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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 the continuing expenses that would have been incurred: The “actual loss sustained” limitation means only that an actual loss must be pre- dictable from past business experience. The further restriction that only those expenses that continue dur- ing the business interruption are covered means that the Policy covers only expenses that the insured would have been able to pay had it con- tinued in operation….To construe this restriction as requiring that BA Properties continue to own the Hotel to be able to recover its con- tinuing expenses would be to stretch it beyond its com- mon meaning. 6 Moreover, the insurer has no enti- tlement to a credit for the proceeds from the hotel sale against the amount it owes on the insurance claim. “Any receipt by BA Prop- erties of money from any other source does not reduce the actual loss that BA Properties sustained as a result of Hurricane Marilyn for which the insurers must compen- sate it.” 7 “Even if BA Properties benefited by the sale of the Hotel, the insur- ers cannot escape their own liabil- ity by claiming that benefit as their own.” 8 In short, under the law, the right to recover for BI loss is fixed at the time of the loss and extends to the full theoretical BI period not- withstanding the property sale. The result in BA Properties is consis- tent with a very well settled line of cases holding that a policyholder is always entitled to collect BI based upon a full “theoretical” BI period 6 BA Properties , 273 F.Supp.2d at 683 (citing Hampton Foods, Inc. v. Aetna Cas. and Sur. Co. , 787 F.2d 349, 354 (8th Cir. 1986)). 7 BA Properties , 273 F.Supp.2d at 684 (citations omitted). 8 BA Properties , 273 F.Supp.2d at 684 (citations omitted). 9 See, e.g., Steel Products Co. v. Millers Nat’l Ins. Co. , 209 N.W.2d 32 (Iowa 1973) (where “for one reason or another, an insured does not repair, replace, or rebuild the insured premises ... courts have consistently held the reduced earnings computation is based on the theoretical period it would have taken to repair, replace or rebuild the premises with due diligence”); Beautytuft, Inc. v. Factory Ins. Assoc. , 431 F.2d 1122 (6th Cir. 1970) (the insured recovers the full “theoretical” time period it would have taken to rebuild the destroyed plant even if not rebuilt); Hawkinson Tread Tire Serv. Co. v. Indiana Lumbermans Mut. Ins. Co. , 245 S.W.2d 24 (Mo. 1951) (same); Anchor Toy Corp. v. American Eagle Fire Ins. Co. , 155 N.Y.S.2d 600 (N.Y. Cty. 1956) (where the insured did not rebuild, the BI claim remained defined by the theoretical rebuilding time at the insured site); Grand Pacific Hotel Co. v. Michigan Commercial Ins. Co. , 90 N.E. 244 (Ill. 1909) (the insurer paid the BI claim through the date that it would have taken to rebuild a destroyed hotel). A federal court in Manhattan allowed the insurers to define the BI period for the World Trade Center complex as the theoretical time period it “should” take to rebuild the complex.

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