Island Concepts, LLC v. Certain Underwriters at Lloyd's of London

Filing 34

ORDER AND REASONS granting 12 Motion for Summary Judgment. Signed by Chief Judge Sarah S. Vance on 10/31/14. (jjs)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
ISLAND CONCEPTS, LLC.

CIVIL ACTION

VERSUS

NO: 13-6725

CERTAIN UNDERWRITERS AT LLOYD'S,

SECTION: R

LONDON

ORDER AND REASONS
Defendant,

Certain

Subscribing

to

Policy

("Lloyd's"),

moves

for

Underwriters
Number
summary

at

Lloyd's,

London,

17-7590248903/Syndicate
judgment.1

For

the

4242

following

reasons, the motion is GRANTED.

I.

BACKGROUND
A.
This

Factual Background
case

arises

out

of

an

insurance

dispute

between

plaintiff, Island Concepts, LLC, d/b/a Friends Coastal Restaurant
("Friends"), and defendant, its insurer.

During Hurricane Isaac,

Friends sustained wind and water/flood damage to its property in
Madisonville, Louisiana.

This property was insured by Policy

Number 17-7590248903 issued by Lloyd's, which covered the period of
June 5, 2012 to June 5, 2013.

1

R. Doc. 12.

The policy provided coverage with

limits of $1,000,000 for property damage to buildings, $600,000 for
tenant betterments and improvements, and $1,200,000 for business
income and extra expense.

By September 3, 2012, Lloyd's retained

multiple experts to adjust the claim, including an independent
field adjuster, a structural engineering group, and a certified
public accountant. During the adjustment, Lloyd's paid Friends the
following sums: (1) $234,905.73, less a $28,000 deductible, for
damage to the insured building; (2) $34,594.56 for the actual cash
value of business personal property / tenants betterments and
improvements; and (3) $335,372.64 for Business Income losses due to
the peril of wind caused by Hurricane Issac.2

Lloyd's initially

withheld depreciation from Friends in the amount of $12,967.06,
which it tendered to Friends after receiving notice that Friends
was in the process of rebuilding the insured building.
Disagreements

between

the

parties

adjustment and payment process.

developed

during

the

Friends eventually invoked a

provision of the insurance policy that becomes available when the
parties cannot agree about the amount of a particular loss.

The

appraisal provision contained within the "Business Income (And
Extra Expense) Coverage Form" reads as follows:
1. Appraisal If we and you disagree on the amount of Net
Income and operating expense or the amount of loss,
either may make written demand for an appraisal of the
loss. In this event, each party will select a competent
and impartial appraiser.

2

R. Doc. 12-7 at 2.
2

The two appraisers will select an umpire. If they cannot
agree, either may request that selection be made by a
judge of a court having jurisdiction.
The appraisers
will state separately the amount of Net Income and
operating expense or amount of loss. If they fail to
agree, they will submit their differences to the umpire.
A decision agreed to by any two will be binding. . . .
If there is an appraisal, we will still retain our right
to deny the claim.3
Once this provision is applied, each party selects a competent and
impartial appraiser who will eventually provide an opinion as to
the amount of the loss. Before doing so, the two appraisers select
an umpire to make the final decision.

If the parties cannot agree

on an umpire, they may move the Court to select one.

Once a three-

person panel is assembled, an appraisal award signed by any two
“will be binding” on the parties.
Lloyd's selected Winston Wood as its appraiser, and Friends
chose Patrick Gros.

Together, Wood and Gros agreed to Charles

Theriot as the umpire.

Wood and Gros could not agree as to the

correct amount for business income losses, and thus submitted the
dispute to Theriot.

On May 6, 2014, Theriot issued an award

report, in which he concluded that Lloyd's' "calculation of the
business

interruption

reasonably accurate.

claim

for

the

primary

loss

period

is

[Friends'] calculations for the preliminary

loss period are not correct."4

3

R. Doc. 12-3 at 33.

4

The award appraised Friends'

R. Doc. 14-5 at 9.
3

business income losses at $442,878, which was the sum proposed by
Wood.
not.

Wood and Theriot both signed the appraisal award.

Gros did

On June 3, 2014, Lloyd's paid Friends $107,505.36, which was

the difference between the appraisal award and the $335,372.64
Lloyd's had already paid to Friends for Business Income losses.
On August 27, 2013, Friends filed suit against Lloyd's,
claiming additional sums for building losses, contents losses, and
business interruption losses under its policy, as well as a claim
for penalties, damages, and attorney's fees for bad faith under La.
R.S. §§ 22:1973 and 22:1892.

Lloyd's now moves for summary

judgment on the grounds that (1) the completion of the binding
appraisal process bars Friends' claims for additional sums for
Business Income losses under the policy; (2) Friends has not
provided any proof that it is owed additional sums for either
building or contents losses under the policy; and (3) Lloyd's paid
all sums due under the policy within 30 days of proof of loss of
each component of the claim, making bad faith penalties under La.
R.S. §§ 22:1973 and 22:1892 inappropriate.

In its opposition,

Friends concedes that building and contents losses are no longer
issues in the case, and consents to the dismissal of those claims.
Thus, only the claims for business income losses and bad faith
penalties remain in the case.
B.

Policy Provisions and Definitions

4

The "Business Income (And Extra Expense) Coverage Form" of the
policy provides:
We will pay for the actual loss of Business Income you
sustain due to the necessary "suspension" of your
"operations" during the "period of restoration". The
"suspension" must be caused by direct physical loss of or
damage to property at premises which are described in the
Declarations and for which a Business Income Limit is
shown in the Declarations. The loss or damage must be
caused by or result from a Covered Cause of Loss.5
The policy defines Business Income as:
a.

Net Income (Net Profit or Loss before income
taxes) that would have been earned or
incurred; and

b.

Continuing normal operating expenses incurred,
including payroll.6

The policy also provides that:
a.

The amount of Business Income loss will be
determined based on:
(1)

The Net Income of the business before the
direct physical loss or damage occurred;

(2)

The likely Net Income of the business if
no physical loss or damage had occurred,
but not including any Net Income that
would likely have been earned as a result
of an increase in the volume of business
due to favorable business conditions
caused by the impact of the Covered Cause
of Loss on customers or on other
businesses;

(3)

The operating expenses, including payroll
expenses,
necessary
to
resume
"operations" with the same quality of

5

R. Doc. 12-3 at 29.

6

Id.
5

service that existed just before
direct physical loss or damage; and
(4)

the

Other relevant sources of information,
including:
(a)

Your
financial
records and
accounting procedures;

(b)

Bill, invoices and other vouchers;
and

(c)

Deeds, liens or contracts.7

The policy defines Extra Expense as "necessary expenses you
incur during the 'period of restoration' that you would not have
incurred if there had been no direct physical loss or damage to
property caused by or resulting from a Covered Cause of Loss."8
Regarding Extra Expense, the policy provides that:
b.

The amount of Extra Expense will be determined
based on:
(1)

All expense that exceed the normal
operating expense that would have been
incurred by "operations" during the
"period of restoration if no direct
physical loss or damage had occurred. . .
.

(2)

Necessary expenses that reduce the
Business Income loss that otherwise would
have occurred.9

7

Id. at 34.

8

Id. at 29.

9

Id. at 34.
6

The policy defines Period of Restoration as the period of time
that:
a.

Begins:
(1)

72 hours after the time of direct
physical loss or damage for Business
Income Coverage; or

(2)

Immediately after the time of direct
physical loss or damage for Extra Expense
Coverage;

caused by or resulting from any Covered Cause of Loss at
the described premises; and
b.

Ends on the earlier of:
(1)

The date when the property at the
described premises should be repaired,
rebuilt or replaced with reasonable speed
and similar quality; or

(2)

The date when business is resumed at a
new permanent location.10

Regarding Extended Business Income, the policy provides:
If the necessary "suspension" of your "operations"
produces a Business Income loss payable under this
poilcy, we will pay for the actual loss of Business
Income you incur during the period that:
(a)

Begins on the date property . . . is actually
repaired, rebuilt or replaced and "operations"
are resumed; and

(b)

Ends on the earlier of:
(i)

10

The
date
you
could
restore
your
"operations", with reasonable speed, to
the level which would generate the
business income amount that would have

Id. at 37.
7

existed if no direct physical loss or
damage had occurred; or
(ii) 30 consecutive days after
determined in (1)(a) above.

the

date

The policy also provides that the number 30 in the provision
regarding Extended Business Income shall be replaced with the
number

shown

Indemnity."11

in

any

Declaration

for

an

"Extended

Period

of

According to one of the Declaration Pages that form

part of the policy, Friends purchased an "Extended Period of
Indemnity" of 90 days that applies to Business Income losses.12

II. LEGAL STANDARD
Summary judgment is warranted when "the movant shows that
there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a);
see also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986);
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
When assessing whether a dispute as to any material fact exists,
the

Court

considers

"all

of

the

evidence

in

the

record

but

refrain[s] from making credibility determinations or weighing the
evidence." Delta & Pine Land Co. v. Nationwide Agribusiness Ins.
Co.,

530

F.3d

inferences

are

395,
drawn

11

in

(5th

favor

Id. at 37.

12

398–99

Id. at 6.
8

Cir.
of

the

2008).

All

nonmoving

reasonable
party,

but

"unsupported allegations or affidavits setting forth 'ultimate or
conclusory facts and conclusions of law' are insufficient to either
support or defeat a motion for summary judgment." Galindo v.
Precision Am. Corp., 754 F.2d 1212, 1216 (5th Cir. 1985); see also
Little, 37 F.3d at 1075.
If the dispositive issue is one on which the moving party will
bear the burden of proof at trial, the moving party "must come
forward with evidence which would ‘entitle it to a directed verdict
if the evidence went uncontroverted at trial.'"

Int'l Shortstop,

Inc. v. Rally's, Inc., 939 F.2d 1257, 1264–65 (5th Cir. 1991). The
nonmoving party can then defeat the motion by either countering
with evidence sufficient to demonstrate the existence of a genuine
dispute of material fact, or "showing that the moving party's
evidence is so sheer that it may not persuade the reasonable
fact-finder to return a verdict in favor of the moving party." Id.
at 1265.
If the dispositive issue is one on which the nonmoving party
will bear the burden of proof at trial, the moving party may
satisfy its burden by merely pointing out that the evidence in the
record is insufficient with respect to an essential element of the
nonmoving party's claim. See Celotex, 477 U.S. at 325. The burden
then shifts to the nonmoving party, who must, by submitting or
referring to evidence, set out specific facts showing that a
genuine issue exists. See id. at 324. The nonmovant may not rest
9

upon the pleadings, but must identify specific facts that establish
a genuine issue for trial. See, e.g., id.; Little, 37 F.3d at 1075
("Rule 56 'mandates the entry of summary judgment, after adequate
time for discovery and upon motion, against a party who fails to
make a showing sufficient to establish the existence of an element
essential to that party's case, and on which that party will bear
the burden of proof at trial.'" (quoting Celotex, 477 U.S. at
322)).

III. DISCUSSION
Again, the insurance contract between the two parties contains
the following provision in the "Business Income (And Extra Expense)
Coverage Form":
1. Appraisal If we and you disagree on the amount of Net
Income and operating expense or the amount of loss,
either may make written demand for an appraisal of the
loss. In this event, each party will select a competent
and impartial appraiser.
The two appraisers will select an umpire. If they cannot
agree, either may request that selection be made by a
judge of a court having jurisdiction.
The appraisers
will state separately the amount of Net Income and
operating expense or amount of loss. If they fail to
agree, they will submit their differences to the umpire.
A decision agreed to by any two will be binding. . . .
If there is an appraisal, we will still retain our right
to deny the claim.13

13

R. Doc. 12-3 at 33.
10

The provision explicitly states that a “decision agreed to by any
two will be binding."
Appraisal
Louisiana law.

clauses

such

as

these

are

enforceable

under

See St. Charles Parish Hosp. Serv. Dist. No. 1 v.

United Fire & Cas. Co., 681 F. Supp. 2d 748, 753 (E.D. La. 2010);
Newman v. Lexington Ins. Co., No. 06-4668, 2007 WL 1063578, at *2
(E.D. La. Apr. 4, 2007); Fourchon Docks, Inc. v. Nat’l Union Fire
Ins. Co. of Pittsburgh, Pa., No. 86-2267, 1988 WL 32938, at *8
(E.D. La. Apr. 6, 1988); Sevier v. U.S.F. & G., 485 So. 2d 132,
135-36 (La. Ct. App. 1986), rev’d on other grounds, 497 So. 2d 1380
(La. 1986); Girard v. Atlantic Mut. Ins. Co., 198 So. 2d 444, 44547 (La. Ct. App. 1967); Martin v. Home Ins. Co., 133 So. 773, 776
(La. Ct. App. 1931).

They do not, however, deprive a court of

jurisdiction over the matter.

St. Charles Parish Hosp., 681 F.

Supp. 2d at 753; Newman, 2007 WL 1063578, at *2; Fourchon Docks,
1988 WL 32938, at *8; Girard, 198 So. 2d at 446.
The Louisiana Civil Code sets forth the guiding principles for
construing contracts in Louisiana.

See In re Katrina Canal

Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007); Cadwallader v.
Allstate Ins. Co., 848 So.2d 577, 580 (La. 2003).

“Interpretation

of a contract is the determination of the common intent of the
parties.”

La. Civ. Code art. 2045 (2013).

Such intent is to be

derived from the language of the contract itself. If that language
is “clear and explicit and lead[s] to no absurd consequences, no
11

further interpretation may be made in search of the parties’
intent.”

Id. art. 2046.

Words “must be given their generally

prevailing meaning,” and terms of art are interpreted as such only
when a technical matter is at stake.

Id. art. 2047.

Furthermore,

“[e]ach provision in a contract must be interpreted in light of the
other provisions so that each is given the meaning suggested by the
contract as a whole.”

Id. art. 2045.

To the extent that ambiguous terms appear in an insurance
contract, they “are to be construed liberally in favor of a person
claiming coverage.” Westerfield v. LaFleur, 493 So. 2d 600, 602-03
(La. 1986); see also La. Civ. Code art 2056 (“In case of doubt that
cannot be otherwise resolved, a provision in a contract must be
interpreted against the party who furnished its text.

A contract

executed in a standard form of one party must be interpreted, in
case of doubt, in favor of the other party.”); Arctic Slope
Regional Corp. v. Affiliated FM Ins. Co., 564 F.3d 707, 709-10 (5th
Cir. 2009) (ambiguities in insurance contracts are “to be construed
against the insurer and in favor of coverage”) (quoting Sher v.
Lafayette Ins. Co., 988 So. 2d 186, 193 (La. 2008)); see also
Herbert v. Webre, 982 So. 2d 770, 774 (La. 2008).
In addition, appraisal provisions in insurance contracts are
strictly construed.

Branch v. Springfield Fire & Marine Ins. Co.,

4 So. 2d 806, 809 (La. 1941).

An appraisal award issued under an

insurance policy is binding only if the appraisers “have performed
12

the duties required of them by the policy, which is the law between
the contracting parties.”

Id.; see also St. Charles Parish Hosp.,

681 F. Supp. at 754; Prien Props., LLC v. Allstate Ins. Co., No.
07-845, 2008 WL 1733591, at *2 (W.D. La. Apr. 14, 2008); Fourchon
Docks, 1988 WL 32938, at *8.

Contractually specified appraisal

awards are presumed accurate.

See In re Waters, 93 F.2d 196, 200

(5th Cir. 1937) (surveying cases from numerous jurisdictions to
determine that “every reasonable intendment and presumption is in
favor of an award of appraisers selected to determine the value of
property lost”).

Further, as the policy explicitly states that

“[a] decision agreed to by any two will be binding,” the burden of
demonstrating that the award should not be confirmed must fall upon
the party challenging it.

See La. Civ. Code arts. 1983, 2045-46;

St. Charles Parish Hosp., 681 F. Supp. at 754.
Lloyd's argues that because Friends requested the binding
appraisal, and because the appraisal process has concluded and
Friends has been paid in accordance with the appraisal, Friends is
now bound by the appraisal award.

If Lloyd's is correct, then

Friends may not seek sums for Business Income losses in excess of
the award, and Lloyd's is entitled to summary judgment on Friends'
breach of contract claim.

In response, Friends argues that the

appraisal award should not be binding because the appraisers and
umpire

exceeded

their

authority

by

determining

coverage, which are reserved to the Court.

13

questions

of

Specifically, Friends

identifies four issues that it contends are "coverage issues" that
the Court must decide.

First, Friends argues that because the

policy does not specify a particular accounting methodology to be
used to determine Business Income losses, the Court must provide
direction as to which accounting method the parties should use
before an appraisal award can be valid.

Second, Friends argues

that the umpire did not follow the policy's definition of Business
Income when calculating the appraisal award. Third, Friends argues
that the determination of the appropriate "period of restoration"
is a coverage question that the appraisers and umpire did not have
authority to decide. Fourth, Friends argues that the determination
of the correct period for "Extended Business Income" coverage is a
coverage question that the appraisers and umpire not only lacked
the authority to decide, but also decided inconsistently with the
policy.

A.

These challenges will be addressed in turn.

Choice of Accounting Method

Lloyd's CPA, Wood, and Friends' CPA, Gros, utilized different
accounting methods to calculate the Business Income loss estimates
that they submitted to the umpire, Theriot.

Theriot agreed with

and adopted the method used by Wood, which sought to account for
seasonality, and rejected the method used by Gros, which did not.
As Theriot explained in the appraisal award:
The insured failed to account for seasonality in their
calculations, applying the profits from 2011 plus 2.83%
14

evenly to the loss period. The loss period includes the
slower periods of the year. The business is very seasonal
. . . with losses typically experienced in periods 9-13
and periods 1-2 of each year.14
Friends argues that because the policy does not specify a
particular accounting methodology to be used to determine Business
Income

losses,

the

Court

must

provide

direction

as

to

which

accounting method the parties should use before an appraisal award
can be valid.

Friends also contends that the method utilized by

Wood and adopted by Theriot was "flawed" because, according to an
opinion letter by Friends' CPA, Gros, the method used by Lloyd's
"required

several

assumptions

concerning

normal

revenues

and

expenses, contracts and variations."15
Under Louisiana law, appraisal awards enjoy a presumption of
correctness.

See In re Waters, 93 F.2d at 200.

Thus, this Court

has held that "a court should not disrupt an appraisal award simply
because reasonable minds could differ as to the amount awarded or
the methods employed."

St. Charles Parish Hosp., 681 F. Supp. 2d

at 760 (emphasis added).

Nevertheless, "[a] court . . . is not

bound to confirm an award that contains clear mistakes of fact."
Id.
Gros's opinion letter does not support a conclusion that Wood
or Theriot made a clear mistake of fact in their choice of

14

R. Doc. 14-5 at 5 n.5.

15

R. Doc. 14 at 9.
15

accounting method. Rather, his letter specifically admits that the
method used by Wood "can be a reasonable approach," although "it
has some flaws."16

One flaw, according to Gros, is that Wood's

method requires various "assumptions" that necessitate a "detailed
explanation by the Client . . . or else the values will be
distorted."17

Another alleged flaw is that "when several disaster

claims . . . have occurred over the look back period, it is
extremely difficult to determine what normal business income or
loss should be."18

Neither of these alleged flaws rises to the

level of a clear mistake of fact.

In addition, both of Gros's

proposed alternative methods rely upon historical data from the
years immediately preceding Hurricane Isaac, just as Wood's method
does.19 Thus, it is not clear that the two alternative methods Gros
suggests would not be equally susceptible to problems related to
disaster claims during the look back period.
The most that Gros's letter establishes is that there was a
difference in professional opinion between the members of the
appraisal panel about the best accounting method to use.

Even if

"reasonable minds could differ as to . . . the methods employed,"
reasonable differences in opinion are not a sufficient reason to

16

R. Doc. 14-6 at 3.

17

Id.

18

Id.

19

See id. at 4.
16

overturn a binding appraisal award.

Id.; see also La Louisiane

Bakery Co. v. Lafayette Ins. Co., 61 So. 3d 17, 34 (La. Ct. App.
2011) ("The use of a specific base period is a judgment call
dependent upon the type of business. Therefore, two individuals
performing a calculation could arrive at different figures.").
Accordingly, Friends cannot defeat summary judgment on the ground
that its appraiser disagrees with the accounting method utilized by
Lloyd's appraiser and approved by the umpire.

B.

Method of Calculating Business Income

Second, Friends challenges the award on the grounds that the
appraisers improperly deducted Net Losses from Continuing Expenses
when calculating Business Income losses.20 Friends argues that this
method was inconsistent with the policy's definition of Business
Income.

Friends is incorrect.

The policy defines Business Income as:
a.

Net Income (Net Profit or Loss before income
taxes) that would have been earned or
incurred; and

b.

Continuing normal operating expenses incurred,
including payroll.21

Courts interpreting similar policy language under Louisiana
law have construed the "and" to indicate that addition--or, when a

20

R. Doc. 14 at 14.

21

R. Doc. 12-3 at 29.
17

business is operating at a loss, subtraction--is necessary to
calculate "Business Income."

See, e.g., United Land Investors,

Inc. v. Northern Ins. Co. of America, 476 So.2d 432, 436 (La. Ct.
App. 1985) (finding that a similar policy provision unambiguously
required deducting net losses from operating expenses when a
business was operating at a loss); B.F. Carvin Const. Co. v. CNA
Ins. Co., No. 06-7155, 2008 WL 5784516, at *2 (E.D. La. July 14,
2008) ("[T]he proper calculation consists of adding 'Net Income
...and [c]ontinuing normal operating expenses.'"); Shelter Mutual
Ins. Co. v. Culbertson's Limited, Inc., No. 97-1609, 1999 WL
461826, at *5 (E.D. La. July 2, 1999) ("Clearly, if a company were
not making a profit, as was the case apparently from the numbers
presented, then there are 'expenses' which a company has paid out,
that it has not 'earned.'").
The Court also finds persuasive the reasoning of the Supreme
Court of Tennessee, which interpreted a Business Income provision
identical to that in the Lloyd's policy in Continental Insurance
Co. v. DNE Corp., 834 S.W. 2d 930 (Tenn. 1992).

As that court

explained:
It seems obvious to us from the wording of the policy
that in any given case, the amount of “business income”
will be a number that is the sum of a second number (“net
income,” which may be either a net profit or a net loss)
and a third number (continuing normal operating expenses
incurred). The “business income” provision of the policy
clearly indicates that the amount of business income is
to be determined by adding the second number and the
third number together, and not . . . by looking only to

18

the third number and completely ignoring the second
number.
Id. at 932.

The Court concludes that when, as here, the business

was operating at loss, the proper calculation consists of adding
the

negative

"Net

Income"--that

is,

"continuing normal operating expenses."

the

"Net

Loss"--to

the

In other words, the Net

Loss must be deducted from continuing expenses to arrive at a
figure for Business Income loss that is consistent with the policy.
This is precisely what Wood and Theriot did.
This

method

is

also

consistent

with

the

purpose

behind

business interruption insurance, which is to "protect the earnings
which the insured would have enjoyed had no interruption or
suspension occurred."

La Louisiane Bakery Co., 61 So. 3d at 34

(citing Yount v. Lafayette Ins. Co., 4 So.3d 162, 171 (La. Ct. App.
2009).

As stated in United Land Investors, "[a]lthough the policy

is designed to protect the insured, it is also designed to prevent
the insured from being placed in a better position than if no loss
or interruption of business had occurred."

476 So. 2d at 436; see

also Steven Plitt, Daniel Maldonado, Joshua D. Rogers & Jordan R.
Plitt, 12 Couch on Insurance § 185:1 ("The essential nature and
purpose of business interruption insurance is to protect the
earnings which the insured would have enjoyed had there been no
interruption of the business; in other words, the purpose of
business interruption coverage is to do for the business what the
business would have done for itself had no interruption occurred.
19

. . . Note that this goal means that if the business was operating
at a loss, there might be no recovery under the policy." (emphasis
added)).

Because the Court finds that the policy unambiguously

sets out a method for calculating Business Income, and because Wood
and Theriot calculated Business Income consistently with that
method, Friends cannot defeat summary judgment on this ground.

C.

Determination of Period of Restoration

Third,

Friends

argues

that

the

determination

of

the

appropriate "period of restoration" is a coverage question that the
appraisers and umpire did not have authority to decide.

The

Court's review of the case law did not reveal any Louisiana
authority

directly

determination
interruption

of

addressing
"period

a

policy

the

restoration"

is

a

of

question

question

of

of

whether

under

fact

a

the

business

appropriate

for

appraisers or a coverage question reserved to the Court. Courts in
other

jurisdictions,

however,

have

held

that

the

period

of

restoration determination should be made by the appraisal panel.
For

example,

the

Eastern

District

of

Michigan

recently

considered a policy that provided that "business interruption loss
'shall be adjusted on the basis of the actual loss sustained by the
insured, during the period of restoration.'"

UrbCamCom/WSU I, LLC

v. Lexington Ins. Co., No. 12-CV-15686, 2014 WL 1652201 (E.D. Mich.
Apr. 23, 2014).

The court held that "[b]y incorporating the
20

'period of restoration' requirement into the business interruption
loss

provision,

the

policy

provides

that

the

actual

loss

determination necessarily includes valuation of the period of
restoration." Id. (emphasis added). In other words, the appraisal
panel could not do its job of valuing the loss without determining
the period of restoration.

The Tennessee Court of Appeals applied

similar reasoning in Artist Building Partners v. Auto-Owners Mutual
Insurance Co., 435 S.W.3d 202, (Tenn. Ct. App. 2013).

There, the

court explained that "[p]ursuant to the insurance policy, the
[appraisal] panel was authorized to make a binding determination as
to 'the amount of loss,'" and this determination "necessarily
included a determination of the applicable period of restoration."
Id. at 218-19 (emphasis added).
Here, as in UrbCamCom and Artist Building Partners, the plain
language of the policy requires the appraisers to determine the
"period of restoration." The policy provides: "We will pay for the
actual loss of Business Income you sustain due to the necessary
'suspension'

of

restoration.'"22

your

'operations'

during

the

'period

of

Thus, it would have been impossible for the

appraisal panel to complete its task of determining "the actual
loss of Business Income" suffered by Friends without making a
factual determination as to the appropriate period of restoration.

22

R. Doc. 12-3 at 29.
21

Friends cites Duane Reade, Inc. v. St. Paul Fire & Marine
Insurance Co. (Duane Reade I), 261 F. Supp. 2d 293 (S.D.N.Y. 2003),
and Amerex Group, Inc. v. Lexington Insurance Co., 678 F.3d 193 (2d
Cir. 2012), for the proposition that appraisers may not make a
factual determination regarding a period of restoration.
case support its position.

Neither

As the Second Circuit explained in

Amerex, in Duane Reade I, the parties disputed whether an insured
pharmacy located near the World Trade Center was entitled to
recover business interruption losses incurred after the September
11, 2011 terrorist attacks through the entire period until the
World Trade Center would be rebuilt (if it ever would be), or if
the pharmacy's recoverable losses were limited to those suffered
within 21 months of the terrorist attacks.
205.

See Amerex, 678 F.3d at

"Thus, the argument in Duane Reade I did not concern the

factual determination of the restoration period's end date, but
whether the policy calculated that period with reference to an
exogenous event--the reconstruction of the World Trade Center."
Id.

Although the "district court in Duane Reade I appropriately

reserved the determination of that legal dispute for itself, rather
than delegating it to an appraisal panel," "[o]nce the legal
question was resolved, the factual question of determining the
actual date of the restoration period was well within the appraisal
panel's scope."

Id.

Indeed, once the Southern District of New

York had "clarified the scope of the period of restoration within

22

the meaning of the policy, defining that specific period was a
sufficiently factual question to allow resolution by the appraisal
panel."

Id.

Here, the policy clearly defines the period of restoration.
The period of restoration begins "72 hours after the time of direct
physical

loss

or

damage

for

Business

Income

Coverage"

and

"immediately after the time of direct physical loss or damage for
Extra Expense Coverage" and continues until the earlier of "[t]he
date

when

the

property

at

the

described

premises

should

be

repaired, rebuilt or replaced with reasonable speed and similar
quality; or . . . [t]he date when business is resumed at a new
permanent location."23

Friends does not challenge the scope-of-

coverage afforded by the policy's definition.

Rather, Friends

contends that the calculation of the actual period of restoration
is not a factual question but a coverage question.
not agree.

The Court does

It holds that where the policy clearly defines the

covered period of restoration, the calculation of that period,
"unless subject to legal challenges, is a factual question about
damages."

Amerex,

678

F.3d

at

205.

Thus,

it

is

both

an

appropriate and necessary determination for the appraisal panel to
make.
Appraisal awards issued under an insurance policy are binding
if the appraisers “have performed the duties required of them by

23

Id. at 37.
23

the policy, which is the law between the contracting parties.”
Branch, 4 So. 2d 806.
Restoration/Loss

Here, under a heading titled "Primary

Period,"

the

appraisal

award

states:

"The

definition contained within the insurance policy provides a primary
loss period to February 24, 2013, a period of 177 days or 5.86
months."24

This statement indicates that the appraisal panel

applied the policy's definition of the period of restoration to
arrive at a factual determination of the time it would take for
"the property at the described premises [to] be repaired, rebuilt
or replaced with reasonable speed and similar quality."

In light

of the presumption of accuracy enjoyed by contractually specified
appraisal awards, see In re Waters, 93 F.2d at 200, the Court finds
nothing

in

the

appraisal

panel's

statement

to

undermine

its

conclusion that the appraisal panel calculated the period of
restoration in keeping with the policy's definition. Thus, Friends
may not defeat summary judgment on this ground.

D.

Determination of Extended Coverage Period

Fourth, Friends contends that the determination of the correct
period for "Extended Business Income" coverage is a coverage
question that the appraisers and umpire not only lacked the
authority to decide, but also decided inconsistently with the
policy.
24

R. Doc. 14-5 at 7.
24

First, Friends is incorrect that the actual calculation of the
extended coverage period according to the policy's definition is a
coverage rather than a factual question.

There is no reason that

the Court's analysis regarding the calculation of the appropriate
period of restoration should not also apply to the calculation of
the appropriate extended coverage period.

Accordingly, when the

policy clearly defines the covered period, the calculation of that
period, "unless subject to legal challenges, is a factual question
about damages."

Amerex, 678 F.3d at 205.

Here, just as with the

period of restoration, the plain language of the policy requires
the appraisers to determine the extended coverage period in order
to calculate an estimate for "Extended Business Income."

The

Extended Business Income section of the policy provides: "If the
necessary 'suspension' of your 'operations' produces a Business
Income loss payable under this policy, we will pay for the actual
loss of Business Income you incur during the [extended coverage]
period."25

Thus, it would have been impossible for the appraisal

panel to complete its task of determining "the actual loss of
Business Income" payable as Extended Business Income without making
a factual determination as to the appropriate extended coverage
period.
In addition, the policy clearly defines the extended coverage
period.

25

It provides that the extended coverage period runs from

R. Doc. 12-3 at 31.
25

the date that the property is repaired and operations are resumed
through

the

earlier

of

the

"date

you

could

restore

your

'operations', with reasonable speed, to the level which would
generate the business income amount that would have existed if no
direct physical loss or damage had occurred; or . . . [90]
consecutive days after the date [operations were resumed]."

The

outer limit of "[90] consecutive days" reflects sixty additional
days of coverage purchased by Friends, as indicated by one of the
Declaration Pages that form part of the policy.
Page

provides

that

Friends

purchased

an

That Declaration

"Extended

Period

of

Indemnity" of 90 days to apply to Business Income losses.26 Because
the

policy

clearly

defines

the

extended

coverage

period,

calculating the extended coverage period based on that definition
was an appropriate and necessary factual determination for the
appraisal panel to make.
Second, Friends is incorrect that the extended coverage period
adopted by the umpire is inconsistent with the policy's definition.
Friends takes issue with two statements by the umpire regarding the
extended coverage period.

First, the umpire states: "It is not

apparent whether the insured, in fact, purchased or was entitled to
recover additional business interruption lost profits for the
extended restoration/loss period."27

26

R. Doc. 12-3 at 6.

27

R. Doc. 14-5 at 7.
26

Second, the umpire states:

"The policy we were provided included extended coverage for a
maximum of 30 days. It appears additional extended period coverage
may have been purchased for which we have not been provided the
policy."28

It is true that these statements by the umpire are

inconsistent with the policy.

As discussed above, the policy

indicates that Friends purchased additional extended coverage that
extended its extended coverage period from 30 to 90 days.

The

umpire's inaccurate statements could be explained by the umpire's
failure

to

notice

the

additional

coverage

indicated

by

the

Declaration Page. Regardless of how the mistake came to be, if the
umpire based the award on an erroneous understanding of the policy
definition, then the award may not be upheld. Ultimately, however,
the umpire did not base the award on this misunderstanding.
Both Friends and Lloyd's submitted estimates for Extended
Business Income to the umpire. Friends' estimate was higher. Both
estimates were based on an extended coverage period longer than 30
days.

In the end, the umpire adopted the estimate for Extended

Business Income suggested by Lloyd's, which was based upon an
extended coverage period of "February 25, 2013 through May 19,
2013, a period of 84 days or 2.83 months."29

As the umpire

explained in the award, "It appears additional extended period
coverage may have been purchased for which we have not been

28

Id. at 8.

29

Id. at 7.
27

provided the policy." Thus, despite his own misunderstanding about
the correct outer limit for the extended coverage period, the
umpire accepted Lloyd's proposed extended coverage period, which
was consistent with the policy.

That the umpire accepted an

estimate based upon an extended coverage period that extended well
past 30 days indicates that the umpire did not ultimately limit the
Extended Business Income award based on his misunderstanding.

In

addition, 84 days is toward the outer limit of the 90-day maximum
extended coverage period provided by the policy.

The Court has no

reason to doubt that 84 days is a reasonable estimate of how long
it would take for operations to be restored, "at reasonable speed,
to the level which would generate the business income amount that
would have existed if no direct physical loss or damage had
occurred."

Thus, in light of the presumption of accuracy enjoyed

by contractually specified appraisal awards, see In re Waters, 93
F.2d at 200, the Court sees nothing to suggest that the appraisal
panel based its award for Extended Business Income upon an extended
coverage period inconsistent with the policy's definition. Because
the award is consistent with the policy, Friends cannot defeat
summary judgment on this ground.

G.

Bad Faith

Louisiana law authorizes the recovery of bad faith penalties
from insurers who fail to pay legitimate claims under two nearly

28

identical provisions. See La. Rev. Stat. §§ 22:1892, 22:1973.
Under section 22:1892(A)(1), "all insurers . . . shall pay the
amount of any claim due any insured within thirty days after
receipt of satisfactory proofs of loss from the insured."

If an

insurer refuses to pay a claim within thirty days of receiving
satisfactory proofs of loss, and its failure to do so is found to
be "arbitrary, capricious, or without probable cause," then section
22:1892(B)(1) provides that the insurer is subject to pay a penalty
equal to 50% of the loss, or one thousand dollars, whichever is
greater. Section 22:1973 imposes on insurers "a duty of good faith
and fair dealing" and provides for penalties if an insurer fails to
pay a claim within sixty days after receipt of satisfactory proof
of loss when "such failure is arbitrary, capricious, or without
probable cause."

La. Rev Stat. §§ 22:1973(A), 22:1973(B)(5).

"A

plaintiff may be awarded penalties under only one of the two
statutes, whichever is greater."

Dickerson v. Lexington Ins. Co.,

556 F.3d 290, 297 (5th Cir. 2009).

Nonetheless, a plaintiff may

recover attorneys' fees under section 22:1892 while seeking damages
and penalties under section 22:1973.
To

recover

under

either

Id.

statute,

the

plaintiff

must

demonstrate that the insurer (1) received a satisfactory proof of
loss; (2) that the insurer failed to pay within the designated time
period, and (3) that the failure to pay was arbitrary, capricious
or without probable cause.

See Boudreaux v. State Farm Mutual

29

Automobile Ins. Co., 896 So. 2d 230, 233 (La. Ct. App. 2005); see
also

Reed,

857

So.

2d

at

1020.

The

phrase

"arbitrary

and

capricious" means "[v]exatious" or "unjustified, without reasonable
or probable cause or excuse."

Dickerson, 556 F.3d at 297 (quoting

Reed v. State Farm Mut. Auto. Ins. Co., 857 So. 2d 1012, 1021 (La.
2003)).

"An insurer does not act arbitrarily and capriciously . .

. when it withholds payment based on a genuine (good faith) dispute
about the amount of a loss or the applicability of coverage."

Id.

at 297-98 (citing Calogero v. Safeway Ins. Co. of La., 753 So. 2d
170, 173 (La. 2000)).

"Whether or not a refusal to pay is

arbitrary, capricious, or without probable cause depends on the
facts known to the insurer at the time of its action . . . ." Reed,
857 So. 2d at 1021.
Lloyd's moves for summary judgment on Friends' bad faith
claims, and submits in support of its motion an affidavit from
Dwight Powell, a Lloyd's Loss Specialist familiar with Friends'
claim.30

Powell's affidavit details the dates upon which Lloyd's

tendered to Friends (1) advance payments for loss of income and
loss of business personal property; (2) payment for building
damages; (3) rolling payments for loss of Business Income; and (4)
payment of the additional Business Income sum awarded in the
appraisal.31

Lloyd's argues that Friends has presented no evidence

30

R. Doc. 12-2.

31

Id. at 1-2.
30

that any of these sums were not timely paid upon receipt of proof
of loss or the conclusion of the appraisal process.32
In response, Friends first argues that "the facts will show"
that some of the payments it received were "denied through delay."33
Because Friends has the burden of proof on its bad faith claims,
see Reed, 857 So. 2d at 1020, its failure to identify specific
facts currently in the record in support of its claim that Lloyd's
payments were untimely is insufficient as a matter of law to
satisfy its burden on summary judgment, see Celotex, 477 U.S. at
325.
Friends next argues that Lloyd's "established additional
amounts owed, but delayed them until after appraisal."

Friends

argues that because Lloyd's submitted an estimate to the appraisal
panel indicating that an additional $107,000 was owed, there is a
question of material fact as to why Lloyd's did not tender this sum
to Friends immediately when its appraiser determined it to be due.34
The Louisiana Fourth Circuit encountered a similar fact pattern in
Long v. American Security Insurance Co., 52 So. 3d 260 (La. Ct.
App. 2010).

There, the insurance company tendered an initial

payment of approximately $50,000 for dwelling and other structure
damages to Long's home following Hurricane Katrina.

32

R. Doc. 12-6 at 10.

33

R. Doc. 14 at 18.

34

Id. at 19.
31

Id. at 261.

Dissatisfied with this payment, Long invoked his policy's appraisal
process.

Id. at 261-62.

The appraiser for the insurance company

submitted an estimate suggesting that an additional $116,932.10 was
owed.

Id. at 262.

Several months later, the umpire entered an

award above the policy limits.

Id.

Within one month of the

appraisal award, the insurance company tendered the policy limits
to Long.

Id.

The court observed that the insurance company had

"fully complied with the appraisal clause of the insurance policy"
and "tendered Mr. Long's dwelling policy limits within thirty days
of the umpire's ruling."

Id. at 264. On these facts, the court

affirmed the trial court's grant of summary judgment on Long's bad
faith claims because Long had failed demonstrate that the insurer
had acted "in an arbitrary and capricious manner and without
probable cause."

Id.

As the court explained: "[C]omplying with a

contracted and self-invoked appraisal process fails to provide
evidence or factual proof of vexatious, arbitrary, capricious, or
conduct without probable cause."
Properties,

Inc.

v.

Westchester

Id.; see also W. Consol. Premium
Surplus

Lines

Ins.

Co.,

No.

06-4845, 2011 WL 6300334 (E.D. La. Dec. 16, 2011) (insurance
company entitled to summary judgment on bad faith claims when it
"paid plaintiffs the amount due under the appraisal award well
within the statutory period mandated under La. Rev. Stat. 22:1892
and 22:1973").

32

As in Long, Lloyd's made an initial tender to Friends for
Business Income losses for an amount lower than that the sum
eventually calculated by its appraiser, Wood, and affirmed through
the appraisal process.
process

was

complete,

Then, as in Long, once the appraisal
Lloyd's

tendered

to

Friends

the

full

additional sum settled by the appraisal award within thirty days.
This case may be easily distinguished from the decision of the
Louisiana Fifth Circuit in Willwoods Community v. Essex Insurance
Co., 33 So. 3d 1102 (La. Ct. App. 2010), which held that an
insurer's failure to tender within thirty days the full amount
estimated by its own appraiser during an appraisal process could
support a finding of bad faith.
decision

partly

on

the

The Williwoods court based its

insurer's

"unconditional

tender"

of

additional funds based solely on the estimate of its appraiser and
prior to the entry of the final appraisal award. The unconditional
tender supported the inference that the insurance company did not
truly question whether the additional sums were due.
Moreover, the record in

Williwoods

Id.

at 1111.

included a letter by the

insurance company's appraiser in which he indicated that his
assessment was "supported by the overwhelming weight of evidence."
Id.

Here, unlike the insurer in Williwoods and like the insurer in

Long, Lloyd's waited until the conclusion of the appraisal process
to tender any additional sums.

This supports the conclusion that

the sums that were the subject of the appraisal were genuinely

33

disputed.

"When there is a reasonable and legitimate question as

to the extent . . . of a claim, bad faith should not be inferred
from an insurer's failure to pay within the statutory time limits
when such reasonable doubts exist."
at 1020).

Id.

(citing Reed, 857 So. 2d

Thus, the Court concludes that like in Long, Lloyd's

compliance with the contractual appraisal process does not provide
evidence of bad faith.

Because Friends has pointed to no evidence

indicative of its ability to prove at trial that Lloyd's acted with
bad faith, Lloyd's is entitled to summary judgment with regard to
Friends' bad faith claims.

IV. CONCLUSION
For the foregoing reasons, defendant's motion is GRANTED.
Friends' claims are DISMISSED.

31st

New Orleans, Louisiana, this

day of October, 2014.

SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

34