MCWG Obtains Summary Judgment
Safeguard Storage Properties, LLC v. Donahue Favret Contractors
(Civil Dist. Ct., Parish of Orleans, La., Dec. 23, 2009)
Summary judgment was granted in favor of excess insurers on a novel issue of business interruption law: Whether business interruption insurance covers the present value of decades of future profits allegedly lost because the occurrence at issue crippled the insured’s ability to carry out future business expansion plans. Mound Cotton represented two of the fifteen excess insurers (SR International and Allied World) and briefed and argued the summary judgment motion regarding period of recovery issues. In his opinion, Judge Michael Bagneris certified his rulings for immediate appeal, observing that trying the case would be futile until these “res nova” issues had been addressed by Louisiana’s appellate courts.
The plaintiff, Safeguard Storage Properties, LLC, built and operated self-storage facilities in several urban areas in the eastern United States. Its executive offices and nationwide call center were located in Metairie, Louisiana. A number of Safeguard’s self-storage facilities, as well as its headquarters, were damaged as a result of Hurricane Katrina in August 2005. That damage was repaired by the end of 2005, by which time its affected facilities had reopened, its headquarters had been reoccupied, and its call center had been relocated and reopened at another of its locations. Safeguard later claimed that the storm damage had made its headquarters building uninhabitable, causing it to relocate its headquarters to Atlanta.
Nevertheless, Safeguard claimed $332.5 million in business interruption damages. It contended that the effects of Hurricane Katrina – including the relocation of its headquarters and call center, the loss of trained personnel, and the diversion of its management personnel to repairing the affected facilities - had caused massive disruption to its ability to carry out its development plans. It claimed that it was prevented from building 37 new self-storage facilities between 2005 and 2009, which it claimed would have generated hundreds of millions of dollars in net profits over a period of 39 years. It sued for the present value of those profits, $332.5 million.
Judge Bagneris dismissed these “lost development opportunity” claims in their entirety. First, he ruled that, under the “actual loss sustained” provision of the policy, Safeguard was entitled to recover only the “net profit which is thereby prevented from being earned” during the period of indemnity. The policy did not allow Safeguard to “compress all future income attributable to these entities into the year the business development was supposedly lost.” Second, he found that Safeguard’s claim that it would have built 37 new facilities in the four years after Katrina, and earned steady profits from those facilities for 39 years, was too speculative to be presented to a jury. Safeguard had not even identified specific locations for these new facilities, let alone determined the costs, regulatory hurdles, or competitive facilities for any of them. Judge Bagneris characterized Safeguard’s claim as “damages for 37 non-existing, non-identified storage facilities across the country which were going to continuously operate successfully earning imagined, projected profits for 39 unelapsed, future years.”
Finally, ruling on the issues that Mound Cotton briefed and argued, the judge rejected Safeguard’s “strained” interpretation of the policy’s Period of Recovery clause, Safeguard argued that the Initial Period of recovery extended until the damage to its insured property was actually repaired, and that the Extended Period of recovery extended thereafter until all applicable statutes of limitation had expired, plus one year. Safeguard calculated that this would extend the Period of Recovery until August 2016. Judge Bagneris rejected the notion that Safeguard should “receive ‘business interruption’ recovery for more than a decade after its business was interrupted.” He ruled that the Period of Recovery clause is unambiguous, and provides for only an Initial Period that runs from the date of loss until the date when the damage to insured property could have been repaired with due diligence and dispatch (or, the insured resumes business), plus an Extended Period of no more than twelve months. As a result, Safeguard’s business interruption losses were limited to the short period in which it repaired its damaged insured property, plus no more than a year: Far less than the 39 years it advocated.
These “lost development opportunity” claims were the only of Safeguard’s claims that exceeded the primary layer. Therefore, this ruling eliminated all claims against the excess insurers. Mound Cotton will continue its advocacy on these issues throughout the appellate process.
For inquiries about this case, please contact Philip C. Silverberg (psilverberg@moundcotton.com)
