COTTON BROS. BAKING v. Industrial Risk Insurers

• Citation: 774 F. Supp. 1009
• Decision Date: 31 July 1989
• Docket Number: 83-0578 and 83-3237.,Civ. A. No. 83-0150-A
• Parties: COTTON BROTHERS BAKING COMPANY, INC. v. INDUSTRIAL RISK INSURERS. COTTON BROTHERS BAKING COMPANY, INC. v. BAKER PERKINS, INC. BAKER PERKINS, INC. v. COTTON BROTHERS, INC.
• Court: U.S. District Court — Western District of Louisiana

774 F. Supp. 1009

COTTON BROTHERS BAKING COMPANY, INC. v. INDUSTRIAL RISK INSURERS.

COTTON BROTHERS BAKING COMPANY, INC. v. BAKER PERKINS, INC.

BAKER PERKINS, INC. v. COTTON BROTHERS, INC.

Civ. A. Nos. 83-0150-A, 83-0578 and 83-3237.

United States District Court, W.D. Louisiana, Alexandria Division.

July 31, 1989.

COPYRIGHT MATERIAL OMITTED

Dermot S. McGlinchey and Henri Wolbrette, III, McGlinchey, Stafford, Mintz & Cellini, New Orleans, La., and Frederick B. Alexius, Provosty, Sadler and DeLaunay, Alexandria, La., for Cotton Bros. Baking Co., Inc.

P. Albert Bienvenu, Jr. and John W. Waters, Jr., Bienvenu, Foster, Ryan & O'Bannon, New Orleans, La., and Howard B. Gist, Jr., Gist, Methvin, Hughes & Munsterman, Alexandria, La., for Indus. Risk Insurers.

Esmond Phelps, II, Phelps, Dunbar, Marks, Claverie & Sims, New Orleans, La., for Baker Perkins, Inc.

OPINION

NAUMAN S. SCOTT, District Judge.

We have jurisdiction under 28 U.S.C. § 1332. There is diversity of citizenship between the plaintiffs and the defendant and the matter in controversy exceeds, exclusive of interest and costs, the sum of $10,000.00.

Plaintiffs reside in and the instant claim arose in the Western District of Louisiana. Venue therefore lies in this district under 28 U.S.C. § 1391(a).

Plaintiffs Cotton Brothers Baking Company, Inc. (Alexandria bakery) and Cotton Bros. Inc. (parent company) have brought suit against Industrial Risk Insurers (IRI) claiming damages under an interruption of business policy (IRI policy) issued by IRI on October 1, 1980 in favor of three (including Alexandria bakery) of five corporate bakery subsidiaries owned and operated by Cotton Bros., Inc. Cotton Bros., Inc. was not included in the IRI policy as a named insured.

The interruption of business occurred as the result of a fire in the Alexandria bakery plant, Alexandria, Louisiana on February 13, 1981.

Under the provisions of the IRI policy the only named insured eligible to bring suit for an interruption resulting from a fire on the property of the Alexandria plant was Cotton Brothers Baking Company, Inc.. Suit was filed on January 12, 1983 against IRI for loss or reduction of gross earnings as provided in Sections IA and IIA of the IRI policy (earnings damages) allegedly suffered by the Alexandria bakery during the period of interruption following the fire of February 13, 1981. The principal issue between the parties during the entire period of trial from the middle of September 1986 until the Friday before Christmas of that year was the methodology to be used in the determination of earnings damages as provided in the policy under Sections IA and IIA. Plaintiff contends that the books and the records of the parent corporation are the only books and records from which such damages can be compiled. IRI has not paid any earnings damages as provided under Sections IA and IIA based on the records of its named insured Cotton Brothers Baking Company, Inc. (Alexandria bakery). IRI simply refuses to recognize any damages except those compiled on an item by item basis in which each item claimed must be shown to be a direct result of the fire. IRI made a general objection to any evidence based on the books and records of the parent company because the parent company was not a named insured under the IRI policy.

This case was tried by the plaintiff, Alexandria bakery, and the defendant, IRI, until our ruling on the fourth day of May 1988. On November 4, 1987, plaintiff, Alexandria bakery, filed a post-trial motion to permit the filing of a second supplemental and amending complaint. The said complaint prayed that the parent company, Cotton Bros., Inc., be made a party to this suit and that the interruption of business policy issued by IRI on October 1, 1980 be reformed so as to include Cotton Bros., Inc. as a named insured effective October 1, 1980. In our rulings of May 4, 1988 and July 27, 1988 we allowed the supplemental and amending complaint to be filed, made Cotton Bros., Inc. a party plaintiff effective from the commencement of suit, but refrained from considering and deciding the reformation of policy issue until a hearing could be had at which the parties would have an opportunity to introduce additional evidence. That hearing was held on February 27, 1989 and subsequently authorities were submitted by both parties. We now consider, (1) the issue of whether the policy issued by IRI on October 1, 1980 should be reformed so as to include Cotton Bros., Inc. as a "named insured" effective October 1, 1980 and (2) all other issues remaining for decision in this proceeding.

To the extent any of the following Findings of Fact constitute Conclusions of Law, they are adopted as Conclusions of Law; to the extent any of the following Conclusions of Law constitute Findings of Fact, they are adopted as such.

FINDINGS OF FACT

1. Cotton Brothers Baking Company, Inc. and Cotton Bros., Inc. are Louisiana

corporations with their principal place of business in Alexandria, Louisiana. Defendant Industrial Risk Insurers is an unincorporated association with its principal place of business located outside the State of Louisiana. No member thereof is a citizen of Louisiana. The fire of February 13, 1981 occurred in Alexandria, Louisiana in the Western District of Louisiana and plaintiffs' claims in this proceeding exceed the sum of $10,000.00.

2. In 1952 and for some time thereafter the Cotton interests (Cotton) consisted of one bakery located in Alexandria, Louisiana.

3. Thereafter and prior to 1976 Cotton acquired three additional bakeries located at Shreveport and Baton Rouge, Louisiana and Natchez, Mississippi. After these acquisitions the four bakeries continued to operate independently and in competition with each other in all fields, including management, production, and sales to the public.

4. At some time prior to 1970 Cotton became interested in protecting these separately and independently operated bakery businesses from financial loss of income induced by fire or other similar or named peril.

5. With this objective in view Cotton, through its agent Alexander & Bolton (A & B), discussed with IRI the relative merits of coverage: 1. by extra expense insurance or 2. by interruption of business insurance. Extra expense insurance is a form of insurance coverage to reimburse the insured for specific items of extra expense over and above the normal expense which the insured incurred as a result of damage to the insured's property by an insured peril such as fire. Damages under such a policy have no connection whatsoever to the gross earnings of the insured.

An interruption of business policy insures the owner of a business against reduction or loss of gross earnings during the period of interruption. Damages consist of the reimbursement of gross earnings lost in the insured's business less the recurring expenses which do not continue during the period of interruption. Needless to say the principal item of damages in such a policy is the loss or reduction of gross earnings as shown on the books of the insured's business. Also included in damages under an interruption of business policy are items of extra expense necessarily incurred for the purpose of reducing loss under the policy and such expenses, in excess of normal, as would necessarily be incurred in replacing any finished stock used by the insured to reduce loss under the policy.

6. On or about 1970 Cotton and IRI chose business interruption type coverage. Both Cotton and IRI intended at that time and at all times thereafter through October 1, 1980 to give the Cotton bakery operation full and complete interruption of business coverage. To accomplish this in 1970 IRI issued a separate policy to cover each of the four bakeries. In this way they achieved the intent of both parties because each of the four bakery corporations carried on its own separate and individual operation and business. Actually they were in competition with each other. Each of these bakery corporations was operating independently and separately with no interdependence between them, manufacturing its own production for sale on the open market, packaging its own finished products, and selling to its own customers. Therefore the books of each corporation could serve as a basis for the determination of gross earnings and any increase or reduction of gross earnings over a period of time. In this way the common intent of both parties was achieved and complete business interruption coverage of the entire Cotton bakery operation continued until the reorganization of 1976.

7. In 1976 the Cotton bakery operation was completely reorganized. The parent company, Cotton Bros., Inc., was created and thereafter operated the Cotton bakery operation through seven wholly-owned subsidiaries, as one single bakery business. The seven wholly-owned subsidiaries consisted of the four bakery corporations previously owned by Cotton and three newly created non-bakery subsidiary corporations: an insurance subsidiary, a transportation subsidiary and a procurement subsidiary. The insurance subsidiary handled all the health and welfare, self-insurance and other insurance responsibilities of the parent corporation and all subsidiaries. It did not do business with the general public. The sole responsibility of the transportation subsidiary was to furnish and satisfy the transportation needs of the parent corporation and its subsidiaries. Like the insurance subsidiary it did no business with the general public. The sole responsibility of the procurement subsidiary was to furnish raw materials, supplies and equipment required by the parent company and its subsidiaries. Like the other two non-bakery subsidiaries, the procurement subsidiary did no business with the general public.

After reorganization none of the bakery subsidiaries produced the entire variety of bakery products it sold to the public, as each of them had done previous to the reorganization. An entirely...