In the recent case of Coastal Dust Control, Inc. d/b/a Sanico v. State Farm Fire and Casualty Company, 1 a Mississippi federal court parsed a few lines of insurance policy text with the precision of an English professor. The result should send a chill through every business owner who thinks their commercial insurance policy will help them survive a major loss.
At the center of this case was the “Loss of Income and Extra Expense” coverage in State Farm’s Businessowners Policy. After a fire destroyed Sanico’s commercial laundry facility, the company tried to keep serving its customers by trucking loads of linens and mats to an affiliated operation in Alabama. Those efforts kept the business alive—but they came at great cost. The fight that followed turned on one deceptively simple paragraph.
Here is the policy language from the State Farm Business Policy:
Extra Expense means expense incurred:
a. To avoid or minimize the “suspension” of business and to continue “operations”:
(1) At the described premises; or
(2) At replacement premises or at temporary locations, including relocation expenses and costs to equip and operate the replacement or temporary locations;
b. To minimize the “suspension” of business if you cannot continue “operations”; or
c. To:
(1) Repair or replace any property; or
(2) Research, replace or restore the lost information on damaged “valuable papers and records”;
to the extent it reduces the amount of loss that otherwise would have been payable under this coverage or “Loss Of Income” coverage.
That last unindented line—the “to the extent” clause—became the entire case regarding extra expense coverage.
Sanico argued that the limitation (“to the extent it reduces…”) applied only to subpart (c), meaning that extra expenses incurred to keep the business operating (under (a) and (b)) should be fully recoverable. State Farm argued the opposite—that the limitation applied to all three subparts, effectively capping reimbursement for any extra expense at the amount of income the business avoided losing.
The court sided with State Farm.
How? By turning to fine grammar rules. The judge applied the “Scope-of-Subparts Canon” from Reading Law: The Interpretation of Legal Texts, by Justice Antonin Scalia and Bryan Garner. Under this rule, material in an unindented line following indented subparts applies to all of them unless the text clearly shows otherwise. The court also cited English grammar authorities and cases interpreting statutes the same way, including Castaneda v. Souza, 810 F.3d 15 (1st Cir. 2015) and Frillz, Inc. v. Lader, 104 F.3d 515 (1st Cir. 1997). In plain terms, because the “to the extent” phrase wasn’t indented, it applied to every clause above it.
I have no idea why the federal judge used these interpretive methods, since insurance contracts are interpreted differently because the insurance company is the drafter. I have never heard of the “Scope-of-the-Subparts Canon” before this case. Insurance contracts are not statutes, and the body of law recognizes that insurance policies are adhesion contracts sold to those who are not in the business of understanding many fine grammatical distinctions. This type of ruling and manner of insurance contract interpretation invites insurers to write less coverage in the most clever way.
Nevertheless, that grammatical choice, one line of formatting, meant Sanico’s multimillion-dollar effort to keep its business alive was reimbursed only up to the amount of lost income it avoided. The court noted that State Farm’s forensic accountant calculated $1.46 million in extra expenses but only $884,000 in avoided income loss. State Farm had already paid that amount. The case closed, and so will many businesses suffering a total loss insured by State Farm.
Now here’s the rub that State Farm doesn’t want its customers or the public to know. Other insurers write this coverage differently and more generously.
In the ISO CP 00 30 Business Income (and Extra Expense) form, the “to the extent” limitation appears only in connection with expenses “to repair or replace property,” not in the main definition of Extra Expense. Likewise, the ISO CP 00 50 Extra Expense Coverage Form limits only those repair-related expenses, leaving full coverage for other necessary operating costs, such as temporary relocation, transportation, or renting substitute facilities.
The difference lies in one sentence’s placement. In the ISO forms, that limiting phrase sits under a subpart, so it applies only to that clause. In the State Farm form, it’s pushed all the way to the left margin, applying to everything.
That subtle shift slashes coverage when it’s needed most.
A business owner reading “Extra Expense” likely assumes it means all reasonable costs to keep the business going after a disaster. But in the State Farm form, the coverage is effectively capped by the income loss that’s avoided. In other words, if you spend more to stay alive than you would have lost by closing, you won’t get the difference.
That’s not how many commercial policies work. It is certainly not how most business owners think insurance should work.
So what are the lessons?
First, slight differences in policy wording, or even indentation, can have massive real-world consequences. One unindented phrase changed this policy from a full reimbursement for survival expenses to a limited cost-offset clause. The court’s fine grammatical analysis shows how law and language intertwine. It means that policyholders, insurance agents, and claims professionals must read every line, not just every word. Insurance agents need to step up and let their customers know about the importance of these semantic and grammatical differences. Insurance companies should act in good faith at the point of sale and admit when they sell inferior, cheap coverage based on these fine line changes.
Second, State Farm’s Businessowners Policy provides inferior coverage for business income and extra expense compared to standard commercial property forms. State Farm’s drafting trick, whether intentional or not, creates a policy that gives less help to its small business customers when they’re struggling to reopen after a catastrophe. Agents won’t advertise that difference. No commercial policyholder will notice until it’s too late.
Cheaper isn’t better when the fine print decides whether your business survives a fire. The details of wording, layout, and punctuation matter just as much as the dollar limits on the declarations page.
For claims professionals, this case is a masterclass in textual interpretation. For policyholders, it’s a warning: the fine print of your policy may determine whether you get back to business or never do.
I would suggest reading a blog I wrote 17 years ago explaining the importance of extra expense coverage, Business Interruption and Extra Expense Insurance are the Most Important Commercial Coverages–and Often the Most Overlooked at Point of Sale and Adjustment.
The case also has a discussion about delayed payments and Mississippi bad faith, which I will discuss in a later blog.
Thought For The Day
“Precision of language is precision of thought.”
—Jean Piaget
1 Sandras v. State Farm Fire & Cas. Co., No. 1:2-cv-5 (S.D. Miss. Sept. 5, 2025).