Insured entitled to business interruption coverage despite collateral benefits (March 26, 2008)

In a business interruption claim, an insurer is not entitled to a “credit” in the form of a deductible if an insured business gains a collateral benefit during the shutdown of its operations, Alberta’s Court of Appeal has ruled.
In Neste Canada Inc. v. Allianz Insurance Company of Canada, Allianz insured Neste for contingent business interruption losses in the event of a claim.
Part of its coverage included a 15-day waiting period, operating as a deductible, in which a business covers its own losses during the first 15 days of its shutdown, after which time the insurer covers the losses.
Neste and Chevron each owned a 50% stake in an Edmonton plant that refines gasoline additives composed partly of butane.
Neste was obligated to provide butane to an Alberta fuel plant. To do so, Neste had various contracts with butane suppliers, including TransCanada Midstream (TCM) and Kinetic Resources.
Both TCM and Kinetic obtained butane from a B.C. plant that shut down after an explosion in January 1999.
Neste sought business interruption coverage after TCM and Kinetic shut down operations in the wake of the B.C. plant explosion, thus curtailing Neste’s supply of butane.
Allianz denied coverage, in part because it claimed Kinetic did not meet the policy terms of being a “supplier” to Neste. Unlike TCM, the insurer argued, Kinetic did not own any part of the B.C. plant from which it received its supply of butane.
The Court of Appeal rejected the insurer’s argument, noting Kinetic did not have to own the supplying plant in order to be considered a “supplier” to Neste.
In addition, Allianz argued compensation should be reduced because during its shutdown, Kinetic made repairs that actually increased its production after the shutdown.
Again, the court ruled against the insurer. “If the expense to the insurer is not increased by a penny (no deprivation), and the downtime or repairs or towing might well not have occurred without the insured peril (doubtful benefit), the insurer has no legitimate concern if the insured does something to draw some collateral benefit from the situation,” the court decided.