Consequential Loss Caused by Odor Covered

A client who owns a refrigerated warehouse experienced a covered loss to the refrigerating equipment of one of its cooling chambers. A large quantity of garlic was stored in that chamber, which soon deteriorated. The next chamber contained cereal that became contaminated due to the smell of the spoiled garlic. The contents of all of the cooling chambers in the warehouse are designated as “specified property.” The carrier paid for the loss of the garlic under the consequential damage form, BM 15 28 06 95. We think they should pay for the loss of the cereal as well. Do you agree?

Florida Subscriber

The BM 15 28 06 95 states,

1. We will pay you for “Consequential Damage” to “Specified Property” that is caused solely by an “accident” to an “object”, provided all of the following requirements are met:

a. The “accident” must occur during the time this coverage is in force;

b. The “object” that has the “accident” must be:

(1) Specified as covered in the Consequential Damage Schedule;

(2) At a “location” specified in the Consequential Damage Schedule; and

(3) In use or connected ready for use.

All of these requirements appear to have been met—an accident to a covered object caused the loss (covered loss of refrigerating equipment of the cooling chamber containing garlic).  The policy defines “consequential damage” as “loss due to spoilage from lack of power, light, heat, steam or refrigeration, resulting from an 'accident'.” The loss of the cereal fits into this definition of “consequential damage.” A lack of power caused the garlic to spoil, which in turn spoiled the cereal. Webster's defines “spoil” as “ruin,” and the cereal was ruined because it was unusable. Thus, the loss would be covered under the BM 15 28 06 95.

 

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