Delay in Payment May Lead to Insurer’s Liability in Excess of Policy Limits

A New York court of appeals recently ruled that an insured’s claim for business interruption losses in excess of policy limits may proceed as the insured alleged the additional losses were the result of its insurers’ delay in payments.

Defendant, BioEnergy Development Group, LLC (“BioEnergy”) manufactures renewable bio-diesel fuel. BioEnergy purchased two all-risk policies from Lloyd’s London and RSA Insurance Group (“RSA”); one for property damage and one for business interruption loss. BioEnergy’s manufacturing plant was destroyed by fire. BioEnergy lost its production capacity and revenue stream. It timely notified its insurers, Lloyd’s and RSA, of its loss. Lloyd’s and RSA acknowledged coverage and made interim payments on the property damage claim. Following appraisal of BioEnergy’s business interruption loss, Lloyd’s and RSA agreed to pay the full limit of liability under the policy but refused to pay BioEnergy’s business interruption losses which exceeded the policy limits.

Lloyd’s and RSA filed suit against BioEnergy seeking a declaration from the court that they did not owe BioEnergy anything further for its business interruption loss.¹ BioEnergy argued that the insurers’ failure to timely pay the claim resulted in increased losses as its facility could not be rebuilt without the funding. The trial court dismissed BioEnergy’s counterclaim against Lloyd’s and RSA for the business interruption losses exceeding the policy limits. BioEnergy appealed the ruling.

The New York Supreme Court, Appellate Division, First Department, reversed the trial court’s order dismissing BioEnergy’s counterclaim seeking consequential damages resulting from the delayed reconstruction of its plant and for attorneys’ fees caused by Lloyd’s and RSA’s delay in interim payments or denial of payments.² The appellate court found that,

[G]iven the ‘purpose and particular circumstances of the [property damage and business interruption policies]’ (id. At 193; see also id. At 194-195, it was foreseeable that excessive delay would cause defendants to incur, as alleged, tens of millions of dollars in uncovered business interruption losses and attorneys’ fees necessary to recover therefor (see id. At 192).³

We are seeing more and more insurers suing their insured’s these days, often in an apparent effort to avoid or lessen their contractual liability, by relieving them of consequences for refusing to meet their contractual obligations or improper delay tactics.

Policyholders should not be intimidated by this new strategy by insurers and should instead seek the assistance of knowledgeable counsel to pursue policy benefits due and owing. Kudos to the New York appellate court.
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¹ Certain Underwriters at Lloyd’s London, et al. v. BioEnergy Development Group LLC, et al., Docket Number 655792/17, 2018 NY Slip Op 32704(U) (Supreme Court of the State of New York, County of New York: Commercial Division Oct. 22, 2018).
² Certain Underwriters at Lloyd’s London, et al. v. BioEnergy Development Group LLC, et al., docket number 10505 655792/17, 2019 NY Slip Op 08779 (Supreme Court of the State of New York, Appellate Division, 1st Department Dec. 5, 2019).
³ Id.