PHILIPSBURG--The Court of First Instance on Monday has ordered National General Insurance Corporation NV NAGICO to pay a US $33.2 million advance to Princess Juliana International Airport (PJIA) for damages incurred during Hurricane Irma which are covered under the airport’s insurance policy.

 

Irma caused severe damage to the airport when it struck on September 6, 2017. The airport is only provisionally opened since then.

 

PJIA had filed an injunction on May 15, as NAGICO had only paid out US $25 million in advances, whereas the airport claimed an advance of US $72.6 million, and payment of US $2.3 million for loss of profit in June, July and August 2018.

 

Under its policy with NAGICO, the airport is covered for material damages to a maximum of US $193.3 million, and for loss of profit to a maximum of US $29.5 million.

 

‘Base restoration’

 

In the injunction, PJIA had filed several damage reports, but primarily based its claim on the May 17 report of Corgan/Faithful and Gould which estimated the “base restoration” of the airport at US $94.7 million. Where the loss of profit was concerned PJIA based itself on the estimate made by Willis Tower Watson which mentioned damages to the tune of US $28.5 million.

 

According to PJIA, both amounts were below the maximum insured sums, but NAGICO declined to fully reimburse the airport and only paid the US $25 million advance.

 

The airport claimed it was at least entitled to the actual cash value, as defined under its insurance policy of 75 per cent of the calculated damage.

 

NAGICO disputed the level of damage sustained by the airport, which, it said, was based on estimates and not on real invoices and tenders. Furthermore, part of the damages may be repaired, so that replacements will not have to be made in all claimed cases, the insurer said.

 

According to the insurer, the Court was not competent to rule on the claim as the policy conditions provide for mandatory arbitration. It also refuted the airport’s urgent interests in the injunction as repair works had been halted for months and PJIA had failed to take action to limit damages.

 

NAGICO further stated there was a “large restitution risk,” as claimant had pledged its claim under the insurance contract to its bondholders. “Plaintiff would, therefore, not be able to pay back any excess payment,” the insurer claimed.

 

Based on a report by Axis York loss adjusters and surveyors, NAGICO calculated damages to the tune of US $37 million, including profit loss. It said it could not pay out monies for backlogs in maintenance and for avoidable damage, such as had been the case at the airport terminal’s roof which was left open for months, causing severe mould.

 

Where the loss of profit was concerned, NAGICO had calculated net loss profit in a worst-case scenario of US $11.8 million. Application of the “average clause rate” due to underinsurance would leave an amount of US $5.9 million, it was stated.

 

Complicated matter

 

The Judge made his decision in the injunction after parties had failed to reach an agreement through negotiations. He said it concerned a complicated matter, involving not only legal but also many technical aspects, such as the question whether damaged installations should be repaired or replaced.

 

The Court established that NAGICO was prepared to compensate “real” damage, based on “concrete” specifications and quotations by contractors. Also, it was not found unreasonable that the insurer does not have to pay for a backlog in maintenance or for desired improvements, such as the construction of a hurricane-resistant building.

 

The Judge did not follow PJIA in its standpoint that it would be at least entitled to the actual cash value. Under Article 22 in the Commercial All Risk Policy Material Damage it is stated that the value of goods is determined by “the cost of repairing, replacing or reinstating (whichever is least) with material of like kind and quality without deduction for depreciation, subject to the following provisions.”

 

According to the Court, the insurer is entitled to only pay for the cost of repair, if that would be cheaper, even if the cost of repair would be less that the actual cash value. Also, the airport cannot make an appeal to this stipulation to claim backlog in maintenance, or pre-existing damages and improvements.

 

During the two hearings in this case, damage expert T. Dawson confirmed that the Faithful and Gould report would be a good basis for future negotiations. During the June 19 hearing parties agreed to start talks based on this report. During the extra sitting of July 16, Dawson submitted to the Court an overview of the items on which the technical experts of both parties had reached an agreement, totalling US $10.6 million in material damages. The total difference between the disputed items is US $36.3 million.

 

Loss of profit

 

In view of the course of negotiations between parties, the Judge found it reasonable to expect that parties would meet each other halfway, meaning that half the disputed amount, or US $18.1 million, would eventually be determined as damage.

 

Where the loss of profit policy was concerned, PJIA claimed it was entitled to full compensation for its loss of gross profit, totalling US $28.5 million.

 

NAGICO contested that the airport would be entitled to claim its total loss of gross profit as under the conditions set in the Business Interruption Extension the reduction in turnover is insured. “This is the sum produced by applying the ‘rate of gross profit’ to the amount by which the ‘turnover’ during the ‘period of restoration’ shall, in consequence of the ‘covered cause of loss’ fall short of the standard turnover,” it is stated in the policy.

 

At first, the insurer calculated a gross profit percentage of 21.5 per cent based on the airport’s business-economic figures, which amounted to US $6.1 million. During the July 16 hearing, NAGICO presented a different calculation by Gerry Bouwman of MDD Forensic Accountants who stated that based on the insurance policy loss of market should be taken into account as tourism and the hotel market had collapsed after Irma. The airport also was underinsured, which led the expert to set the amount for loss of profit at US $5.9 million.

 

The Judge agreed with NAGICO that the profit insurance does not provide coverage for the total loss of turnover, but only for a certain percentage, to be reduced by saved costs, but added that “many uncertainties” remain where the profit policy is concerned, which include differences of opinion as to whether “loss of market,” or “loss of use” should be included in the calculations. The Court, however, refrained from providing a legal interpretation on these matters in the injunction.

 

In stating that it would be unreasonable to fully take sides with the insurer on this matter, as NAGICO had introduced underinsurance and the loss-of-market clause only during the later stages of the procedure, the Court set the advance for loss of profit at US $9.5 million.

 

The Judge calculated the total amount of the advance for all damaged items at US $54 million, US $25 million of which was already paid by the insurer. An exception, however, was made for the airport roof, which was not included in the calculations mentioned in the Faithful and Gould report.

 

“After all, a contract has already been closed for the roof and the repair of it is, according to the Judge, [almost – Ed.] completed,” the Court stated.

 

Therefore, an amount of US $4.2 million for the roof was deducted from the US $25 million advance. This left to be paid US $54 million, minus US $20.8 million, leaving a US $33.2 million advance. NAGICO was also ordered to pay the costs involved with the procedure, which was estimated at NAf. 19,960.

 

The Daily Herald