The insured had a commercial property policy with Lexington.  Coverage included $25 million in losses for business interruption.  See Consolidated Co. Inc. v. Lexington Ins. Co., 2010 U.S. App. LEXIS 17146 (5th Cir. Aug. 17, 2010).  

   Hurricane Katrina damaged the insured's property and equipment.  The insured was able, however, to resume partial operations ten days after the storm.  In the 15 months prior to full restoration, the insured made a small profit of about $300,000. 

   Lexington initially advanced $3 million under the policy.  After adjusting the claim, Lexington determined the total loss was $3,247,070.  Believing the payment was insufficient, the insured refused to cash a supplemental check for $247,070.  By the time of trial, the insured claimed $19 million in business interruption losses under the policy, consisting of $7 million for lost profits and $12.3 million for "charges and expenses." 

   "Charges and expenses" under the policy were expenses that would have been incurred without the loss, but which continued during the business interruption.  The "actual loss" under the policy consisted of the net profit or loss which the business interruption prevented from being earned, and of all charges and expenses.  The policy allowed the insured to resume operations if it would reduce the loss.  Profits recoverable under the policy were those that would have been earned during the period but for being shut down by the hurricane.  The usual expenses that the insured still incurred, even though not operating, were also recoverable.

   At trial, the parties disagreed on whether the charges and expenses of $12.3 million should be paid in full or reduced to the extent they were offset by the income during the 15 months prior to restoring complete operations.  The jury awarded the insured $19.5 million for business-interruption loss, which included the insured's claim for charges and expenses.  The district court reduced by $3 million to account for the alleged failure of the jury to deduct the advance Lexington paid.  

   On appeal, Lexington argued the district court erred by not instructing the jury to reduce the insured's "charges and expenses" by revenues the insured earned during its 15 months of partially resumed operations.  The Fifth Circuit agreed and reversed this portion of the jury verdict.  When a partial resumption in operations reduced the actual loss, so substantially as to create some profit, all charges and expenses were, by definition, covered by income.  The charges and expenses for which the policy would pay had there been no resumption of operations was shown to be $12.3 million.  These expenses had to be part of the $205 million in expenses that were incurred during resumed operations.  All expenses were recouped from the income of the business and were not a "loss" to the compensated under the policy.  Just as the insured would have paid the charges and expenses out of its revenue if Katrina had never struck, the policy provided for the insured to pay them to the extent it could do so out of the revenue from partially resumed operations.  Therefore, the award of $12.3 million in charges and expenses was vacated.

   Thanks to my Damon Key colleague, Rebecca Copeland, for sending me this case.