Q

Our insured suffered a lightning loss to his walk-in freezer, which ruined the compressor and resulted in some food spoilage.

The property carrier paid for the direct damage to the compressor under the boiler and machinery policy, but of course did not pay for the indirect damage to the food.

We also have coverage under a boiler and machinery consequential damage endorsement, that provides lightning coverage if no other insurance is in force for that peril, and therein lies the problem. We have coverage for the direct loss (damage to the compressor), but not for the indirect loss to the food. Inasmuch as there was coverage for lightning damage under the boiler and machinery policy, the company is denying coverage for the spoiled food. How should this situation be adjusted?

Minnesota Subscriber

A

The insurer is apparently of the opinion that, because the insured has coverage for lightning damage, although it does not apply to the spoiled food, the consequential damage endorsement's lightning exclusion applies, and no covered accident occurred for purposes of the endorsement's coverage. The company is right on this point, but that is not the dispositive answer as to coverage.

The purpose of the exclusion of lightning damage where other insurance applies is to preclude duplicate recovery under the policy. If the boiler and machinery policy indemnifies for lightning loss, then the consequential damage endorsement does not. Further, if the boiler and machinery policy's lightning exclusion, which applies to the consequential damage endorsement, literally states that where there is coverage for the peril of lightning under another policy, then there is no coverage under the endorsement, whether or not there is coverage for that specific item of damaged property.

However, it is more correct to state that it was not lightning that was the cause of loss of the insured food, but instead, the increase in temperature brought about by the non-functioning compressor. The boiler and machinery policy's exclusion of lack of refrigeration specifically does not apply to the consequential damage endorsement. This is the purpose of the CD endorsement—to insure damages flowing indirectly, rather than directly, from the damaging event. That the compressor was damaged by lightning does not mean that the proximate cause of the food damage is lightning; the damage to the compressor is by lightning; the damage to the food is by rising temperature. Coverage should be afforded.