SDS Lumber Co. v. Allendale Mut. Ins. Co.

Citation563 F. Supp. 608
Decision Date06 May 1983
Docket NumberCiv. No. 81-485BU.
PartiesSDS LUMBER COMPANY, a Washington corporation, Plaintiff, v. ALLENDALE MUTUAL INSURANCE COMPANY, a Rhode Island corporation, Defendant.
CourtU.S. District Court — District of Oregon

Michael E. Haglund, David H. Lohman, Lindsay, Hart, Neil & Weigler, Portland, Or., for plaintiff.

Douglas G. Houser, John W. Buehler, Bullivant, Wright, Leedy, Johnson, Pendergrass & Hoffman, Portland, Or., for defendant.

JAMES M. BURNS, Chief Judge:

SDS Lumber Company (SDS) obtained a $427,6101 jury verdict against Allendale Mutual Insurance Company (Allendale) on a business interruption insurance policy. The matter is now before me on SDS's motion for prejudgment interest. For reasons discussed below, the motion is denied.


This is a diversity action. Oregon law applies.

SDS is a Washington corporation. It operates wood products facilities in the Pacific Northwest, including the Cascade Locks Lumber Company (Cascade Locks) at Cascade Locks, Oregon. Allendale is a Rhode Island corporation. It insured SDS and its affiliates against business interruption losses.2

When the trial began on January 10, 1983, precisely three years had passed since a silver thaw hit western Oregon and Washington, causing severe property damage. In the Columbia River Gorge, ice and snow drifting to heights of over six feet collapsed many of the buildings at Cascade Locks.

At the time of the ice storm, Cascade Locks was shut down, in part, to allow SDS to modify the edger table in the sawmill. The mill had been closed since late fall 1979. However, SDS claimed that but for the ice storm it would have completed the modification and restarted the mill by mid-February 1980. In fact, SDS took advantage of the down time to modernize some of the facilities and did not restart the mill until well into the summer of 1980.

On August 13, 1980, SDS filed its initial proof of loss statement with Allendale, claiming it lost $274,819 on the production of ties, timbers, and chips for the period from February 18 through April 30. This was the period SDS estimated it would have needed, using due diligence and dispatch, to repair the mill to where it could resume normal operations. Later, on March 6, 1981, SDS submitted a second proof of loss statement extending the claim period to May 30. This resulted in a claim of $448,011. Allendale rejected the claim and this lawsuit followed.

Following several months of discovery, SDS tendered a new statement of loss on February 23, 1982, based on its expectation that Cascade Locks would have produced dimension lumber in addition to ties, timbers, and chips. This statement, totalling $618,900, also revised upward the amount of wood products Cascade Locks would have produced and the expenses it would have incurred during the interruption period. At trial, SDS submitted into evidence a fourth computation of its claim. This resulted in the same net amount of claim as the third claim with different figures on anticipated gross profit and expenses. This fourth claim went to the jury.

At trial, the parties presented conflicting evidence as to when SDS would have restarted Cascade Locks had there been no ice storm. The 1980s have been exceptionally bad years for the wood products industry. Many mills have been idle. Consequently, the jury heard testimony from industry experts as to whether Cascade Locks could have weathered the economic climes better than it did the meteorologic.

The jury heard conflicting evidence as to the type, grade, and quantity of products Cascade Locks could and would have produced and at what prices. There was conflicting evidence as to whether SDS could have made up the production it lost at Cascade Locks by running an extra shift at one of its other mills. There was also conflicting evidence concerning the reasonableness of the manner of performance of the repairs at Cascade Locks. SDS elected to repair the facility itself rather than employ the casualty repair expert whose services Allendale had promptly made available to SDS.

In sum, the jurors listened to four days' testimony from lumbermen, accountants, and contractors, and then, like Alexander with the Gordian Knot, returned a verdict for $427,610.3


By statute, Oregon courts award prejudgment interest at nine percent per year on "all monies after they become due; ..." Or.Rev.Stat. § 82.010(2)(a) (1981). The Oregon courts interpret this grant as limited to breach of contract claims where the exact amount of the damages is either ascertained or readily ascertainable and the time from which the interest runs is easily ascertained. Krieg v. Union Pacific Land Resources Corp., 269 Or. 221, 234, 525 P.2d 48, 54 (1974); Public Market Co. of Portland v. City of Portland, 171 Or. 522, 625, 130 P.2d 624, 138 P.2d 916, 918 (1943).

Because the Oregon courts do not allow prejudgment interest in personal injury actions, Calcagno v. Holcomb, 181 Or. 603, 613-14, 185 P.2d 251, 255 (1947), the award is apparently intended to compel debtors to pay debts when due rather than to make whole the party the debtor injured. As the Oregon Supreme Court said in United Farm Agency v. McFarland, 243 Or. 124, 133, 411 P.2d 1017, 1022 (1966): "Or.Rev. Stat. § 82.010(2)(a) imposes a duty to pay interest only in those cases in which the law recognizes a duty to pay a certain sum at a certain time and such a payment has not been made."4 The ready ascertainability requirement makes sense in this context. If the object of the rule were to compensate injured parties for the loss of money that should have been theirs from the time of their injuries then there is no need to require that damages be readily ascertainable. Physical injuries are not ascertainable in the same sense as are contract damages because physical injuries do not take on a pecuniary character until the jury by its verdict says they do.

Prejudgment interest provides a disincentive to debtors to delay settling their accounts. If, however, a debtor cannot reasonably compute what he owes the creditor, the potential award loses its compulsive effect. A debtor cannot wrongfully withhold that which he cannot know he owes. See Public Market Co., 171 Or. at 628, 138 P.2d at 919. Because the award serves to compel the debtor to act, it is from the debtor's viewpoint the court must direct its inquiry into the ready ascertainability of the creditor's claim.5 Of course, the evidence presented at trial is usually the best indicator of the information with which the debtor had to work.


With those thoughts in mind, I turn to the questions central to this motion: whether SDS's business interruption loss was readily ascertainable and, if so, whether the time from which the interest runs was easily ascertained. I do not reach the second question because the short answer to the first is no.6

The Oregon courts have not dealt with whether to award prejudgment interest on a business interruption loss. My job, therefore, is to rule as I believe the Oregon Supreme Court would if it were faced with these questions. Commercial Union Insurance Co. v. Ford Motor Co., 640 F.2d 210, 212-13 (9th Cir.), cert. denied, 454 U.S. 858, 102 S.Ct. 310, 70 L.Ed.2d 154 (1981). This is not an easy task because the cases are not sufficiently consistent with one another for me to identify the most cogent principles or relevant factors to guide me on my way.7 Nevertheless, I conclude the Oregon Supreme Court would find Allendale could not have readily ascertained SDS's business interruption loss. I arrive at this conclusion based on the following factors.

1. SDS's business interruption loss was hypothetical. The mill was not operating at the time of the casualty. This does not prevent SDS's recovery of damages but it does make the amount of damages difficult to ascertain.

Cascade Locks did not have an immediate past production when the ice storm damaged the mill. Allendale, and later the jurors, had to determine when, given the soft market, SDS would have reopened Cascade Locks. This decision necessarily involved conjecture. Then they had to determine what and how much wood products Cascade Locks would have produced. There was little historical evidence on which to base this decision. To determine the amount of SDS's damage also required exploration of the permissible duration of the interruption period, i.e., the reasonableness of SDS's repair efforts and of the modifications to the facilities in the course of those repairs.

In a sense, this case can be analogized to lost profits cases. The Oregon courts are particularly reluctant to award lost profits to a business without a proven track record. See Western Energy, Inc. v. Georgia Pacific Corp., 55 Or.App. 138, 637 P.2d 223 (1981); White v. Oregon Horticultural Supply, Inc., 40 Or.App. 323, 594 P.2d 1321 (1979). With a hypothetical starting point and with hypothetical production, SDS's business interruption loss was nearly as difficult to figure as the lost profits of a new business.

SDS contends its net profit was capable of being ascertained by reference to the 1980 wood products market. Allendale may well have been able to ascertain the market value of the wood products SDS would have produced at Cascade Locks. See Corder v. A & J Lumber Co., 223 Or. 443, 450-51, 354 P.2d 807, 810-11 (1960). But Allendale could not have ascertained what and how much SDS would have produced by reference to the wood products market. This is not the kind of generally recognized standard of value to which Public Market Co. referred. Cf. Or.Rev.Stat. § 72.3050(1)(c) (1981). The wood products market is affected by myriad forces.

I do not mean to indicate a court should never award prejudgment interest on a business interruption loss. But this is not the easy case where Cascade Locks operated in a stable market and where the type, grade, and quantity of its production remained the same over time. The evidence did not show a lengthy history of...

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