Business interruption insurance can insure against losses attributable to a reduction in supply of a product by a third party.
The insurer appealed a trial judgment finding the insured entitled to insurance coverage for contingent business interruption. The appeal was dismissed.
Nestle Canada Inc. v. Allianz Insurance Co. of Canada. March 20, 2008. Alberta Court of Appeal.
The insurer issued a policy which included coverage for losses and expenses arising from business interruption and contingent business interruption. The policy also provided for a fifteen day waiting period for claims, which operated as a deductible. The insured refined methyl tertiary butyl ether, an additive for gasoline. It used butane to do so. On January 27, 1999 an explosion at a plant in British Columbia caused that plant to shut down. The insured received approximately half of the amount required under its contract of butane for two of the following months. In response to this, the insured's plant curtailed production and then began operating at about 75% capacity. On March 12, 1999 the plant shut down entirely for ten days. The insured claimed for loss of production due to the curtailment, shut down of its plant, and also the extra expense of the increased price of butane because of limited supply in the days following the explosion.
The policy provided coverage for interruption of business due to damage to facilities of suppliers. The insurer argued that the policy did not cover business interruption due to a reduction in supply from a facility not owned by the insured. The trial judge found that even though the insured had no ownership interest in the plant, the plant was a supplier and the policy provided coverage. The Court of Appeal agreed that the plant was a supplier, the curtail of production was necessary, the shutdown was caused by the damage to the that plant and that although maintenance was performed on the insured's plant while it was shut down, there was no basis for set off in the policy. The appeal court also found that the insurer could deduct from the indemnity the waiting period consisting of the first fifteen days of the insured's plant shut down.
