Measuring business interruption costs after Hurricane Katrina was the issue before the Fifth Circuit in Catlin Syndicate Ltd v. Imperial Palace of Mississippi, Inc., 2010 U.S. App. LEXIS 5389 (5th Cir. March 15, 2010).
The insured operated a casino that was damaged by Hurricane Katrina, forcing it to shut down for several months. When the casino reopened, its revenues were much greater than before the hurricane. Many nearby casinos remained closed, offering few choices for people who wanted to gamble. The insured submitted a claim to Catlin. Catlin agreed to pay, but there was a dispute on the casino's losses. The disagreement centered on the policy's business-interruption provision, which stated,
Experience of the business- In determining the amount of the Time Element loss as insured against by this policy, due consideration shall be given to experience of the business before the loss and the probable experience thereafter had no loss occurred.
Catlin argued the casino's loss should be determined by looking solely at pre-hurricane sales. The insured argued losses should be determined not as if Hurricane Katrina did not strike, but as if the Hurricane struck but did not damage the casino. The district court agreed with Catlin. Profits upon reopening after Hurricane Katrina were not taken into account to determine what the casino would have experienced had the storm not occurred.
On appeal, the Fifth Circuit was guided by its decision in Finger Furniture Co. v. Commonwealth Ins. Co., 404 F.3d 312 (5th Cir. 2005). There, the court held that the proper method for determining loss under the business-interruption provision was to look at sales before the interruption rather than sales after the interruption. Because the policy provision in Finger Furniture Co. was similar to that in Catlin's policy, the court determined only historical sales should be considered when determining loss.
