On May 8, 2014, a California federal court in Patel v. American Economy Ins. Co., 2014 U.S. Dist. LEXIS 63935 (N.D. Cal. 2014) issued a decision examining whether coverage was available for loss of business income and feng shui services under a dentist’s property policy. On October 14, 2009, a fire in the basement of a commercial building caused smoke damage to the dentist’s office of plaintiff Namrata Patel. Patel submitted a claim to American Economy Insurance Company (“American Economy”) for damage to her dental and electronic equipment, cleaning and repair costs, inventory replacement, lost business income, and a $50,275 invoice for a feng shui consultant. American Economy investigated Patel’s claims and found that some were covered, but that other claims were uncovered or were not valid. American Economy eventually paid Patel a total of $114,703.29 under the policy, including $39,752.79 for business income loss.
On January 8, 2013, Patel received a notice from her building owner that the building’s air ducts would be replaced in 2014 due to damage caused by the fire, which would require each tenant to vacate the premises for several months. Patel presented a supplemental claim to American Economy for additional business personal property, business income loss, and extra expenses she anticipated incurring due to vacating the premises and potentially relocating to another building. The claim also alleges that American Economy knew and failed to disclose that Patel would be required to vacate the premises and would incur further losses. American Economy denied the supplemental claim on the basis that the policy limits coverage to losses that occur “within 12 consecutive months after the date of direct physical loss or damage.”
American Economy filed a motion for partial summary judgment asserting that Patel’s claim for anticipated future business income losses is not covered under the policy, that the feng shui consultant fees are not covered, and that Patel’s cause of action for breach of good faith and fair dealing fails because American Economy acted reasonably when it denied parts of Patel’s claims.
The court found that the claim for lost business income in 2014 is not covered under the policy because the policy limits coverage to losses that occur “within 12 consecutive months after the date of direct physical loss or damage.” Patel argued that because she previously only closed her dental office for one month, she did not exhaust the limitation and is still entitled to eleven more months of business interruption coverage. She asserted that the 12-month time period can be commenced at any time at the election of the insured and that she is entitled to the 2014 business interruption payments. The court found that this interpretation was not supported by the policy language, noting that the policy requires business income losses to occur within “12 consecutive months” of the date of loss. Thus, the court granted summary judgment in American Economy’s favor with respect to the alleged 2014 business income losses.
With regard to Patel’s claim for the costs of the feng shui consultant, the court analyzed whether feng shui constitutes a “direct physical loss.” The court noted that Patel used a feng shui consultant to “restore energy balance” and determine “placement of furniture and dealing with forces of Qi.” Even though Patel utilized feng shui when she first placed the property, feng shui services did not meet the plain meaning of the term “direct physical loss.” Further, the feng shui services were not an “Extra Expense” as defined by the policy because the services were not “necessary . . . to avoid or minimize the suspension of business.” Thus, the court granted partial summary judgment in American Economy’s favor. Additionally, the court granted summary judgment in favor of American Economy on Patel’s bad faith claim because the undisputed facts demonstrated that there were disputed facts regarding Patel’s claims.