Pentair Inc. vs. American Guarantee and Liability Insurance Co.

(8th U.S. Circuit Court of Appeals, applying Minnesota law, March 11, 2005)

–Ruling: Supplier’s loss of electricity is not direct physical loss.

Under Minnesota law, a power substation that was damaged by an earthquake was not a “supplier of goods and/or services” within the meaning of business interruption coverage, even though the insured was forced to air freight orders from Taiwan to the United States to meet seasonal needs after earthquake damage deprived Taiwanese suppliers of electricity. The court found that the power substation supplied no goods to the insured, either directly or indirectly. As a result, the suppliers’ inability to function after loss of power did not constitute “direct physical loss or damage” to goods.