Loss Of Business Income Coverage Limited By Court
April 06, 2011
The 1st District Appellate Court recently held that a policy provision applicable loss of business income applied only to the insured's loss for the "period of restoration" of its damaged property, and not for a full year following the damage, and that payment by the insurer for the restoration period was voluntary, thus precluding the insurer's argument that the conditions for recovery under the policy had not been met. Cimco Communications, Inc. v. National Fire Insurance Company of Hartford, No. 1-09-3035, 2011 WL 488746 (Ill. App. 1st Dist. Feb. 8, 2011).
The insureds were represented by Frank P. Tighe III of Francis P. Tighe III Ltd. of Chicago.
Zacarias R. Chacon and Leena Soni of Lewis, Brisbois, Bisgaard & Smith LLP of Chicago represented the insurer, National Fire.
Background
The insureds provided phone, Internet and other data services to customers. In 2004, they leased a facility in downtown Chicago and had the necessary equipment installed. In June of that year, however, the facility sustained flood damage and the equipment was not repaired and replaced until three months later.
They submitted a claim under a policy issued by National Fire that included coverage for loss of business income. The policy provided, among other things, that the company would "pay for actual loss of Business Income you sustain due to the necessary suspension of your 'operations' during the 'period of restoration.'" The same clause, however, stated that the company would pay for lost income "that occurs within 12 consecutive months after the date of direct physical loss."
The insureds thus argued that they were entitled to recover all losses for up to 12 months after the date of the flood. National Fire took the position that the covered business loss applied only during the three months of restoration and it willingly paid the claimed losses for that period.
The insureds filed this declaratory judgment action in 2007 seeking recovery for the 12-month period. In a counterclaim, National Fire argued not only that business loss recovery under the policy was limited to the three-month period of restoration, but also that the insureds had not actually incurred a "business income loss" as defined in the policy and also had not suspended their operations during the period of restoration as required by the business income provision.
Upon cross summary judgment motions, the trial court entered judgment finding that coverage was limited to the three-month period of restoration and granted summary judgment to National Fire on that ground. National Fire then sought to amend its counterclaim asking the trial court to find that the payment it already incurred completely satisfied its obligations. The trial court denied the motion. Thereafter the insureds appealed and National Fire cross appealed.
Period of Restoration Ruling
In an opinion by Justice Maureen E. Connors, the 1st District affirmed. She first examined what she considered to be the dispositive issue on the appeal, namely, the extent of National Fire's liability for damages that are incurred outside the "period of restoration." She observed that the policy language quoted above might appear to support the reasonableness of both parties' interpretation.
Nevertheless, Connors said, when the insurance policy was viewed as a whole, it became apparent that the insureds' interpretation was unreasonable. Specifically, Connors pointed to an "extended" business income provision, which obligated National Fire to pay actual loss of business income for a period up to 30 days after the end of the period of restoration. This "extended" provision thus would have allowed coverage in this case - if conditions were met - for up to four months after the flood, given that the parties agreed that the period of restoration lasted three months.
On the other hand, Connors noted that if the insureds' 12-month interpretation were accepted, the "extended" provision would become superfluous, contrary to the rule that every provision in an insurance policy must be viewed as serving a purpose.
Since National Fire's interpretation gave each provision a complementary but exclusive position as a means of covering the insureds' claim for the loss of business income under the policy and did not render any other provision superfluous, Connors found that National Fire was entitled to summary judgment based on its three-month interpretation.
Voluntary Payment Waiver
Connors then raised the question whether it was necessary to address two points National Fire raised by cross appeal, namely, whether the insureds had actually incurred a "business income loss" in the first place and whether they had suspended their operations during the period of restoration. She found it was not necessary to address these points on the merits principally because National Fire voluntarily paid the insureds' claim for the three months following the flood.
Specifically, she cited the voluntary payment doctrine, which holds that money voluntarily paid under a claim of right and with full knowledge of the facts cannot be recovered unless the claim was unlawful and the payment compulsory. Here there was no indication that the insureds' claim was unlawful or that National Fire paid it under compulsion. The voluntary payment doctrine thus barred National Fire from pursuing its two arguments.
Right To Amend
Finally, with respect to whether National Fire was entitled to amend its counterclaim to seek a determination that the amount it actually paid constituted the entirety of its obligation to the insureds under the policy, Connors said that it was not. She noted that the insureds had not contested the sufficiency of National Fire's claim payment, so the issue was not ripe for adjudication. Since the argument was not justiciable, the trial court did not abuse its discretion in denying National Fire leave to amend.
The court therefore affirmed on the basis of its interpretation of National Fire's obligation to pay lost business income for three months.
Key Points
(a) Since policies must be interpreted as a whole, an "extended" business loss provision in a policy could be used to help construe another business loss provision to limit the latter to the shorter of two possible periods of application.
(b) Where an insurer pays a claim voluntarily - and apparently without a reservation of rights - it may not later argue for the return of the payment.
(c) A party may not amend a pleading post judgment to address nonjusticiable issues.
