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Marvel Engin. Co. v. Comm. Un. Ins. Co.

OPINION FILED OCTOBER 14, 1983.

MARVEL ENGINEERING COMPANY, PLAINTIFF-APPELLEE AND CROSS-APPELLANT,

v.

COMMERCIAL UNION INSURANCE COMPANY, DEFENDANT-APPELLANT AND CROSS-APPELLEE.



Appeal from the Circuit Court of Du Page County; the Hon. Richard Lucas, Judge, presiding.

PRESIDING JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:

Marvel Engineering Company recovered a judgment against the Commercial Union Insurance Company based on a jury verdict in the amount of $176,484.35 for its inventory loss and $1,948,139.44 for its business interruption loss. Commercial Union appeals. Marvel cross-appeals from that portion of the trial court's judgment which denied prejudgment interest and attorney fees.

Plaintiff Marvel Engineering Company is a Delaware Corporation licensed to do business in Illinois. It manufactures, assembles, and sells hydraulic filter systems which remove unwanted contaminants. In 1974 its main plant was in Skokie. In 1962, Forrest Niccum purchased the company and became president and sole shareholder.

In 1974, Marvel had four affiliated support companies. Mayaguez and Meco, Inc., in Puerto Rico, supplied inventory items exclusively to Marvel. Ring Fabricators, Inc., which conducted some of its operations in Mountainair, New Mexico, manufactured and assembled parts. Marvel Engineering of New Mexico, or "Mescalero," a wholly owned subsidiary of Marvel, was a machine shop and assembly operation.

On December 11, 1974, Marvel's Skokie plant was struck by a fire which burned for about 10 hours. The fire completely destroyed the second floor and caused extensive damage to the plant's machinery. All of the inventory stored on the second floor was destroyed or damaged, and most of the first floor inventory suffered extensive water damage.

At the time of the fire, Marvel was carrying a paid up insurance policy from defendant, Commercial Union, for $4.3 million. The policy covered losses caused by fire, including building loss, inventory loss, machinery and equipment loss, and business interruption loss.

Marvel notified Commercial Union of its loss and on December 16, 1974, Forrest Niccum owner of Marvel met at the Skokie plant with Howard King of the General Adjustment Bureau, the firm hired by Commercial Union to adjust Marvel's fire loss. The two agreed on a 13-point "program" for Marvel to follow in coping with the fire loss. In line with King's suggestion, Marvel's bookkeepers established a new special "900" account for fire losses.

Marvel and its employees took steps to enable the company to resume normal operations. Employees helped to repair and replace damaged goods and equipment and clean up the premises, transport damaged inventory to an Elk Grove Village warehouse for salvage, make emergency deliveries to customers, and perform bookkeeping work, including working with Commercial Union's retained accountants reviewing documentation relevant to fire losses.

With the approval of Howard King, Marvel transferred production of paper filter elements to the Mountainair facility and, beginning in 1975, purchased all of its paper filter elements from Mountainair, paying the latter a "processing charge" for production. Marvel also directed certain machine shop operations to Mescalero, with King's approval. On or about December 31, 1974, Marvel conducted a year-end inventory. The inventory as of the time of the fire was calculated by adding shipment of goods made and subtracting goods received between the date of the fire and the end of the year.

In 1974, Marvel produced all of its finished products at its Skokie plant. The plant had a full first floor and, at the east end of the building, a partial second floor. In 1974, Marvel experienced problems finding storage space at its Skokie plant. By late 1974, the premises had become so crowded that aisles were narrowed and the plant was virtually full. To alleviate the problem Marvel, in late 1974, started storing much of its inventory at warehouses in Chicago, Bensenville and Franklin Park. There was testimony that the Skokie premises were almost full about a week before the fire in December.

Commercial Union's accountants, Johnson, Atwater & Co. (JACO), reviewed the Marvel fire loss and the relevant books, records, and documents at the Skokie plant for about one year (summer of 1975 through July of 1976).

On March 9, 1976, Marvel filed its claims with Commercial Union for (1) building, (2) machinery, (3) inventory and (4) business interruption. Marvel submitted sworn statements in proof of loss detailing the inventory and business interruption claims.

Marvel's building and machinery claims were settled with Commercial Union, which paid $220,901 for the former and $183,904 for the latter.

The proofs of loss gave the inventory claim as $935,065.97 and the business interruption claim as $2,325,768.11, which was later reduced to $2,223,000. The business interruption costs were broken down into $429,487 for labor, $1,544,024.81 for "other costs," and $352,256.00 for lost profits. Among the "other costs" were $69,594.20 for "trucking charges."

Commercial Union paid only $582,097.27 of the claimed inventory loss. It contended that Marvel had insured less than 80% of the value of its inventory at the Skokie plant and that the policy allowed Marvel to recover only a percentage of its total loss. Thus, according to Commercial Union, Marvel, which insured the inventory at its Skokie plant for $1 million, undervalued this inventory in ...


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