Business interruption insurance may not cover interruptions arising from indirect damage to insured property.
Jessy's Pizza, a small business owner, was successful in its action against Economical Mutual Insurance ("Economical") for business interruption coverage following a vandalized oil supply line that had leaked under its building causing extensive damage.
Jessy's Pizza (Bedford) v. Economical Mutual Insurance Co. [2008] N.S.J. No. 319 Nova Scotia Small Claims Court Adjudicator J.W.S. Johnston January 31, 2008
The supply lines connecting two furnace oil drums were vandalized, causing oil to leak under Jessy's Pizza parlour. The amount of oil present caused an odour that was so bad, customers refused to stay in the building when they were ordering their pizza. After approximately two months, the odour became so powerful the business was forced to close, and a company was brought in to remediate the soil. As part of the remediation process the floor of the restaurant was removed to access the contaminated soil found underneath. The owners were able to return to the premises four months later, after incurring significant costs arising out of the down time.
Jessy's Pizza was insured by Economical for business interruption coverage. It was denied coverage because coverage was extended for the loss of "business earnings" caused only by direct physical loss of, or damage to insured property. Jessy's Pizza was informed that the oil did not cause the damage to the floor. Economical only offered Jessy's Pizza a payout of $10,000.00 under a policy extension entitled "Clean-up Expenses for On-premises Pollutants".
Jessy's Pizza was a franchise, and under the franchise agreement, was required to install a specific type of floor. The Adjudicator found that this flooring was "equipment" as captured by the wording in the Commercial Building Equipment and Stock form. The Adjudicator further held that the vandalism to the fuel supply line was the proximate cause of the overall loss. After finding for the owners on this part of the claim, the Adjudicator turned to the defendant Economical's second argument which was that a Proof of Loss form was never filled out. The filing of a Proof of Loss form perfects an insurance claim under the Nova Scotia Insurance Act. While there was some question as to whether the owners received a blank Proof of Loss form, the Adjudicator ruled that since they set out a very detailed Statement of Claim in their Small Claims Court action well under the one year limitation period, they could obtain relief from forfeiture under those circumstances. Jessy's Pizza would have been awarded $28,116.00, but for the Small Claims Court jurisdiction limits of $25,000.00. Economical was ordered to pay them $25,000.00.
This case was originally summarized by nmacdonald@harpergrey.com and originally edited by dpilley@harpergrey.com
