, and not less than $684.00 per week for work performed thereafter.[6]

The Executive Exemption

            The executive exemption is limited to workers who are engaged in the management of an enterprise or subdivision thereof, supervise two or more other full-time employees, and have the authority to hire or fire other employees.[7] Additionally, the employee must be compensated at a weekly rate of not less than $455.00 per week for work performed prior to January 1, 2020, and not less than $684.00 per week for work performed thereafter.[8]

The Administrative Exemption

            The administrative exemption by its plain terms cannot apply to workers who are involved in the “production side” of a business enterprise, such as workers whose primary role is to assist the company in carrying out the activities for which it is hired by customers (as opposed to ancillary administrative roles such as accounting, human resources, database management, etc.).  Where a worker is involved in production work, they are, per se, a production worker, and not subject to the administrative exemption.

            Even if the nature of an employee’s job duties generally meet the requirements of the administrative exemption, the employee must “regularly and customarily” be engaged in work that requires the exercise of discretion and independent judgment.[9]  Federal regulations explain that “discretion and independent judgment involves the comparison and evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered,” and requires “more than the use of skill in applying well-established techniques, procedures or specific standards in manuals or other sources.”[10]  The term “‘matters of significance’ refers to the level of importance or consequence of the work performed.”[11]  Additionally, the employee must be compensated at a weekly rate of not less than $455.00 per week for work performed prior to January 1, 2020, and not less than $684.00 per week for work performed thereafter.[12]

The Burden of Proof

            It is important to note that any claim of exemption from the overtime requirements of the FLSA is an affirmative defense, and the burden of proof rests with the employer.  Furthermore, it is an enhanced burden of proof, requiring the employer to demonstrate that a particular employee falls “clearly and unmistakably” within the confines of one or more exemptions. [13] Close calls are thus resolved in favor of the employee.


            The protections of the FLSA are designed to ensure that you receive the full value of the work you perform on behalf of your employer. Determining whether you are subject to one of the exemptions to FLSA overtime requirements requires careful, individualized inquiry. If you believe you may be misclassified as an overtime exempt, salaried employee, we encourage you to Contact Us to meet with an attorney and discuss your situation.


[1] 29 U.S.C. § 213(a)(1).
[2] Although the Department of Labor issued a final rule in 2016 increasing the minimum salary basis to a weekly rate of not less than the 40th percentile of weekly earnings of full-time non hourly workers in the lowest-wage Census Region, or $913.00 per week, 29 C.F.R. § 541.600(a), that regulation was struck down in the matter of Nevada v. U.S. Dep’t of Labor, 218 F. Supp. 3d 520 (E.D. Tex. 2016), and cannot be enforced.
[3] 29 U.S.C. § 207(i).
[4] 29 U.S.C. § 213(a)(1).
[5] 29 C.F.R. § 541.300.
[6] See fn. 2, supra.
[7] 29 C.F.R. § 541.100.
[8] See fn. 2, supra.
[9] 29 C.F.R. § 541.200(a)(3).
[10] 29 C.F.R. § 541.202(a) and (e).
[11] 29 C.F.R. § 541.202(a).
[12] See fn. 2, supra.
[13] See, e.g., Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S. Ct. 453, 456 (1960); see also, Alvarez v. IBP, Inc., 339 F.3d 894, 905 (9th Cir. 2003).

Continue Reading

What is a Boutique Law Practice?

“Boutique.” Just pronounce the word out loud and you may experience that mildly queasy feeling that is the aromatic equivalent of being in an elevator with a person wearing too much perfume. The sound of the word, “boutique,” taps into a cultural prejudice that associates all things French sounding with both aristocratic refinement and decadence. Nonetheless, I can find no better way to encapsulate what a boutique law practice is than the word “boutique.” The term fits like a glove because it simultaneously combines the ideas of specialization, individualized treatment, and sophistication.

A boutique law practice is generally defined as a smaller firm with experienced practitioners who advocate in a particular area of law, such as tax or healthcare law. However, specialization is not the only thing that differentiates “boutique law” as a distinct style of practice. There is also a philosophy associated with boutique law that leads to superior legal results. The practice philosophy of the boutique law firm emphasizes specialized, one-of-a-kind legal representation, and seeks to build relationships with clients, not merely transact with them.

Boutique law does not advertise in a popular practice area, like personal injury, family law, or bankruptcy, and then train a staff of $15.00 per hour legal assistants to work in assembly line fashion. Many of the folks that practice law in this style are fine lawyers, they know their specialty well, and they get results, but they practice law differently than the boutique lawyer. This type of lawyer makes his living as a shrewd business manager, generating as many transactions as possible while keeping staffing costs low. The work this lawyer’s office produces generally meets minimum standards, and sometimes rises above that, especially where there is a well-trained and experienced legal staff. But this lawyer and his staff are not equipped to do the investigation, research, analysis and planning required to advise you about whether, for example, you should accept a low settlement offer on a lawsuit so that you can realize higher returns through the sale of your company to a prospective buyer.

Boutique law firms are not those giant national firms that hire an army of associates, paralegals and legal assistants to churn through mountains of files for banks or insurance companies, applying the same processes to each case. Again, many of the professionals that work in these areas are excellent practitioners. They know their practice area well, they are consummate professionals, and they get results. They tend to be relationship oriented and they seek to advance long-term client objectives. But they are not that Brandeisian lawyer who learns everything about how shoes are made, everything about the shoe-making industry, and every applicable law, regulatory practice, and legislative process, for sole the purpose of representing a few shoe manufacturers. (Read more about one of the greatest attorneys ever at https://en.wikipedia.org/wiki/Louis_Brandeis).

Boutique law practitioners reach for that “Brandeisian ideal.” They do not pigeon-hole their legal outlook by learning one area of practice in-depth and then forgetting about all others. While boutique law specializes, it specializes in a manner that incorporates a broad-based and sophisticated understanding of substantive, procedural, and regulatory legal frameworks with personal, social, and economic realities. It aspires toward that ever elusive, ever alluring ideal of zealous advocacy. Boutique law practitioners are constantly curious, constantly stretching their boundaries, constantly researching, constantly learning, and constantly improving as lawyers. Boutique law practitioners focus on solving particular problems, and they understand that every problem is unique. There is no one type of solution or one type of process that can be relied on to fix every legal problem. But there is a legal methodology that allows diligent practitioners to craft unique solutions to each client’s problem. That is what boutique law practitioners aspire to.

Hutchings Law Group aspires to incorporate a boutique law philosophy into its mission of assisting people to solve their legal challenges. Hutchings Law Group helps small healthcare practices, small businesses, local property investors, homeowners, and working people by crafting one-of-a-kind solutions to their legal difficulties. We represent employees in employment claims and litigation, both individually and in class action cases; we make first-party insurance claims and bring litigation on behalf of policy holders; we provide outside general counsel and commercial litigation services to business owners; we represent business and property owners in property disputes; and we represent people that have been injured by the fault of another in personal injury claims and litigation. We represent our clients by diligently investigating the facts underlying and surrounding each situation. We then research applicable substantive and procedural law and craft strategies that are designed to address each client’s circumstances. We coordinate these strategies and solutions with marketplace realities to give clients sound, common sense advice.

If you’re looking for excellent, tailor-made legal representation, sans the French perfume and aristocratic decadence, contact Hutchings Law Group today, we can help.

Continue Reading