Insurers Denied De Facto Win After Losing Daubert Motion

This post was written by John B. Berringer and Michael N. DiCanio.

In a recent decision Magistrate Judge David A. Baker rejected insurance company Daubert motion to exclude the expert testimony of an architect, a structural engineer, and an accountant designated in an insurance coverage case. Bray & Gillespie v. Hartford et al, Case No. 6:07-cv-00326 –DAB (M.D. Fla. April 20, 2009).

The defendants’ had moved to exclude the testimony of B&G’s accountant and his conclusions regarding the amount of business interruption loss suffered. They did not challenge the methodology of his calculations, but rather took issue with the fact that he allegedly used the wrong numbers and did not provide a period of restoration. Denying the motion, Judge Baker held that this was not a proper ground for excluding the testimony under Daubert, see Quiet Technology, 326 F.3d at 1345-46 (using incorrect numbers in a reliable formula is not grounds for exclusion), and held that the particular issue of limiting the damage calculation with respect to a period of restoration is a matter of factual and legal dispute in this case.

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2003 Blackout Held to Involve 'Property Damage' Sufficient to Support Claim Under Property Policy

This post was written by Douglas R. Widin.

On April 22 , 2009, the Appellate Division of the New Jersey Superior Court published its March 9, 2009 opinion holding that the massive Aug. 13, 2003 electrical blackout of the eastern United States and portions of Canada inflicted “property damage” sufficient to support a property insurance claim. The court held that the loss of functionality that resulted when protective safety equipment shut down the power grid and caused the blackout of August 2003 qualified as “physical damage” for property insurance purposes. See Wakefern Food Corporation v. Liberty Mutual Fire Insurance Company, No. A-2010-07T3 slip op (March 9, 2009). As a result, insurers were not entitled to summary judgment in their favor on Wakefern’s claims for food spoilage and business interruption at their supermarkets resulting from the blackout.

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A Tale of Two Evidentiary Standards

This post was written by John B. Berringer and Michael N. DiCanio.

Policyholders and their counsel should check out a May 27 ruling denying summary judgment to the insurance company defendants in Bray & Gillespie IX, LLC v. Hartford Fire Insurance Co., et anoIn the B&G decision, a magistrate judge in the Middle District of Florida relied in part on the so-called Broad Evidence Rule. Under that rule, any evidence logically tending to establish a correct estimate of the value of damaged or destroyed property may be considered by the trier of fact to determine “actual cash value” at the time of the loss. This means that replacement cost, wholesale cost, a contractor’s estimate, even the owner’s own testimony, are among the many types of evidence that a jury could consider to determine “actual cash value.” The judge in the B&G case characterized the Broad Evidence Rule as a “liberal admissibility standard.”

In the same decision, the magistrate judge suggested that a much tougher evidentiary standard must be met by an insurance company alleging fraud or misrepresentation by a policyholder. 

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Internet Interruption May Trigger Insurance Coverage

This post was written by Doug Cameron, John Ellison, and Richard Lewis.

On Dec. 19, 2008, underwater Internet cables in the Mediterranean Sea were cut, causing major connectivity issues to most Middle Eastern countries, as well as to South Asia. News reports are noting that while ships have been deployed to correct the issue, it could be upward of 10-14 days before connectivity is returned to normal.

If your business is affected by this event, you may have insurance coverage for any losses of income under your first-party or property insurance forms. Most such policies contain “Service Interruption” clauses, which cover policyholders for loss stemming from interruption of various services, including transmission of incoming or outgoing voice, data or video services. Such coverage is typically subject to a waiting period of a couple of days (equivalent to a deductible), but it appears the interruption in question will exceed the waiting period in most forms. If the event occurring Dec. 19 has had a negative impact on your ability to do business, you should immediately check whatever first-party property cover your company purchased to determine what insurance cover is available to respond to this situation.

Service Interruption forms vary greatly from policy to policy, with some limiting coverage to loss stemming from damage occurring at the “facilities” of suppliers, or to transmission equipment within a certain distance from the policyholder’s premises. Others, however, cover loss caused by damage to service lines wherever they are located; such policies would appear to cover loss stemming from the severed Internet lines. For this reason, it is critical that a prompt review of your insurance policies be undertaken, and, if appropriate, you should consult with experienced insurance counsel who can assist in understanding the available options your business has to mitigate the damage caused by this interruption.

Another important step is that you begin to document immediately and contemporaneously the financial impact this event has caused your business. Establishing a system for capturing the economic impact on your business is crucial to being able to demonstrate properly the financial consequences suffered from this event. Consultation with appropriate professionals will enable you to ensure that the full scope of your claim is captured and presented to the insurance company for reimbursement.

If your business is affected by this interruption of Internet service, you should review immediately your insurance policies to determine the scope of your coverage. The attorneys at Reed Smith, with decades of experience in counseling clients on first-party coverage, and litigating and resolving first-party claims, are available to assist in evaluating your coverage. Since time is of the essence for claims of this type, we urge you to undertake these activities as promptly as possible.

Recent Storms and Flooding in Midwest and Great Plains Threaten Property Damage, Loss of Business and Extra Expenses

This post was written by Jim Davis, Paul Walker-Bright and Thomas Marrinson

Recent severe storms in the Midwest and Great Plains have caused extensive flooding in several states, with levees and dams breached, roads and interstates washed out or impassible, and cities and towns under water. Corn and other crops have been damaged and destroyed, pushing prices to record highs on commodities exchanges. Power has been lost in many areas. Indiana has asked the United States to declare farm disasters in 44 counties because of crop and livestock losses blamed on the storms, and what is being described as flooding worse than the previous record set back in 1913. Flood concerns exist for the Mississippi River as well, which is expected to crest at 10 feet above flood stage over the next two weeks. See Levees break as Midwest floods worsen.”

Many farms and businesses undoubtedly have been affected by the flooding. Fortunately, insurance policies may provide coverage for policyholders’ damaged property, loss of business and extra expenses incurred to recover from the floods. First-party property insurance may respond to repair or replace property directly damaged by storms and floods. Business interruption insurance protects earnings that businesses would have obtained had there been no interruption of business caused by covered perils, and contingent business interruption insurance covers losses to policyholders’ business caused by damage to suppliers’ or customers’ property from covered perils. Similarly, extra-expense insurance covers additional expenses incurred to allow policyholders to continue to operate during the period of interruption. In the aftermath of widespread and devastating flooding from the Mississippi River in 1993, courts held that increases in transportation and raw materials costs caused by the flooding, and other losses, were covered under extraexpense and contingent business interruption insurance. See, e.g., Archer-Daniels-Midland Co. v. Phoenix Assur. Co. of New York, 936 F. Supp. 534 (S.D. Ill. 1997).

If policyholders have experienced damage or loss to their property, or interruptions to their businesses and extra expenses caused either directly by the storms and floods or because the property of their customers and suppliers has been lost or damaged, they should be encouraged to review their first-party property and business interruption insurance to determine whether they should submit claims to their insurers. Reed Smith’s 60+ insurance recovery lawyers have extensive experience in assisting policyholders to maximize their property and business interruption claims, including in large-scale disasters such as hurricanes, tornadoes, floods and fires