Loss of business caused by Canadian beef ban covered by insurance

August 29, 2006 | Roger McEowen

The plaintiff is a Minnesota corporation that removes cholesterol from beef and sells the resulting product. The plaintiff’s sole supplier was a Canadian company.  In May of 2003, the USDA closed the border to Canadian beef products due to concerns related to bovine spongiform encephalopathy (BSE – a.k.a. “Mad Cow Disease”). The border closing resulted in a shutdown of the plaintiff’s business while it secured an alternative supplier.

The shutdown also caused the plaintiff to lose a contract with one of its primary suppliers. As a result, the plaintiff filed a claim with the defendant for the costs and loss of revenue due to the Canadian beef embargo. The policy, which was in place at the time of the embargo, covered business interruption and property damage protection, and stated - “We will pay the actual loss of business income you sustain due to the necessary suspension of your operations during the period of restoration.  The suspension must be caused by direct physical loss to property…including property off premises, and result from any covered cause of loss.” The policy did not define “direct physical loss,” but the defendant denied coverage on the basis that the plaintiff’s loss did not result from a “direct physical loss” to the plaintiff’s property. The trial court agreed, denying coverage under the policy. The appellate court reversed on the basis the Canadian beef ban caused the loss of the plaintiff’s business income.  Because the policy was a business interruption policy, the loss of business income due to the ban was a covered event.  In any event, the court held that the ban caused a direct physical loss of the plaintiff’s beef. A dissenting judge would have upheld the denial of coverage, noting that the policy required loss “to” property, not loss “of” property. Source Food Technology, Inc. v. United States Fidelity and Guaranty Co., No. 06-11662006U.S. App. LEXIS 21412 (8th Cir. Aug. 22, 2006).