EARNINGS INSURANCE HELD NOT APPLICABLE WHEN MOTEL WAS NOT CLOSED BY VOLCANIC ASH

EARNINGS INSURANCE HELD NOT APPLICABLE WHEN MOTEL WAS NOT CLOSED BY VOLCANIC ASH 131_C013

EARNINGS INSURANCE HELD NOT APPLICABLE WHEN MOTEL WAS NOT CLOSED BY VOLCANIC ASH

A town and a motel, six miles from Mount St. Helens when it erupted, were covered with six inches of volcanic ash. The motel recovered the cost of cleaning the building and personal property under its property insurance, but was denied payment for reduction of business it claimed was lost because of the widespread effect of the eruption and the necessary cleanup of its premises.

In the course of an ensuing lawsuit, the trial court, after hearing testimony on the motel's income trends, concluded that it incurred a partial income loss because of the ash and awarded it a sum of $11,500. The insurer appealed.

The loss of earnings form provided that "....this policy is extended to insure against loss of earnings resulting directly from necessary interruption of business caused by the perils insured against damaging or destroying....real or personal property....at the premises...."

The insured argued that the earnings insurance provided coverage because there was damage to the motel as a result of the eruption. It said that the quality of service was reduced during the cleanup and that the number of motel guests decreased in the aftermath of the eruption.

The insurer said that "any business interruption loss must directly result from damage to the motel." It contended that, because the motel did not suspend operations after the eruption, the earnings insurance did not provide coverage.

The appeal court noted numerous cases, cited by the insurer, in which it was generally concluded that the purpose of business interruption insurance is to indemnify for loss due to inability to use specific premises. Hotel Properties, Ltd. v. Heritage Insurance Company of America, 456 So. 2d 1249 (Fla. Dist. Ct. App. 1984) was persuasive. Therein, the court concluded that a motel "....did not suspend business activity following a restaurant fire; there was no interruption as required for earnings coverage."

The appeal court concluded that there was not a business interruption loss here. The judgment of the trial court was reversed in favor of the insurance company and against the insured.

(KEETCH ET AL., Respondents v. MUTUAL OF ENUMCLAW INS. CO., Appellant. Washington Court of Appeals, Division Three. No. 11414-7-III. June 25, 1992. 66 Wn. App. 208. CCH 1993 Fire and Casualty Cases, Paragraph 4035.)