Our insured is a seafood restaurant and wholesaler located in Florida. The owner was ordered to evacuate because of Hurricane Frances . When he returned, he found there was direct wind damage to the condensing unit of the large walk-in cooler. Also, a light pole that was on an easement on the neighboring premises collapsed onto the insured's building's roof, causing damage.

As a result, all the seafood spoiled and the insured sustained a loss of business income. The adjuster told our insured that there was no coverage because of the exclusion for power failure. However, the adjuster also said that he could not establish if the power went out before the actual wind damage to the condensing unit.

Because of the evacuation, the insured was not on the site at the time, so he couldn't provide definite evidence one way or another. But since it is at least possible that the wind was the direct cause of the condenser's failure, we think the insured should get the benefit of the doubt. We should add that the form is not a standard ISO form.

What do you think? Is the insured entitled to business income loss because of the property damage and the spoilage?

Florida Subscriber

There are points in the coverage form you sent that support the insured's view. First, there is an endorsement attached that provides coverage for loss or damage directly caused by wind. So, if the wind directly damaged the condenser unit, perhaps by blowing an object against it, that would certainly be covered property damage. The light pole's collapsing onto the roof, damaging it, is also covered property damage. So, unless some other exclusion eliminates coverage, this covered property damage triggers business income coverage.

The next point to consider is the food spoilage. Here, it appears the adjuster has focused on the exclusion for failure of power or other utility service "however caused and wherever such failure should occur." But it is possible that the power never failed at all—the condenser quit working because it was damaged by the wind.

The policy you sent contains an exclusion for "dampness of atmosphere, dryness of atmosphere, changes in or extremes of temperature… change in flavor or color or texture or finish… All whether loss or damage from such excluded Causes of Loss is direct or indirect, proximate or remote, or be in whole or in part caused by, contributed to, or aggravated by a Cause of Loss covered under this Policy."

This exclusion, however, has been deleted in its entirety by endorsement. Given the insured's business, this is the type of endorsement we would expect to find; other forms add coverage for spoilage by endorsement, but this insurer provides coverage through deleting the exclusion.

So, the final point to be made: excluding loss resulting from power failure "however caused" and then giving back coverage for spoilage would render coverage illusory. This is the major reason refrigerated products spoil. The insurer could always invoke the exclusion in any situation, leaving the insured to wonder what he'd been paying for.

But, as we noted, the power might not have failed at all; the condenser might have quit working because of wind damage, leading to the covered spoilage.

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