Defense Counsel Journal - International Association of Defense ...

Page 432 DEFENSE COUNSEL JOURNAL–October 2012product.” 67 The insured sold thetypewriters from its inventory andpurchased typewriters from anothersource from September to November1981 to meet its sales demands in thetime during and after the interruptions atthe Italian plant. The insured reorganizedin December 1981 and changed toproducing electronic typewriters.During the interruption, the insuredmet its sales obligations. After resumingoperations, the insured lost sales due to itsdepleted inventory. After itsreorganization, the insured filed a claimunder its business interruption insurancepolicy for the recovery of lost profits androyalties suffered as a result of the twoItalian earthquakes. Specifically, theinsured claimed that it incurred a lossafter restoration when it could have soldmore typewriters had the operations inItaly not been suspended as a result of theearthquakes.The central question in Pennbarr waswhether a contingent businessinterruption loss for lost sales sustainedafter the period of restoration wascovered under the policy. The insurerdenied coverage for the loss because thelosses occurred after the period ofrestoration. The Third Circuit agreed withthe insurer and held that the insured couldonly recover for loss of sales thatoccurred simultaneously with theinterruption of production caused by theearthquakes and that the policy did notcompensate the insured for lossesincurred after the damaged property isrestored. 68 The court found that this resultwas “consistent with the purpose of67 Id. at 148.68 Id. at 154.business interruption insurance: to returnto the insured that amount of profit thatwould have been earned during the periodof interruption had a casualty notoccurred . . . . This policy is not designedto compensate for losses sustainedbeyond the period of restoration.” 69 Thecourt was also concerned that “[w]ithoutsome cut-off date for the bringing ofclaims under the policy, ‘claims would beopen to a degree of speculation whichwould be absurd.’” 70It is interesting to note that the claimfor business interruption was made almostone year after the initial earthquake andshortly after the insured reorganized.These factors may have influenced theThird Circuit’s decision, particularlygiven the court’s concern about openendedand speculative claims.Because contingent businessinterruption coverage is dependent upondamage to a third-party for a coverageperil, one must pay attention to how thirdpartiesare defined and how thesecategories are interpreted. In Archer-Daniels-Midland v. Phoenix Assurance, 71the insured suffered losses from“unprecedented flooding” of theMississippi River in 1993 that affectednine states. The insured and itssubsidiaries are farm-product processorsand sustained substantial extra expensesand losses of income because of increasesin both transportation costs and the costof raw materials. The insurer paid aportion of the losses sustained by theinsured, and the insured brought a breachof contract action against the insurer for69 Id. at 154-155.70 Id. at 153.71 936 F. Supp. 534 (S.D. Ill. 1996).