(CN) – The 5th Circuit overturned a $29.3 million damage award to a Louisiana company whose warehouse was damaged in Hurricane Katrina, saying the verdict gave the company a “windfall,” not fair compensation for its loss.
One day after Lexington Insurance Co. issued Consolidated Companies Inc. a $25 million commercial property insurance policy, Hurricane Katrina hit and damaged the company’s warehouse.
Lexington advanced Conco $3 million and then adjusted the claim, setting the company’s total loss at about $3.2 million.
But Conco turned down the insurer’s checks, claiming it suffered more than $24.9 million in losses, including lost profits and “charges and expenses.”
It sued Lexington for breach of insurance contract, disputing the insurer’s definition of lost business.
The parties disagreed on whether the $12 million in charges and expenses should be paid in full, as the lower court ruled, or offset by the company’s income during the 15 months it took to repair the warehouse and resume business as usual.
The federal appeals court in New Orleans ruled that the amount should be offset, not paid in full.
“The district court’s calculation method required jurors to give Conco a windfall,” Judge Leslie Southwick wrote. “If the charges and expenses had already been paid by the revenue of the business, requiring the policy also to pay them in not placing Conco in the same position it would have been had no damage been suffered.”