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Island Concepts, LLC v. Certain Underwriters at Lloyd's, London

United States District Court, E.D. Louisiana

October 31, 2014



SARAH S. VANCE, District Judge.

Defendant, Certain Underwriters at Lloyd's, London, Subscribing to Policy Number XX-XXXXXXXXXX/Syndicate 4242 ("Lloyd's"), moves for summary judgment.[1] For the following reasons, the motion is GRANTED.


A. Factual Background

This case arises out of an insurance dispute between plaintiff, Island Concepts, LLC, d/b/a Friends Coastal Restaurant ("Friends"), and defendant, its insurer. During Hurricane Isaac, Friends sustained wind and water/flood damage to its property in Madisonville, Louisiana. This property was insured by Policy Number XX-XXXXXXXXXX issued by Lloyd's, which covered the period of June 5, 2012 to June 5, 2013. The policy provided coverage with limits of $1, 000, 000 for property damage to buildings, $600, 000 for tenant betterments and improvements, and $1, 200, 000 for business income and extra expense. By September 3, 2012, Lloyd's retained multiple experts to adjust the claim, including an independent field adjuster, a structural engineering group, and a certified public accountant. During the adjustment, Lloyd's paid Friends the following sums: (1) $234, 905.73, less a $28, 000 deductible, for damage to the insured building; (2) $34, 594.56 for the actual cash value of business personal property/tenants betterments and improvements; and (3) $335, 372.64 for Business Income losses due to the peril of wind caused by Hurricane Issac.[2] Lloyd's initially withheld depreciation from Friends in the amount of $12, 967.06, which it tendered to Friends after receiving notice that Friends was in the process of rebuilding the insured building.

Disagreements between the parties developed during the adjustment and payment process. Friends eventually invoked a provision of the insurance policy that becomes available when the parties cannot agree about the amount of a particular loss. The appraisal provision contained within the "Business Income (And Extra Expense) Coverage Form" reads as follows:

1. Appraisal If we and you disagree on the amount of Net Income and operating expense or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser.
The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the amount of Net Income and operating expense or amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding....
If there is an appraisal, we will still retain our right to deny the claim.[3]

Once this provision is applied, each party selects a competent and impartial appraiser who will eventually provide an opinion as to the amount of the loss. Before doing so, the two appraisers select an umpire to make the final decision. If the parties cannot agree on an umpire, they may move the Court to select one. Once a threeperson panel is assembled, an appraisal award signed by any two "will be binding" on the parties.

Lloyd's selected Winston Wood as its appraiser, and Friends chose Patrick Gros. Together, Wood and Gros agreed to Charles Theriot as the umpire. Wood and Gros could not agree as to the correct amount for business income losses, and thus submitted the dispute to Theriot. On May 6, 2014, Theriot issued an award report, in which he concluded that Lloyd's' "calculation of the business interruption claim for the primary loss period is reasonably accurate. [Friends'] calculations for the preliminary loss period are not correct."[4] The award appraised Friends' business income losses at $442, 878, which was the sum proposed by Wood. Wood and Theriot both signed the appraisal award. Gros did not. On June 3, 2014, Lloyd's paid Friends $107, 505.36, which was the difference between the appraisal award and the $335, 372.64 Lloyd's had already paid to Friends for Business Income losses.

On August 27, 2013, Friends filed suit against Lloyd's, claiming additional sums for building losses, contents losses, and business interruption losses under its policy, as well as a claim for penalties, damages, and attorney's fees for bad faith under La. R.S. §§ 22:1973 and 22:1892. Lloyd's now moves for summary judgment on the grounds that (1) the completion of the binding appraisal process bars Friends' claims for additional sums for Business Income losses under the policy; (2) Friends has not provided any proof that it is owed additional sums for either building or contents losses under the policy; and (3) Lloyd's paid all sums due under the policy within 30 days of proof of loss of each component of the claim, making bad faith penalties under La. R.S. §§ 22:1973 and 22:1892 inappropriate. In its opposition, Friends concedes that building and contents losses are no longer issues in the case, and consents to the dismissal of those claims. Thus, only the claims for business income losses and bad faith penalties remain in the case.

B. Policy Provisions and Definitions

The "Business Income (And Extra Expense) Coverage Form" of the policy provides:

We will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of your "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.[5]

The policy defines Business Income as:

a. Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and
b. Continuing normal operating expenses incurred, including payroll.[6]

The policy also provides that:

a. The amount of Business Income loss will be determined based on:
(1) The Net Income of the business before the direct physical loss or damage occurred;
(2) The likely Net Income of the business if no physical loss or damage had occurred, but not including any Net Income that would likely have been earned as a result of an increase in the volume of business due to favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses;
(3) The operating expenses, including payroll expenses, necessary to resume "operations" with the same quality of service that existed just before the direct physical loss or damage; and

(4) Other relevant sources of information, including:

(a) Your financial records and accounting procedures; (b) Bill, invoices and other vouchers; and (c) Deeds, liens or contracts.[7]

The policy defines Extra Expense as "necessary expenses you incur during the period of restoration' that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss."[8] Regarding Extra Expense, the policy provides that:

b. The amount of Extra Expense will be determined based on:
(1) All expense that exceed the normal operating expense that would have been incurred by "operations" during the "period of restoration if no direct physical loss or damage had occurred....
(2) Necessary expenses that reduce the Business Income loss that otherwise ...

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