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Insurance Law - FIRE INSURANCE - Loss

Thursday, January 12, 2017 @ 7:00 PM  

Appeal by the owner’s insurer, Zurich, from a declaration that it was required to pay the owner’s losses. The respondent 2224981 (Eco-Lux) conducted its manufacturing operations at premises leased from the respondent landlord, 2047193 (the “owner”), pursuant to a month-to-month lease. A fire largely destroyed the premises in February 2012 and, as a result, Eco-Lux ceased production and stopped paying rent. The premises were repaired some eight months later. However, by that time, Eco-Lux had gone out of business. Eco-Lux’s insurer, Intact, provided coverage to Eco-Lux for lost profits pursuant to the property and business interruption policy, based on an estimate of Eco-Lux’s gross profits less expenses, including rent. The owner sought coverage for its business losses pursuant to its policy with Zurich. Zurich denied coverage on the basis that Eco-Lux was obligated to continue to pay rent during that period, despite the fire. In order to resolve the issue of who was responsible for compensating the owner for lost rent, the parties stated a question to the Court. The motion judge found that the lease between Eco-Lux and the owner was frustrated by the fire and Eco-Lux’s obligation to pay rent ceased as a result, and that the owner suffered business losses covered by its insurance policy. He declared that Zurich was required to pay the owner’s losses.

HELD: Appeal dismissed. The motion judge’s conclusion that Zurich was required to cover the owner’s lost rental income as a business loss under the policy was correct. The owner’s insurance policy provided for business interruption loss and the owner’s loss of rental income constituted a business income loss. As the leased premises were destroyed by fire and Eco-Lux ceased operations as a result, it followed that the necessary interruption was caused solely by the fire. Zurich was not entitled to deny coverage on the basis that Eco-Lux continued to be liable to pay rent for the relevant period, despite the fire. Even assuming Eco-Lux remained obligated to pay rent, the owner was not obligated to pursue remedies against Eco-Lux before making a claim for business losses under its insurance policy.