Business Interruption Loss Justified

Commercial Property	Business Income
Equipment Breakdown	Inventory

Hartford Steam Boiler Inspection and Insurance Company was one of 32 companies operating as Industrial Risk Insurers (IRI). It had issued, in 1987, a policy to Rubbermaid Inc. which included coverage for business interruption because of mechanical breakdown.

On July 12, 1988, the hydraulic cylinder of a 2800-ton press in the insured's Wooster, Ohio, plant failed. That press was used to manufacture a 32-gallon refuse container, which had been made for only about a year. The insured shipped the mold for the container to another manufacturer, which produced 28,704 units from August 15 to September 30. The mold was then returned to the Wooster plant for reconditioning and then shipped to the insured's commercial production division in Iowa. That plant produced 131,418 units from October 16, 1988, to February 1, 1989.

On February 12, 1989, while the mold was being installed on the Iowa press, it broke. No units were made until the third week in May. In March, the insured put the product on "special order" status since it believed it could not fulfill orders being placed. It was not until June 1989 (after a replacement mold had been received) that production began again.

Rubbermaid submitted a claim for business interruption for the July breakdown of about $2.4 million and approximately $1.2 million for the February breakdown. The claim was based on the insured's belief that it could have sold every unit that would have been made during that period.

The companies, represented by Hartford (HSB), argued that the July breakdown ended on October 16 when Centerville made the containers. It was further argued that the insured did not experience any business interruption loss as a result of the February breakdown since its inventory did not fall below the sales of the item. The case was tried before a jury, which returned a verdict in favor of Rubbermaid for nearly $3.2 million. That amount was reduced to approximately $2.5 million since IRI had made some payments to the insured. IRI appealed.

The higher court decided that the policy issued to the insured did not require the depletion of inventory. In addition, the court found the evidence as to whether the insured had suffered a business interruption loss was properly submitted to the jury, and its verdict was supported by the evidence.

The judgment entered in the trial court in favor of the insured was affirmed.

Rubbermaid, Inc. v. Hartford Steam Boiler Inspection Co., Inc., Appellant--No. 2835--Court of Appeals of Ohio, Wayne County--August 20, 1994--645 North Eastern Reporter 2d 116.