Theater Fire Sparks a Unique Insurance Claim

While there is no such thing as a "standard" claim, a fire at the North Shore Music Theatre in Beverly, Ma was unlike any other claim settled by Swerling Milton Winnick. Three things distinguished the claim:

• Unusual "theatre in the round" building with seats surrounding the stage and the mechanical backbone of the operation under it. The fire left the structure's unique structure intact, but damaged or destroyed most of the equipment and reduced the theater's interior to a smoldering, soggy, smoky mess.
• A different kind of business. Theater companies are unlike other businesses. Business interruption has very different implications for a theater staging live performances than for a department store or a manufacturing facility.
• Insufficient insurance coverage. Few insurance policies are perfect, but North Shore's coverage had serious gaps in several key areas.

The claim had three components: Building and contents, totaling $1.9 million, and business interruption and extra expense coverage, totalling nearly $2.1 million, the largest portion of the claim, extra expense coverage. Much of the claim centered on building and contents coverage and whether equipment and furnishings could be acceptably and cost effectively repaired.

The nature of the equipment — sophisticated sound equipment, complicated hydraulic lifts, specialized insulation, wiring and high-tech console boards — required extensive research to support recommendations that insurance company would accept.

In addition to the complexities of the theater's equipment, there were serious deficiencies in their coverage for the equipment and other "contents." North Shore had both blanket contents coverage and a scheduled contents "floater" listing estimated replacement values for approximately 700 individual items. However, most of the listed items were seriously under-valued, and some of the scheduled items had no values attached to them at all.

Like all theater companies, North Shore derives virtually all of its revenue from box office receipts. No productions, no revenue. But the theater's operating expenses — salaries, insurance, equipment rental — continued even though its doors were closed. Typically business interruption insurance covers those costs, but the theatre's coinsurance clause required a specified amount of coverage in order to receive maximum reimbursement, and the theater did not meet that requirement.

Swerling Milton Winnick worked closely with the theatre over a two-year period to resolve the claim.

SMW contacted manufacturers and suppliers all over the US, documenting, re-documenting and verifying estimates of the repair and replacement costs. When the insurance company argued that surface cleaning of the spotlights would be sufficient, SMW demonstrated that while the equipment might be "clean," when the high-intensity spotlights reached performance temperatures, they would emit the smell of smoke, an unacceptable solution.

SMW reviewed the insurance policy line by line and, wherever possible, moved expenses out of the interruption category and into the "extra expense" area where coinsurance was not applicable and dollar-for-dollar reimbursement could be achieved. SMW also persuaded the insurer to accept the blanket policy limit as the maximum coverage available for all contents. Over-burdened contents coverage was also maximized by successfully arguing successfully that some building components, like lifts and cables were actually part of the building and could be classified under the building coverage portion of the policy.

Through diligence and perseverance, SMW obtained an optimum insurance settlement for North Shore Theatre. In addition to obtaining quality replacement equipment and maximizing the insurance claim, SMW discovered the theatre's policy included "ordinance or law" coverage. This covers the cost to meet building code requirements that were not in place when a structure was built. North Shore recouped the cost of installing ramps and other modifications required to meet state and federal handicapped accessibility requirements.