Post-Loss Claim
The Effect of Sale of a Commercial Property on a Pending Insurance Claim
Page 2 of 8 Previous 1 2 3 4 5 6 7 8 Next View issue on one page
First, following a sale, the policyholder/seller can still collect business interruption (“BI”) proceeds beyond the sale date and through what would have been the end of the “theoretical” BI period. Second, the policyholder/seller can also collect repair or replacement costs estimated but not actually spent at the damaged property as of the sale date (assuming, in some cases, an election has been made to apply such proceeds to another location or to capital expenditures unplanned as of the date of the loss).
Third, all or part of a claim can be assigned to a purchaser. In Florida, Louisiana, Mississippi, New York, and most other states, any and all parts of an insurance claim are assignable to a purchaser. The “anti-assignment” clause in a typical policy means only that the policy itself cannot be assigned without consent, but a post-loss claim is assignable notwithstanding the clause. The scope and nature of an assignment is negotiable between the seller and purchaser.
In short, when properly documented and planned, the sale of a damaged property does not create a windfall opening for the insurer to escape from some or all of its insurance obligations, no matter how rights to insurance proceeds are negotiated and allocated between the seller and purchaser. The policy language and legal support for the above three rules are sensible
A. Business Interruption
Past the Sale Date
The sale of an income-producing property subsequent to an insured loss does not limit or end the seller/policyholder's own BI claim for that loss. A policyholder can enforce an insurer's contractual obligation to pay BI through the full “theoretical” BI period, provided that the policyholder had an “insurable interest” in the property at the time of the loss. An owner of a property that suffers a calamity obviously had a full insurable
A federal court deep in the heart of the hurricane zone carefully considered this issue, and with more motive to get it right than any other court in the U.S. and its territories, the court came to the right result. In BA Properties v. Aetna Cas. & Sur. Co., the policyholder owned the Ritz-Carlton on St. Thomas when Hurricane Marilyn struck in 1995, causing damage to the hotel and a lengthy shutdown. In June 1996, during the middle of the BI period, BA Properties sold the
1 See, e.g., BA Properties, Inc. v. Aetna Cas. & Sur. Co., 273 F.Supp.2d 673 (D. Virgin Islands) (“BA Properties”) (seller had "insured interest" in hotel at time of hurricane loss and before sale date); Cigna Prop. & Cas. Ins. Co. v. Verzi, 684 A.2d 486 (Md. Ct. Spec. App. 1996) (policyholder was entitled to fire insurance proceeds when building was destroyed by fire despite contingent contract to demolish building because policyholder had insurable interest in the full value of the building at the time of loss); Morgan v. American Security Ins. Co., 522 So.2d 454, 455 (1st Dist. Fla. 1988) (rule is the same in Florida: “the insurable interest of the parties to an insurance contract is determined by the facts existing at the time of the loss”); Fl. St. § 627.405 (“No contract of insurance of property or of any interest in property or arising from property shall be enforceable as to the insurance except for the benefit of persons having an insurable interest in the things insured as at the time of the loss.” (emphasis added)).
