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Understanding “Loss of Use” in CA Property Damage Claims

Property damage in California is not always physical. The infamous case of Sombrero v. Scottsdale demonstrates this perfectly: Thee Sombrero, a nightclub venue, filed a “loss of use” property damage claim against its security provider’s insurer, Scottsdale Insurance Company.

The ruling of the appellate court on this lawsuit became a landmark case for property damage lawyers in Los Angeles and the rest of California.

Summary of Thee Sombrero, Inc. v. Scottsdale Insurance Company

When Sombrero’s security company committed a lapse that resulted in a fatal shootout inside the nightclub, the city revoked Sombrero’s conditional use permit (CUP) to operate as a nightclub. The business was forced to get a modified permit, this time to operate as a banquet hall.

Sombrero generated more income as a nightclub than as a banquet hall. Additionally, the venue suffered a diminution in value, i.e., the property’s market value went down because of the shooting that took place.

When Sombrero first filed the claim, the trial court ruled in favor of Scottsdale, agreeing that the losses Sombrero referred to are economic losses and aren’t covered by the insurance company’s policy.

Sombrero appealed, and it’s here that the appellate court reversed the initial ruling. The court stressed that the damages stemming from the loss of use of personal property refer to the business’s inability to use the venue as a nightclub, thanks to the shootout that resulted in the revocation of its CUP.

The court adds that the language used in the insurance policy contributed to its decision:

  • Scottsdale’s definition of Property Damage included “…loss of use of tangible property that is not physically injured.”
  • “Loss of use,” in the contract did not mean, “total loss of all uses,” which was the definition that Scottsdale used to justify their refusal to provide insurance coverage to Thee Sombrero.

The appellate court also ruled that the diminution of the venue’s market value can be used to measure the damages sustained from the loss of use of the nightclub.

Other Examples of Loss of Use Claims

For more context on how loss of use can work in property damage claims, read these examples:

– A coffee shop owner hired an electrician to repair a broken refrigerator. Unfortunately, the electrician accidentally knocked over and damaged the cafe’s espresso machine. Now this machine is a unique model and its parts take months to order. The cafe owner can calculate how much they could have earned if they were able to sell espresso-based drinks in the days when the espresso machine was out of order. The total is the measure of damages the cafe owner can file claim for.

– A drunk driver crashed into a tall tree one night. The tree got knocked down and fell right in the middle of the street. The next day, authorities closed the street while waiting for a removal company to clean everything up. Businesses along this road all had lower sales that day because the street was closed off to motorist customers. Owners can estimate their losses and file a reimbursement claim against the drunk driver’s insurance.

Consult LA-Based Property Damage Attorneys for Loss of Use Damage Claims

If you or someone you know incurred financial losses because of property damage, get in touch with our property damage lawyers in Los Angeles. Haffner Law’s seasoned attorneys can advise you on what to do, and whether you have a good chance at winning a loss of use claim.

Get fierce representation for your property damage claim. Book a consultation with Haffner Law today.

(This is an attorney advertisement by Joshua Haffner)


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