Insurance companies are coming under increasing pressure due to the recent proliferation of natural disasters in the United States. For an insurance company, navigating the boundary between legitimate and bad faith denial of claims can be a very risky business. However, courts are providing more and more guidance for insurers of companies who find themselves targeted by disaster. Recently, in Citadel Broadcasting Corp. v. Axis U.S. Insurance Co., 2014-CA-0326, the Fourth Circuit Court of Appeal in Louisiana clarified the requirements a claimant must meet in order to receive payment through an insurance plan.
Citadel Broadcasting (“Citadel”) was based in New Orleans at the time it sustained crippling damage from Hurricane Katrina. Prior to the incident, Citadel was insured by Axis U.S. Insurance (“Axis”) for physical damage and business interruption (“BI”) losses, including contingent business interruption income. This means that in addition to physical damage, Axis covered the loss of profits suffered by Citadel while it was restoring its locations and broadcasting capabilities. This BI coverage was to extend for 365 days from the date of the incident. Axis denied coverage to Citadel relying on “exclusion k”, a loss of market exclusion. Loss of market means that the coverage would be denied because Citadel had lost the opportunity to market their broadcasting to their listeners. A jury returned a verdict against Axis in the amount of $11,813,976, and this amount was mostly affirmed by the Court of Appeal.
Louisiana law imposes a relaxed burden of proof showing that a particular catastrophic event actually caused the damage. Damages must be proven to a reasonable certainty, and the proof of loss must only be as precise as circumstances allow. See La Louisiane Bakery Co. v. Lafayette Ins. Co, 09-825, p. 28 (La.App. 5 Cir. 2/8/11) The court is given broad discretion over these questions due to the imprecise nature of the calculation of lost profits. The formula examines a company’s actual loss by comparing expected performance prior to the incident with actual performance after the incident, and does not require direct proof of loss of customers. For example, Citadel satisfied this requirement by demonstrating a loss of market share at the expense of an increased market share of its competitors, and by calculating actual loss according to Axis’ insurance coverage provisions.