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Zurich prevails in bid to deny business interruption coverage

Zurich prevails in bid to deny business interruption coverage

Zurich American Insurance Co. is not obligated to pay $70 million in business interruption losses to a medical imaging firm in connection with the shutdown of a Canadian nuclear plant because of an exclusion in its all-risk property policy, a federal appeals court said Wednesday in affirming a lower court ruling.

North Billerica, Massachusetts-based Lantheus Medical Imaging Inc., is a specialty pharmaceutical company that manufactures and distributes diagnostic medical imaging products, according to court papers in Lantheus Medical Imaging Inc. v. Zurich American Insurance Co.

A key component in one of its products, the TechneLite Generator, is the molybdenum-99 isotope, which it indirectly obtains from the nuclear reactor at Chalk River Laboratories in Ontario, Canada, that is operated by Atomic Energy of Canada Ltd.

Schaumburg, Illinois-based Zurich had issued an all-risk property insurance policy to Lantheus that was in effect from Jan. 8, 2009, through Jan. 8, 2010.

The policy included coverage for “contingent business income loss,” including a $70 million sublimit in connection with the Chalk River reactor, according to court papers. Exclusions for losses not covered included one for corrosion.

In May 2009, a breach led to the reactor's shutdown for 15 months. As a result, Lantheus had to cut back on production of it generators, and lost revenue and incurred extra expense in obtaining an alternate supply of Moly-99.

Zurich denied the company's claim for coverage on the basis that the business interruption had occurred because of corrosion at the reactor, and therefore fell under its policy's exclusion.

The company filed suit in U.S. District Court in New York, which ruled in Zurich's favor in April 2015. Lantheus appealed the ruling, and a three-judge panel of the 2nd U.S. Circuit Court of Appeals unanimously affirmed the lower court ruling.

“The District Court's analysis is thorough and sound,” said the 2nd Circuit ruling. “There is no question of material fact” that the shutdown falls under the exclusion, “even accepting Lantheus' proposed version of events,” said the panel in affirming the lower court ruling.