Business owners in Weatherford, Mineral Wells, Aledo, Azle, Springtown, Millsap, Brock, Hudson Oaks, Willow Park, and other areas of Parker County need to have a good understanding of the coverage provided in their policies.
The United States District Court, Southern District, Houston Division, issued an opinion on December 20, 2011, that dealt with the interpretation of a commercial insurance policy. The style of the case is, H & H Hospitality LLC v. Discover Specialty Insurance Company. The attorney for the business owner had to argue with the attorney for the insurance company as to the correct interpretation of the policy language related to the “business cessation” clause in the policy.
Here is some background.
This was a Hurricane Ike insurance dispute. H & H was, at the time of Hurricane Ike struck Houston in September 2008, the named insured on a commercial insurance policy issued by Discover. H & H owns and operates a Super 8 Motel located in Spring, Texas. Strong winds from Hurricane Ike “caused damage to the Hotel, including the loss of part of the roof on one of the buildings to the Hotel. Approximately 40 hotel rooms were rendered un-rentable by the storm, mostly in Building 2 where part of the roof blew off, but some of the rooms in Building 1 were also damaged. In spite of the damages sustained, H & H had some undamaged, rentable rooms available in both buildings and kept the property open continuously after the storm. Among its other losses, H & H claimed business interruption losses of $293,191, of which Discover has paid only $51,971.02.
Discover moved for partial summary judgment on the business interruption claim, contending that it does not apply because H & H never closed the Property and therefore had no “necessary suspension of operations” to trigger coverage under the business interruption provision.
Under Texas law, insurance policies are subject to the same rules of construction as other contracts. When construing a policy, the Court’s primary concern is to give effect to the written expression of the parties’ intent. The policy must be considered as a whole, giving effect to each part, and the terms used in the policy must be given their ordinary and generally accepted meaning, unless the policy shows the words were meant in a technical or different sense.
The Policy provides:
BUILDING AND PERSONAL PROPERTY COVERAGE FORMS A. COVERAGES 1. Property at Your Premises a. We will pay for direct physical loss of or damage to Covered Property:
*3 (1) If caused by or resulting from any of the Covered Causes of Loss ….
J. DEFINITIONS 2. “Covered premises” means premises described in the Declarations or in a Schedule of Locations form attached to this Coverage Part.
…
8. “Operations” means:
a. Your business activities occurring at “covered premises”; and
b. The tenantability of the “insured locations.”
…
BUSINESS INCOME COVERAGE FORM BUSINESS INCOME 1. We will pay the actual loss of Business Income that you sustain during the “period of restoration” because of the necessary suspension of your “operations.” The suspension must be caused by or result from direct physical loss of or damage to property at or within 1000 feet of “insured locations.”
Discover attorneys contended that “necessary suspension of your ‘operations'” means a complete cessation or stoppage of business activities at the covered premises. H & H attorneys countered that the Court should consider “the nature of the premises at issue” in determining what constitutes a “necessary suspension of operations.” H & H argues that, as a hotel with rooms to rent, the business interruption provision should be construed to provide coverage because some of its rooms were damaged by the storm and as to those rooms, “their use as a revenue generating good was … ‘suspended’ as a result of Hurricane Ike.”
While the Policy does not define “necessary suspension of your operations,” courts have interpreted language identical or similar to the clause in this policy to cover the risk of a complete cessation of business activities at the covered premises, which in this case are identified solely as a Super 8 Motel.
In contrast, courts have construed policy provisions that state “necessary or potential suspension” of business operations or “necessary interruption of business, whether total or partial” to allow coverage for a partial cessation of business without requiring a total business shut down.
Here, the Property sustained damage to a portion of its available rental units but remained open continuously; there was therefore no cessation of operations within the meaning of the Policy such as to trigger the business interruption clause.
Moreover, H & H did not present evidence to raise a fact issue that it was unable to meet customer demand for rooms. H & H did not claim, nor did it submit evidence to show, that it could not fulfill its customers’ demand with the inventory of rooms for rent that it had available, or that it ever once had to turn customers away. H & H’s “Listing of Occupancy Stats,” which is uncontroverted, supported an inference that H & H did in fact have a supply of rooms sufficient to meet the demand; there was no month when H & H had an occupancy rate of over 80% for its available rooms, and during most months it hovered around 60%. Hence, although H & H may have sustained a business slowdown, the uncontroverted summary judgment evidence is that it did not suffer a “necessary suspension of operations” such as to trigger coverage under the business interruption clause of the Policy.
Updated: