Insured Is Not Entitled To A Double Recovery For Damaged Goods When Calculating Actual Loss Of Business Income
April, 2007
by Charles J. Rocco and
In J&R Electronics Inc. v. One Beacon Insurance Co., 35 A.D.3d 169, 825 N.Y.S.2d 462 (1st Dep’t 2006), the New York Appellate Division, First Department, affirmed a lower court’s holding in an insurance dispute arising out of the September 11, 2001 attacks. The insured, J&R Electronics (“J&R”), filed an action against its insurer, One Beacon Insurance Company (“One Beacon”), alleging breach of the policy’s business interruption provision. One Beacon moved for summary judgment on the ground that it already indemnified J&R for the loss when it paid J&R the selling price for its damaged merchandise. The trial court granted One Beacon’s motion and the Appellate Division affirmed, holding that One Beacon properly deducted the payment made to J&R for its damaged merchandise from J&R’s lost business income claim. Id.
J&R sustained property damage, lost business income, extra expenses and extended business income as a result of the September 11, 2001 terrorist attacks. It submitted a claim to One Beacon for its damages. Specifically, J&R submitted a claim for damaged merchandise under the business personal property section of the policy, arguing that it paid an additional premium to receive coverage for damaged property at the selling price less unincurred expenses. This coverage was additional because the selling price included J&R’s profit, not just the cost to replace the damaged merchandise. In response, One Beacon paid J&R $9,942,541.00 for merchandise at the selling price. J&R also submitted a claim for loss of business income under the policy’s “Business Income with Extra Expense” provision. One Beacon audited J&R’s loss of business claim and calculated the gross lost sales at $30,608,464.00. One Beacon then subtracted the amount that it previously paid J&R for damaged merchandise at the selling price. J&R Electronics Inc. v. One Beacon Ins. Co., 12 Misc.3d 1184(A), 824 N.Y.S.2d 763 (N.Y. Sup. Ct. 2005).
J&R, however, asserted that it suffered additional business losses because it was deprived of cash flow from the damaged goods. Essentially, J&R claimed that One Beacon should not have deducted the payment for the merchandise at selling price because that payment was not received in the ordinary course of business. Since the payment was not received in the ordinary course of business, J&R stated that it suffered a lack of normal cash flow, which resulted in loss of business opportunities. J&R offered various examples of lost business opportunities. It argued that it was unable to take advantage of promotional purchasing because of a lack of cash flow, and that the lack of cash hurt sales because it forced J&R to reduce its advertising. Further, J&R claimed that it had to delay the opening of a new store because there was not enough money to finish construction. The trial court rejected this argument, stating that this was a request for consequential damages, which are excluded under the policy. Id. at 2.
Further, J&R attempted to argue that it may make different claims for the same loss under two portions of the policy, because One Beacon did not preclude recovery in the business interruption portion of the policy for the items that the policy also covered on a sales price basis. The court quickly dismissed this reading of the policy as “nonsensical,” stating that “[o]nce the insurance company covers that loss, the insured cannot again recover for the same damaged merchandise because a different section of the Policy may cover for the same loss.” Id.
The Appellate Division reviewed the trial court’s decision to grant One Beacon’s summary judgment motion, and unanimously affirmed. J&R Electronics Inc., 825 N.Y.S.2d 462. The Court agreed that J&R’s coverage request for damages resulting from loss of normal cash flow was actually a request for consequential damages, which are not recoverable under the policy. Id. Furthermore, the Court explained that J&R would have received a double recovery for the goods if One Beacon had not deducted the payment for damaged goods it had already made to J&R. Id.
Learning Point: It is important for insurers to review the policy as a whole when making payments on a claim because there is always the potential that portions of the claim can be recovered under two different policy provisions. However, courts generally will not allow recovery for losses under one policy provision when those losses are clearly reimbursable under another provision.
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