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The Effect of the Sale of a Commercial Property on a Pending Insurance Claim

A D J U S T I N G T O D A Y Under the language of most prop- erty policies, there are three simple rules, even though insurers some- times refuse to acknowledge them. First, following a sale, the policy- holder/seller can still collect busi- ness 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 replace- ment costs estimated but not actu- ally 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 ex- penditures unplanned as of the date of the loss). Third, all or part of a claim can be assigned to a purchaser. In Flor- ida, 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 typi- cal policy means only that the poli- cy 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 docu- mented 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 in- surance obligations, no matter how rights to insurance proceeds are negotiated and allocated between the seller and purchaser. The pol- icy language and legal support for the above three rules are sensible and solid, explained as follows. 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 ob- ligation to pay BI through the full “theoretical” BI period, provided that the policyholder had an “in- surable interest” in the property at the time of the loss. An owner of a property that suffers a calamity obviously had a full insurable in- terest at the time of the loss in the property and its income stream. 1 A federal court deep in the heart of the hurricane zone carefully con- sidered this issue, and with more motive to get it right than any other court in the U.S. and its ter- ritories, 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 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.

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