[Editor's note: the following decision involves a dispute over loss caused by a power outage affecting computer equipment, but has only been addressed in a court of original jurisdiction.. In our opinion, the opportunity to summarize a case involving technology was more important than keeping with our usual method of only discussing decisions that have been appealed. ]

American Guarantee and Liability Insurance Company denied coverage under a commercial property policy it issued to Ingram Micro, Incorporated. The policy included coverage for business and service interruption due to direct damage suffered by Ingram, a microcomputer products distributor.

One morning in December, 1998, Ingram's Tuscon, Arizona service center experienced a power outage. A circuit in a fire alarm panel shorted out, tripping several electrical circuit breakers. The loss of power shut down Ingram's IMPULSE network. Ingram depended completely upon the IMPULSE system to track customer orders and to handle its data processing and other business operations. It eventually took Ingram personnel a full business day to get all of their computing equipment operational. However, they eventually determined that the power loss caused the loss of that day's data entries as well as eliminated programming that allowed communications with several other operation centers. Ingram personnel had to perform some major reprogramming as well as recapture a substantial amount of lost data.

When Ingram submitted a business interruption claim, Federal Insurance's position was that, since none of Ingram's property suffered direct physical damage, no covered loss occurred. Federal filed a motion seeking declaratory judgment that no coverage was owed, which Ingram countered with a motion alleging breach of contract.

The court reviewed both arguments, including the testimony of two experts engaged by Federal. The experts testified that Ingram's IMPULSE system did temporarily lose power, but retained its functionality. In their opinion, the loss of correct programming did not constitute a physical loss that would trigger insurance coverage. Ingram's position was that the brief loss of power directly caused the loss of programming information and data that caused a serious business interruption. Therefore, they were due coverage under the business interruption portion of their commercial property policy. The court agreed with Ingram stating that their IMPULSE system, due to the power loss, was unable to operate properly, interrupting Ingram's normal business operation. In the court's opinion, Federal's argument concerning lack of direct physical damage was arcane and flew in the face of technological reality. The court denied Federal's motion and granted Ingram's motion and ordered the action over for trial.

America Guarantee & Liability Insurance Company, Plaintiff v. Ingram Micro, Incorporated, Defendant. DCAriz. No. 99-185 Filed April 19,2000 CCH Fire And Casualty Cases paragraph 10510