Bi-Economy Market, a family-owned meat market, was insured by Harleysville Insurance. The “Deluxe Business Owner’s” policy provided replacement cost for damage to buildings and inventory. Coverage also included “business interruption insurance” for one year, meaning the loss of pre-tax profits plus normal operating expenses, including payroll. 

A fire destroyed the Market’s building and its inventory. The Market immediately filed a claim with Harleysville, but the insurer responded slowly. Harleysville eventually offered a settlement of $163,000, and a year later an arbitrator awarded the market $407,000. During that year, Harleysville paid for 7 months of lost income, but refused to pay more. The Market never recovered or re-opened.

Bi-Economy sued claiming that Harleysville’s slow, inadequate payments destroyed the company and also sought consequential damages for the permanent destruction of its business. Harleysville claimed that it was only responsible for damages specified in the contract: the building, inventory, and payroll. The trial court gave summary judgment for Harleysville. The appellate court affirmed holding that when they entered into the contract, the parties did not contemplate damages for termination of the business. Bi-Economy appealed.

Questions:

1. Is Bi-Economy entitled to consequential damages for the destruction of its business?

2.  What are consequential damages?

3. What were the unique circumstances of Bi-Economy?

4. Wasn’t the unique circumstance that it went out of business?

5. What point was the court trying make by explaining the difference between a loss and damages?

6. Why is Harleysville liable for Bi-Economy going out of business?