In an insurance coverage action, the Eighth Circuit determined two policy exclusions unambiguously precluded coverage for a poultry processor under its property and business interruption insurance. George’s Inc. v. Allianz Global Risks US Ins. Co., 2010 U.S. App. LEXIS 5108, *1-2 (8th Cir. Ark. Mar. 9, 2010).
Following a power outage caused by ice storms, poultry processing company, George’s Inc. (“George’s”), brought an action against its insurer, Allianz Global Risks US Insurance Co. (“Allianz”), seeking indemnity for business expenses and personal property losses. Id. at *1, 2. The electrical outage disrupted production, resulting in a loss of business income and leading to the premature deaths of chickens stored in a holding shed. Id. at *2. Allianz conceded coverage of certain lost business income and extra expenses, but contested coverage of “business expenses in the form of fixed labor and overhead costs” and personal property losses from the dead chickens. Id.
George’s believed that the labor and overhead costs should be allowed under the “extra expense” policy provision, which covered “reasonable and necessary extra costs incurred by the Insured” in the event of business disruption. Id. at *3. George’s asserted that coverage was proper because its costs-per-pound of chicken increased when the amount of chicken decreased. Id. George’s contended that the undefined term “costs” was ambiguous and could be interpreted to include an increase in cost-per-pound since the increase was directly attributable to the business interruption. Id. at *7.
Allianz argued that the fixed expenses fell under the exclusion of “[c]osts that normally would have been incurred in conducting the business during the same period had no direct physical loss or damage occurred.” Id. at *6. The Court agreed, stating that “George’s claim is one for lost production, not increased expenses.” Id. at *8. The Court determined that the “extra expense” provision intended to cover only “unforeseen expenditures such as overtime pay or additional expenses associated with using different facilities[.]” Id. at *6.
George’s also sought coverage for the lost chickens under the “personal property” provision of the policy. Id. at *4. Allianz asserted an exclusion for “animals (including eggs).” Id. George’s argued that there was a jury question as to whether the chickens in the holding shed should be treated as processing stock, rather than animals. Id. at *10. Citing a Maryland case, George’s contended that “farm goods change their character when taken off the farm.” Id. The Eighth Circuit disagreed, finding that “the term ‘animals’ includes live chickens, regardless of their location.” Id. “The policy makes no distinction based on the animals’ proximity to the processing facility, and we will not add a condition that is unsupported by the plain language of the contract.” Id.