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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 hotel. The insurer seized on this moment and refused to pay BA Properties for any BI loss after the sale date, despite the absence of any assignment of the claim to the purchaser. In other words, the in- surer attempted to cut short what would otherwise be its obligations to pay for BI loss consulting from the damage. The court squarely re- jected the insurer’s position, vacat- ing a prior ruling in the same case that favored the insurers (from a judge who later recused himself). The BA Properties court first framed the issue as whether the insured had an “insurable interest” at the time of the loss. 2 The court easily found the insured possessed an “insurable interest,” noting that the Virgin Islands, like Florida and oth- er states, defines “insurable inter- est” as fixed “at the time of loss.” 3 Based on this temporal fixation of the necessary insurable inter- est, the court then found that “any change in the insurable interest after the time of loss does not af- fect the amount that the insured can recover under the applicable insurance policy.” Specifically, the court ruled that the insured could recover “for its business interrup- tion losses for the time period after it sold the Hotel.” 4 The court specifically rejected the insurer’s argument that the in- sured “did not sustain any actual losses after it sold the Hotel and its expenses and profits could not have continued after it sold the hotel.” 5 Thus, the court allowed for con- tinuing recovery of a theoretical BI loss, both as to the lost net profits that would have been earned and * Portions of this article are reprinted in full, with permission, from the American Bar Association publication Coverage (July/August 2006). 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)). 2 BA Properties , 273 F.Supp.2d at 681. 3 BA Properties , 273 F.Supp.2d at 681-82, citing Florida Statute § 627.405. See note 1. 4 BA Properties , 273 F.Supp.2d at 683 (emphasis added). 5 BA Properties , 273 F.Supp.2d at 681-82 (emphasis added). In short…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.