Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/business-interruption/page/2/
Timestamp: 2019-04-20 02:48:13+00:00

Document:
The broker's motion for summary judgment, seeking to dismiss negligence claims for failure to obtain adequate coverage, was denied by the court in Voss v. The Netherlands Ins. Co., 2014 N.Y. LEXIS 384 (N.Y. Ct. App. Feb. 25, 2014).
The insured met with a representative of CH Insurance Brokerage Services Co., Inc. (CHI) to discuss coverage for the premises and her two companies. At CHI's request, the insured shared information on sales figures for calculating business interruption coverage. The broker represented that CHI would reassess and revisit the coverage needs as her business grew.
CHI recommended $75,000 per incident in coverage for business interruption losses. The insured questioned whether the $75,000 limit was adequate, but the broker assured her that it was sufficient. The insured then accepted the recommendation. Subsequently, the insured's business grew, but CHI renewed the policy with the same $75,000 business interruption limit.
A loss occurred at the business premises when multiple leaks in the roof caused dripping water. The damage disrupted business operations. A new roof was put on the building, but it subsequently failed. Again, the insured's businesses were required to close for various periods of time. The insured was ultimately paid $3,197 for the first loss and $30,000 for the second loss.
In the next renewal of the policy, the business interruption limit was decreased to $30,000. The roof then failed for a third time, causing significant damage to the premises and further disrupting the insured's businesses. The insured sued CHI, the insurer, and the roofing contractor. The insured alleged that a special relationship existed with CHI and that CHI had negligently secured inadequate levels of business interruption insurance for all three losses.
CHI moved for summary judgment, arguing that no special relationship was created. CHI's motion was granted and the complaint was dismissed.
The Court of Appeals reversed. Generally, the insured could prevail in a negligence action where a particular request was made to the broker and the requested coverage was not procured. Here, however, the insured alleged there was a special relationship with the broker. If a special relationship existed, the broker could be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage. A duty of advisement could be created through a course of dealing over an extended period of time which would have put an objectively reasonable insurance agent on notice that their advise was being sought and specially relied on.
Here, there was evidence suggesting some interaction regarding a question of business interruption coverage, with the insured relying on the expertise of the agent. Therefore, the complaint could not be dismissed on the basis that no special relationship arose between the parties.
The insured's claim for contingent business interruption ("CBI") coverage was denied in Millennium Inorganic Chemicals Ltd. v. Nat. Union Fire Ins. Co. of Pittsburgh Pa., 2014 U.S. App. LEXIS 3096 (4th Cir. Feb. 20, 2014).
Millenium processed titanium dioxide, a compound used for its white pigmentation, at its plant in Western Australia. Millennium purchased natural gas to process the titanium dioxide from Alinta Sales Pty Ltd., a natural gas supplier. Alinta purchased gas from Apache Corporation. Once Apache processed the natural gas, it was injected into a pipeline. The gas from Apache's facility was commingled with that obtained from other producers, resulting in a mix of gas in a single pipeline.
Alinta had sole ownership of the gas once it entered the pipeline. Under Alinta's contract with Millennium, title to the gas passed to Millenium only at the time of delivery, i.e., when the gas left the pipeline and was delivered to Millennium's facility through a separate delivery line. Millennium had no contract or business relationship with Apache, and the contract it had with Alinta made no reference to Apache.
An explosion occurred at Apache's facility causing its natural gas production to cease. As a result, Millennium's gas supply was curtailed, and it was force to shut down its operations for a number of months.
only against loss directly resulting from necessary interruption of business conducted on premises occupied by Millennium, caused by damage to or destruction of any of the real or personal property described above and referred to as CONTRIBUTING PROPERTY(IES) and which is not operated by Millennium, but the perils insured against during the term of this Policy, which wholly or partially prevents the delivery of materials to Millennium or to others for the account of Millennium and results directly in a necessary interruption of Millennium's business.
Millennium did not list any "contributing property" that created a risk of business interruption. Coverage was denied for the CBI loss because Apache was not a direct supplier to Millennium.
Millennium sued the insurers. The district court concluded that coverage extended only to "direct contributing properties." The court found that Apache was a "direct" supplier to Millennium and Apache's natural gas production facility was a "direct contributing property" within the meaning of the properties because Apache's facility physically provided a direct supply of natural gas to Millennium, despite the fact that Apache and Millennium had no direct contractual relationship. Judgement was entered for Millennium in the amount of $10,850,000.
The Fourth Circuit reversed. Neither Apache nor Apache's facilities had a direct physical relationship with Millennium. Whatever the relationship between Apache and Millennium, it was interrupted by "an intermediary," Alinta, who took full physical control of Apache's gas before delivering indistinguishable commingled gas to Millennium. Apache was only an indirect contributing property to Millennium, coverage of which was not included under the policy.
When only a portion of a hotel was closed after damage was caused by Hurricane Ike, the court determined there was no coverage for business interruption. H&H Hospitality LLC v. Discovery Specialty Ins. Co., 2011 U.S. Dist. LEXIS 146055 (S.D. Texas Dec. 20, 2011).
Strong hurricane winds caused damage to the hotel, including the loss of part of the roof on one of its buildings. Approximately 40 hotel rooms were unusable after the storm. The hotel, however, had some undamaged, rentable rooms which were rented continuously after the storm. The hotel claimed business interruption losses of $293,191.00, but the insurer only paid $51,971.02.
The policy stated, in part, business interruption damages would be paid during "the necessary suspension of your operations." The insurer argued this meant a complete cessation or stoppage of business activities. The hotel countered that consideration should be given to the nature of the premises at issue in determining what constituted a "necessary suspension of operations."
The court noted that the policy did not define "necessary suspension of your operations." Other courts, however, had interpreted indentical or similar language to cover the risk of a complete cessation of business activities at the covered premises. The business interruption provision in other policies provided coverage for the "necessary interruption of business, whether total or partial." When faced with this language, courts allowed coverage for a partial cessation of business without requiring a total business shut down.
Here, however, the policy lacked such qualifying language to cover the risk of "potential" or "partial" suspension. Thus, the hotel's argument that its policy provided coverage for its reduced business operations, or a partial suspension, lacked support in the plain language of the policy. Accordingly, the insured was entitled to summary judgment on the hotel's business interruption claim.
Lost business opportunities after Hurricane Katrina hit was the issue before the court in Safeguard Storage, Properties, L.L.C. v. Donahue Favret Contractors, Inc., 2011 La. App. LEXIS 391 (La. Ct. App. March 31, 2011).
Safeguard planned to develop a minimum of twelve to fifteen new self-storage locations each year for several years. Market evaluations were performed for five different metropolitan locations. Nineteen new projects were being developed when Hurricane Katrina struck.
The hurricane damaged Safeguard's New Orleans area facilities and interrupted the business operations of Safeguard's corporate office and national call center. Safeguard's office space sustained $30 million in damages.
Safeguard sued its insurers, seeking compensation for its damaged property and for lost business opportunities at locations Safeguard was allegedly unable to open due to Hurricane Katrina. The insurers filed motions for partial summary judgment asserting that Safeguard's lost business opportunities claims for forty years of profits from 36 stores that would have allegedly been built but for Hurricane Katrina were too speculative as a matter of law. The trial court agreed and granted summary judgment.
The policies provided that business losses would be adjusted on the basis of actual loss sustained by the insured resulting from interruption of business, "consisting of the net profit which is thereby prevented from being earned." To determine the amount of loss sustained, consideration was to be given to the experience of the business before the date of damage and to the probable experience had no loss occurred.
On appeal, the court could not determine as a matter of law that a portion of Safeguard's claims for loss business opportunities was not covered under these provisions. A projection of earnings was an accepted method of calculating business interruption. Safeguard contended it developed thirty-eight new storage facilities from 2001 to 2005. It sustained lost business income due to its alleged inability to build thirty-seven new storage facilities. A Safeguard expert stated that a conservative estimate for Safeguard's lost business opportunities was $332.5 million. Whether these estimates were credible was a determination to be made by the finder of fact. Therefore, the trial court erred in granting the insurers' motion for summary judgment.
The insured had a commercial property policy with Lexington. Coverage included $25 million in losses for business interruption. See Consolidated Co. Inc. v. Lexington Ins. Co., 2010 U.S. App. LEXIS 17146 (5th Cir. Aug. 17, 2010).
Hurricane Katrina damaged the insured's property and equipment. The insured was able, however, to resume partial operations ten days after the storm. In the 15 months prior to full restoration, the insured made a small profit of about $300,000.
Lexington initially advanced $3 million under the policy. After adjusting the claim, Lexington determined the total loss was $3,247,070. Believing the payment was insufficient, the insured refused to cash a supplemental check for $247,070. By the time of trial, the insured claimed $19 million in business interruption losses under the policy, consisting of $7 million for lost profits and $12.3 million for "charges and expenses."
"Charges and expenses" under the policy were expenses that would have been incurred without the loss, but which continued during the business interruption. The "actual loss" under the policy consisted of the net profit or loss which the business interruption prevented from being earned, and of all charges and expenses. The policy allowed the insured to resume operations if it would reduce the loss. Profits recoverable under the policy were those that would have been earned during the period but for being shut down by the hurricane. The usual expenses that the insured still incurred, even though not operating, were also recoverable.
At trial, the parties disagreed on whether the charges and expenses of $12.3 million should be paid in full or reduced to the extent they were offset by the income during the 15 months prior to restoring complete operations. The jury awarded the insured $19.5 million for business-interruption loss, which included the insured's claim for charges and expenses. The district court reduced by $3 million to account for the alleged failure of the jury to deduct the advance Lexington paid.
On appeal, Lexington argued the district court erred by not instructing the jury to reduce the insured's "charges and expenses" by revenues the insured earned during its 15 months of partially resumed operations. The Fifth Circuit agreed and reversed this portion of the jury verdict. When a partial resumption in operations reduced the actual loss, so substantially as to create some profit, all charges and expenses were, by definition, covered by income. The charges and expenses for which the policy would pay had there been no resumption of operations was shown to be $12.3 million. These expenses had to be part of the $205 million in expenses that were incurred during resumed operations. All expenses were recouped from the income of the business and were not a "loss" to the compensated under the policy. Just as the insured would have paid the charges and expenses out of its revenue if Katrina had never struck, the policy provided for the insured to pay them to the extent it could do so out of the revenue from partially resumed operations. Therefore, the award of $12.3 million in charges and expenses was vacated.
Thanks to my Damon Key colleague, Rebecca Copeland, for sending me this case.
If the insured misrepresents that it owns the insured property, can the insurer void the policy? In Grenoble House Hotel v. Hanover Ins. Co., 2010 U.S. Dist. LEXIS 75355 (E.D. La. July 26, 2010), the court denied the insurer's motion for summary judgment seeking to void the policy on misrepresentation grounds.
Hanover issued to the insured a commercial policy covering damage to the hotel building, contents and business interruption. After its property was damaged by Hurricane Katrina, the insured claimed for damage to the building and its contents, and for business interruption. Hanover eventually tendered policy limits for contents and business interruption.
When policy limits were not paid for damage to the building, the insured sued. Hanover moved for summary judgment, seeking to dismiss all of the claims because the insured represented itself to be the owner of the property when it fact it was the lessor, constituting a material misrepresentation.
The policy stated it was void if any insured intentionally concealed or misrepresented a material fact concerning its interest in the covered property. Under Louisiana law, a misrepresentation made in the negotiation of an insurance contract by the insured was not deemed material unless the misrepresentation was made with intent to deceive.
Here, Hanover offered no evidence establishing that the insured represented that it was the owner of the property. Although the "owner" box was checked on the policy application, there was no indication that a representative of the insured signed the application or provided information that it was the owner of the property. Absent such evidence, Hanover failed to establish that the insured made a statement that was false.
Further, Hanover failed to provide any evidence establishing that a misstatement regarding ownership of the property would be material. There was no evidence to establish that had Hanover known the insured was the lessor, as opposed to the owner of the building, it would have either declined to write the policy or would have issued the policy only upon the payment of a higher premium. Accordingly, the motion for summary judgment was denied.
Measuring business interruption costs after Hurricane Katrina was the issue before the Fifth Circuit in Catlin Syndicate Ltd v. Imperial Palace of Mississippi, Inc., 2010 U.S. App. LEXIS 5389 (5th Cir. March 15, 2010).
Experience of the business- In determining the amount of the Time Element loss as insured against by this policy, due consideration shall be given to experience of the business before the loss and the probable experience thereafter had no loss occurred.
Catlin argued the casino's loss should be determined by looking solely at pre-hurricane sales. The insured argued losses should be determined not as if Hurricane Katrina did not strike, but as if the Hurricane struck but did not damage the casino. The district court agreed with Catlin. Profits upon reopening after Hurricane Katrina were not taken into account to determine what the casino would have experienced had the storm not occurred.
On appeal, the Fifth Circuit was guided by its decision in Finger Furniture Co. v. Commonwealth Ins. Co., 404 F.3d 312 (5th Cir. 2005). There, the court held that the proper method for determining loss under the business-interruption provision was to look at sales before the interruption rather than sales after the interruption. Because the policy provision in Finger Furniture Co. was similar to that in Catlin's policy, the court determined only historical sales should be considered when determining loss.

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