Selling Price and Goods in Process

Our insureds manufacture sweatshirts for public events such as rock shows and sporting events. They received a contract prior to the 1993 Superbowl in Pasadena to manufacture a supply of sweatshirts to be sold at the game. At the time of manufacturing, it was not known which teams would be in the Superbowl. Consequently, the sweatshirts were manufactured blank and stored in the insured's warehouse until the playoffs were over. After the playoffs, they were to be silk-screened with the appropriate teams' logos and shipped off to be sold at the game. Up to 80 percent of the blank sweatshirts that were stored in the warehouse awaiting the playoff results had been presold to retailers.

The sweatshirts were destroyed in a warehouse fire before being silk-screened. They were covered by the building and personal property coverage form (CP 00 10 04 02) with the manufacturer's selling price (finished “stock” only) endorsement (CP 99 30 06 95), causes of loss—special form (CP 10 30 04 02), and the business income coverage form (CP 00 30 04 02). The insurance company says the lost value of the sweatshirts should be covered as goods in process on the building and personal property form and the lost income from the sweatshirts should be covered on the business income policy. We think the whole loss, including the lost income, should be covered on the building and personal property form with the manufacturer's selling price endorsements. First, it is easier to set the value that should be insured under a direct loss form than it is under a business income form. Second, it is easier to put a selling price value on damaged property than it is to establish the amount of a business income loss. How should this loss be handled?