United States District Court, Northern District of Illinois, Eastern Division
April 15, 1965
A & S CORPORATION, A CORPORATION, AND PIONEER TRUST & SAVINGS BANK, A CORPORATION, AS TRUSTEE UNDER TRUST NO. 5028, PLAINTIFFS,
CENTENNIAL INSURANCE COMPANY, A CORPORATION, UNITED STATES FIRE INSURANCE COMPANY, A CORPORATION, NATIONAL FIRE INSURANCE COMPANY OF PITTSBURGH, PA., A CORPORATION, AND BOSTON INSURANCE COMPANY, A CORPORATION, DEFENDANTS.
The opinion of the court was delivered by: Campbell, Chief Judge.
This cause having come on before the court for trial without
a jury, said jury having been waived by the parties, the court
having heard the testimony of witnesses for both the
plaintiffs and the defendants and having fully considered the
evidence and the briefs of the parties, hereby makes the
following findings of fact, and conclusions of law and enters
the following judgment order:
FINDINGS OF FACT
1. A & S Corporation, hereinafter referred to as the
"plaintiff" or "A & S", and Pioneer Trust and Savings Bank,
hereinafter referred to as "Pioneer", the plaintiff
corporations, both have their principal place of business and
are incorporated in the State of Illinois. The defendant,
Centennial Insurance Company, a corporation, has its principal
place of business and is incorporated in the State of New
York. Defendant, United States Fire Insurance Company, a
corporation, has its principal place of business and is
incorporated in the State of New York. Defendant National Fire
Insurance Company of Pittsburgh, Pa., a corporation, has its
principal place of business and is incorporated in the State
of Pennsylvania. Defendant, Boston Insurance Company, a
corporation, has its principal of business and is incorporated
in the State of Massachusetts. All of the above listed
defendant insurance companies are authorized to do business in
the State of Illinois.
2. This suit is brought upon four (4) policies of fire
insurance issued by the defendant corporations to the
plaintiff, insuring plaintiff's bowling alley operated
on premises leased at 3016-24 North Central Avenue, Chicago,
Illinois. The leased premises are and were owned by Pioneer
Trust & Savings Bank, a corporation, as Trustee under Trust
No. 5028, a co-plaintiff and co-insured, but which
co-plaintiff has no interest (except to insure payment of
rest) in the proceeds under the policies in question.
3. Recovery is sought under the business interruption
endorsement of the following policies:
COMPANY POLICY NO. AMOUNT
------- ---------- ---------
Continental Insurance Company #16242 $10,000.00
United States Fire Insurance Co. #99464 $10,000.00
National Union Fire Insurance
Co., of Pittsburgh, Pa. #2313759 $10,000.00
Boston Insurance Company #143496 $15,000.00
TOTAL INSURANCE $45,000.00
4. The applicable provisions of the aforesaid policies
provide in part as follows:
"1. Subject to all its provisions and
stipulations, this policy covers only against
loss directly resulting from necessary
interruption of business caused by damage to or
destruction of real or personal property by the
peril(s) insured against during the term of this
policy, except as hereinafter specifically
excluded or limited, on premises occupied by the
insured as * * * and situated * * * Illinois.
"2. Recovery in the event of loss hereunder shall
be the ACTUAL LOSS SUSTAINED by the insured
directly resulting from such interruption of
business, but not exceeding the reduction in
gross earnings less charges and expenses which do
not necessarily continue during the interruption
of business, for only such length of time as
would be required with the exercise of due
diligence and dispatch to rebuild, repair, or
replace such part of the property herein
described as has been damaged or destroyed,
commencing with the date of such damage or
destruction and not limited by the date of
expiration of this policy. Due consideration
shall be given to the continuation of normal
charges and expenses, including the insured with
the same quality of service which existed
immediately preceding the loss.
"3. Resumption of Operations: It is a condition
of this insurance that if the Insured:
(a) by resumption of complete or partial
operation of the property herein described,
whether damaged or not, could reduce the loss
resulting from the interruption of business,
such reduction shall be taken into account in
arriving at the amount of loss hereunder.
"4. Gross Earnings: For the purposes of this
insurance `Gross Earnings' are defined as the sum
(a) Total net sales, and
(b) Other earnings derived from operation of
the business less the cost of:
(c) Merchandise sold, including packaging
(d) Materials and supplies consumed directly in
services(s) sold, and
(e) Service(s) purchased from outsiders (not
employees of the Insured) for resale which do
not continue under contract.
No other costs shall be deducted in determining
In determining `Gross Earnings' due consideration
shall be given to the experience of the business
before the date of damage or destruction and the
probable experience thereafter had no loss
"5. Contribution Clause: In consideration of the
rate and form under which this policy is written,
this Company shall be liable, in the event of
loss, for no greater proportion thereof than the
amount hereby covered bears to 50% of the gross
earnings that would have been earned (had no loss
occurred) during the 12 months immediately
following the date of damage to or destruction of
the described property.
"6. Expense to Reduce Loss: This policy also
covers such expenses as are necessarily incurred
for the purpose of reducing any loss under this
policy (except expense incurred to extinguish a
fire), not exceeding, however, the amount by
which the loss under this policy is thereby
reduced. Such expenses shall not be subject to
the application of the Contribution Clause."
5. On June 8, 1960, while the policies were in full force
and effect, a fire occurred on the insured premises causing
total damage to the building, bowling alley and equipment,
resulting in an interruption of plaintiff's bowling related
6. The policies sued on contain provisions requiring
written notice to the insurance companies of any loss, a
complete inventory of property, and that within sixty (60)
days after the loss, there be filed a sworn proof of loss
statement, setting forth the amount of the loss in detail.
Plaintiff filed such a proof of loss with the companies on
September 7, 1960.
7. The defendant companies had actual knowledge of the fire
no later than June 9, 1960, at which time they dispatched an
adjuster from the Cook County Loss Adjustment Bureau to
inspect and review the loss. Said adjuster discussed
settlement of the policies with plaintiff's insurance adjuster
during the period immediately subsequent to the fire.
8. The defendant companies at no time prior to the
institution of the instant suit objected to plaintiff's formal
failure to file a timely proof of loss in accordance with the
wording of the policies, rather, they acknowledged liability
for a business interruption loss and accepted without
objection the proof of loss statement filed on September 7,
9. The adjusters for the defendant companies did not
request a formal proof of loss from the plaintiff.
10. There was and is a custom and usage among insurance
adjusters in Cook County, Illinois, that formal, sworn proofs
of loss are not required unless insurance company adjusters
specifically request them.
11. There was, on June 8, 1960, and for the period here in
question, a custom and usage among insurance adjusters that
fire insurance damage claims be adjusted prior to claims for
business interruption relating to premises damaged by fire.
12. The fire insurance adjusting representatives of
defendants held in abeyance lessor's restoration of the
damaged premises pending adjustment of its fire loss claim.
Plaintiff, therefore, was unable to commence reconstruction of
the bowling alley facilities on the leased premises until
after the fire damage claims were adjusted.
13. Plaintiff's lease with the lessor building owner
(Pioneer) provided that in the event of extensive fire or
demolition of the premises the lessor had an election to
terminate the lease or to restore the property within a period
of six months and hold the plaintiff under the lease. The
lessor, immediately after the fire, did elect to reconstruct
said premises and hold plaintiff under the lease.
14. Plaintiff could not proceed with new building plans
until the defendants' agent, Cook County Loss Adjustment
Bureau, checked and approved the plans; and as soon thereafter
as the approval was given, the lessor expeditiously proceeded
with putting the building plans into operation, hiring
contractors, contracting for material, obtaining a building
permit and all things necessary for the erection of a new
structure. The work of reconstructing the bowling alley was
performed with due diligence and dispatch from the date
plaintiff could conceivably commence restoration of the
bowling alley until January 28, 1961, when the alley was
reopened to the public for business. Defendants' agent, the
Cook County Loss Adjustment Bureau, stopped both the plaintiff
and the lessor from clearing debris following the fire, and
did not sanction such clearing until June 29, 1960.
15. The period from June 8, 1960, the date of the fire, to
January 28, 1961, the date the building was sufficiently
rebuilt and the bowling facilities were restored, is the
period of business interruption.
16. In accordance with the terms of the policies, having
considered the experience of plaintiff's business prior to the
fire and, assuming the fire had not occurred, the business'
probable experience after the fire, I find that the period
from June 8, 1958 to January 28, 1959, best represents what
the gross earnings and profits would have been from June 8,
1960 to January 28, 1961, the period of the actual business
interruption loss. During this 1958-1959 similar period the
profit realized by the business was $2,821.88. Accordingly, I
find plaintiff's loss of profit to be $2,821.77.
17. In arriving at the above profit figure (Findings of Fact
16) for purposes of determining depreciation I find that; the
bowling alleys were purchased in 1940 at a cost of $58,189.36;
that depreciation is allowable over a thirty (30) year period
($1,939.65 per year); that the furniture, fixtures, cooling
equipment, pinspotters and leasehold improvements are
depreciated over 162/3 years in the total amount of $4,158.13;
and, that the above determined yearly depreciation figure of
$6,167.78 is for the said 72/3 months period $3,940.51.
18. Plaintiff's monthly non-abatable expenses (those which
must be and were necessarily continued) for the business
interruption loss period were as follows:
Rent, $1,100.00; Interest, on businessloan,
$175.00; Advertising, $100,00; Insurance,
$183.25; Licenses, $182.00; Sanction Fees and
Dues, $100.00; Printing & Postage, $10.00;
Telephone, $30.00; Electricity, $.37; Legal and
Audit, $175.00; Salaries, $700.00; Payroll taxes,
$102.00; Bank charges, $11.00; Total monthly
non-abatable expenses, $2,872.62.
Accordingly, I find plaintiff's total non-abatable expenses
for the 72/3 months of business interruption loss to be
19. The sum of $1,000.00 per month purporting to represent
"officers salaries" is not a non-abatable expense during the
period of suspension, it having never been paid to the
president of plaintiff's corporation.
20. Plaintiff's substitute office rent ($200.00 per month)
was neither a non-abatable expense nor was it an "expense to
reduce loss" in that it in no way served to reduce the fire
21. In accordance with the terms of the policies I find
plaintiff's business interruption loss for the period from
June 8, 1960 to January 28, 1961 to have been $24,854.77,
which sum represents profits ($2,821.77) plus non-abatable
22. The contribution clause of the policies is not an issue
in the instant case.
From which facts, I conclude as a matter of law: —
CONCLUSIONS OF LAW
1. This Court has jurisdiction of the parties and subject
matter of this action.
2. On June 8, 1960, the defendant companies were
contractually obliged to reimburse plaintiffs for loss
directly resulting from necessary interruption to plaintiffs
business caused by fire damage
and destruction of plaintiff's business property.
3. Under the terms of the insurance contracts, plaintiff is
entitled to that sum which represents actual loss to its
business, not exceeding the reduction in gross earnings, less
charges and expenses which do not necessarily continue during
such interruption of business for the length of time required,
with the exercise of due diligence and dispatch, to rebuild,
repair or replace the insured property damaged or destroyed,
commencing with the date of the destruction.
4. A business interruption policy is designed to do for the
business what the business would have done for itself had no
5. "Gross Earnings" is defined in the policies as the sum
or total net sales and other earnings derived from the
operation of the business, less the cost of merchandise sold,
materials and supplies consumed directly in services sold, and
services purchased from outsiders for re-sale which do not
continue under the contract.
6. The insurance contracts provide that in determination of
"gross earnings," due consideration shall be given to the
experience of the business before the date of damage or
destruction, and the probable experience thereafter had no
7. The defendants through their duly authorized agents,
Cook County Loss Adjustment Bureau, waived filing of formal
notice claim and proof of loss.
8. The claims filed by plaintiffs adjuster, although
admissible probative evidence, are not absolutely binding on
plaintiffs in this suit.
9. Defendants are estopped to assert that plaintiff failed
to file written proofs of loss within sixty (60) days from the
date of loss by reason of their accepting written proofs of
loss from plaintiff subsequent to the sixty (60) day period
without objection and further, in making an offer of
10. Written proof of loss was made by plaintiff immediately
following the settlement of its fire loss claim, in accordance
with the custom and usage of insurance adjusters.
11. The proper period of suspension of the insured
plaintiff's business was 7 2/3 months (June 8, 1960 to January
28, 1961), which represents that period of time in which the
insured, using due diligence and dispatch, could have and did
repair the premises following the fire loss.
12. The insured business records for the year immediately
preceding the fire were not wholly reliable, thus
necessitating the use of figures for the previous fiscal year
— July 1, 1958 to June 30, 1959.
13. The insured's recovery for the 7 2/3 months suspension
period was properly based on the experience of the business in
the fiscal year ending June 30, 1959.
14. The insured is not entitled, under the terms of the
policy, to treat the sum of $1,000.00 per month for officers'
salaries as a continuing expense, inasmuch as this sum was
never paid to Mr. John Podney, president of the plaintiff
15. The insured is not entitled, under the terms of the
policy, to treat the sum of $200.00 per month for substitute
office rent as a continuing expense, inasmuch as this expense
did not serve to reduce the loss sustained in any way.
16. The "contribution clause" of the policies is not
pertinent to these actions.
It is therefore ordered, adjudged and decreed that the
plaintiff, A & S Corporation, have and recover from the
defendants, Centennial Insurance Company, United States Fire
Insurance Company, National Union Fire Insurance Company of
Pittsburgh, Pa., and Boston Insurance Company, the sum of
$24,854.77 and its costs in this action.
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