Today we present the first part of our series, Insurance Recovery Law: History’s Best Decisions. The topic of this video is perhaps the most important business interruption insurance decision of all time, Fountain Powerboat Indus. v Reliance Ins. Co., 19 F Supp 2d 552, (ED NC 2000). In this case, The Fountain Powerboat company of North Carolina had a work slow down as the result of hurricane Floyd. They pursued relief under their property insurance policy pursuant to an “ingress egress” provision. Their insurance carrier denied coverage based on an all to common insurance industry custom and practice — denying coverage because there was no physical damage to insured property. The Court flatly rejected insurance industry custom and practice in favor of insurance policy language.
Watch the video find out what happened, and to find out why this is one of the most important insurance recovery law decisions of all time.
We have included a transcript of today’s video below:
Insurance Recovery Law
History’s Best Decisions: Fountain Powerboats Decision
First up, the Fountain Powerboats decision out of North Carolina. Fountain Powerboats, if you’re into the motor boating, so to speak industry and you have a boat or you’ve ever had a friend that had a boat, people know Fountain Powerboats is one of the premium brands and they’re headquartered in North Carolina.
What happened here? Well this is an insurance case, a business interruption type of insurance case, so it’s a property damage case. Fountain Powerboat has manufacturing facilities which are located off of, and get this, the road is Whichards Beach Road. Whenever you hear of a beach road, it’s one of those things that runs through the sand dunes and it’s kind of like on the barrier islands or it’s right on the coast. Just by the name of that, you’re thinking, well that’s probably right on the water. Well sure enough it is right on the water. What happened was Hurricane Floyd struck in 1999. Hurricane Floyd hits in 1999 and it floods. It floods Whichards Beach Road which is right on the beach and for 10 days they couldn’t get people into their facility. There was only one way in and out and it was flooded.
What happened? Well over those 10 days, Fountain Powerboats lost about $1 million. What’s interesting here is some people got in so what did they do to minimize their loss? Well they got people with a bunch of trucks and they brought people in. They were big trucks, and they tried to bring their people into the factory to work, which is a great thing to do because you don’t want to completely shut down. They put as many people as they could on the trucks and they tried to bring them in through the flooded waters over that 9 or 10 day period and they got them in there and their production was down 33%, so it wasn’t a complete shutdown. It’s just like, “Hey, we lost $1 million because we were a third off in our production because of this flood.”
What happened? They tender to their insurance company, Reliance Insurance Company, and Reliance says, “Nah, we’re not going to pay that.” They said, “Well here, here, here. We want this covered.” Fountain Powerboats was very smart here. They specified exactly what they wanted they wanted to cover under what provision. That provision was called a loss of ingress or egress provision, and those are in property policies. I’ll just read what that provision says. It says, “This policy covers loss sustained during the period of time as a result of a peril not excluded.” Here, the peril not excluded was the hurricane. That was covered. The flooding was covered. “As a result of a peril not excluded, ingress to or egress from real or personal property is thereby prevented.” Basically. I shortened it a tiny bit.
By it’s terms, it says, “Hey. If you got a covered peril, and ingress or egress is to a facility or property is hindered, we’re going to pay for that.” It was very clear. The language was exceedingly clear, but nonetheless the insurance company said, “Hold on. Hold on. It’s not what the policy says, it’s the way we do things and the way we do things here is we don’t cover that unless you had physical damage to the facility.” They’re like, “But the facility was on high ground. It wasn’t flooded. We had no problem at the facility. We had no property that was damaged. Nothing was physically damaged. The building is standing, there were no boats that were harmed. There was none of that. We just couldn’t get in or out.” The insurance said, “The way we do these things, we’re not covering it.”
What happened? Brought to court and the court, of course, held in favor of Fountain Powerboats. They said, “Look. Read the provision. It’s not what the insurance company does that matters. It’s what the policy says and if you read the provision, it’s perfectly clear. Loss of ingress or egress in the policy. It’s very clear,” the court said. The court said, “If there’s any sort of preventing of getting into or out of the property by a covered peril, the insurance company has to cover the loss.” Great decision. The insurance company had to cover the loss.
This decision is huge for at least 3 important reasons. 1, you don’t have to have property damage to your facilities to recover lost income. Insurance companies have been arguing that you need some sort of property damage to your facility or to your property for any of the coverage grants to be triggered. This is flat out wrong and this decision holds that. You don’t need property damage to trigger coverage, especially under ingress or egress coverage. You don’t need a complete shutdown of the facility to cover business interruption coverage. Again, insurance industry has been arguing for years, if you have a slow down we’re not going to cover it, but you have to completely close. Well that’s a bit counterintuitive. Why would a business want to completely shut down and lose 100% of their revenues. If they’re partially shutdown, they should still get coverage and the court also said, “Yeah, you get covered for a partial shutdown.” Again, industry custom and practice is different from policy language and the courts corrected the insurance industry on this.
The third reason why this decision is hugely important is because there was a provision in the policy that covered expenses that the policy holder incurs to present a claim to the insurance company. That provision, the court held, covered lawyers’ fees. i.e. In our case, it would be our lawyers’ fees pursuing a claim against the insurance company. This is something that we hear again and again. These provisions are standard, they’re in the policy, they cover costs and fees that the client incurs to present a claim to the insurance company. They’re in every policy and what the insurance company will say, “Well they cover accounting fees and things, but they certainly don’t cover lawyers.” This court rejected that and said, “They cover the lawyers’ fees. If the insurance company doesn’t pay a claim under a property policy, the lawyers’ fees, when you have to hire a lawyer to go after that claim, those are covered as well.”
The reason why this Fountain Powerboats case makes our top list of insurance cases of all time is because it shows industry custom and practice can vary considerably from what the policy says and it’s important not to rely on what an insurance broker says they understand the policy to mean. What’s important is to rely on what the policy says and what the caselaw says that interprets that language because 9 times out of 10, policy language and caselaw is more favorable than what the industry custom and practice in dealing with claim is. Look at the caselaw, look at the policy language, and hold to your guns.
It’s also interesting because this case, a million dollar case is not necessarily a case that you want to litigate because it’s expensive to litigate but it shows that yes, you can litigate these property cases if you have to. $1 million may not be enough for a policy holder to say, “Well I want to go into some really difficult litigation with my insurance company,” but $1 million, along with the policy provision that says we’ll pay for lawyers’ fees pursuing these claims is enough. An understanding of these provisions, and there’s many of them, many of these different provisions and there’s many cases that relate to these different provisions, but having that knowledge allows you to put forth a better argument to the insurance company.