Insurance And Reinsurance Weekly Update - 28 October 2014

Sugar Hut Group v AJ Insurance

Calculation of business interruption losses

http://www.bailii.org/ew/cases/EWHC/Comm/2014/3352.html

This is a rare case on calculating a business interruption insurance claim. The claimant owned four nightclubs, one of which was damaged by a serious fire in September 2009. The nightclub re-opened in August 2010. The claimant was unable to claim under its insurance policy because of non-disclosure and breaches of warranties (and that position was confirmed by Burton J in 2010 (see Weekly Update 40/10). The claimant therefore sought to sue its brokers and the brokers admitted certain allegations of negligence. This case concerned the calculation of the claimant's business interruption losses (ie the amount which the claimant would have been able to claim under its policy, but for the brokers' negligence).

The main issue in contention was the calculation of the claimant's loss of turnover for 2009/10. The difficulty in this case was the lack of evidence on turnover before October 2008. The claimant's expert based his calculation on an average between two perspectives: (1) an extrapolation of the turnover 11 months prior to the fire (allowing for any trends in business, the policy having contained a trends clause), minus holiday periods; and (2) actual turnover after the club re-opened. Although Eder J accepted a general and significant increase in turnover over 2008/9, he thought this was around 20% (rather than the 27% claimed by the claimant). However, it was "mere speculation" that this increase would be spread over the entire following year (including holiday periods) and some further modification was made because of that. As the judge put it: "I should make plain that this figure is not based on any mathematical exercise" and "I fully recognise that this exercise is necessarily somewhat crude and inexact". Although the judge recognised that the turnover actually achieved after the club re-opened was potentially relevant, in the circumstances of this case, it should be ignored (because, eg, some of the figures extended beyond even 2011 and so were some distance in time away from the relevant period of 2009/10).

Other losses were also considered by the judge, eg:

(i) staff wages (on the basis that some staff were still paid after the fire because the claimant did not wish to lose their skills from the business). The judge accepted that this head of claim might be recoverable, but it failed because of a lack of...