Mountain Creek sues Everest after warm-weather insurance doesn't pay off - The Star-Ledger - NJ.com
Last winter was the worst ski season in decades, but the ownership of Mountain Creek, which just spent millions on a new lodge and other improvements, had a "Get out of jail free card" in its back pocket: an insurance policy against a warm Christmas season, worth up to $1.7 million.
Or so the resort thought.
Now, Mountain Creek is suing Everest Indemnity Insurance Co., based in Liberty Corner, and the Superior Court dispute in Sussex County hinges on how high the mercury rose on 16 days in December.
"Everest has wrongfully denied Mountain Creek's claim by relying upon hourly temperature measurements at other sites that are colder than the Ski Resort," the lawsuit charged.
The resort didn't respond to requests for comment yesterday, and Daryl Bradley, president of Everest, said he couldn't comment on a suit in progress.
So what went wrong? Mountain Creek paid for insurance that would kick in if more than 10 out of 16 days during the Christmas season averaged over 33 degrees.
But the cold, hard fact of temperature, it turns out, is vulnerable to plenty of hot-headed human dispute.
"The issue here is that looking at it from a contract-drafting perspective, when push came to shove, neither one wanted to go with a system that was entirely in control of the other," said David Cronheim, an attorney at Norris McLaughlin & Marcus, in Bridgewater, and author of ski law blog Ski, Esq.
So the contract named Massachusetts-based Weather Analytics to calculate the temperature at the resort based on federal data measured nearby.
Now Mountain Creek isn't happy about that choice, suing because the measurements didn't capture what its suit describes as a month of 33 degree or higher temperatures.
One fact that's undisputed in the industry is that last season was a very bad year for ski resorts. Across the country, skier and snowboarder visits to resorts dropped 15 percent year over year, the worst season since 1991-1992, according to the National Ski Areas Association.
"Many ski areas either opened late or closed early, or in some cases both," said association spokesman Troy Hawks.
That was the case for much of the season in Mountain Creek, which hoped to debut new facilities early in the season, but was forced to wait until after Christmas because warm temperatures made snowmaking difficult.
Ski business insurance deals have led to trouble before. According to ski areas association report, in the late '90s, a Colorado insurer called MDM Group offered such plans and earned millions before paying out $23 million in claims when Y2K cut into the ski business in 1999.
In the last decade, insurers like K&K Insurance Group stopped offering the niche service, and a company that sold weather hedges, Storm Exchange, went out of business.
Robert Holmes, president of Missouri-based Spectrum Weather and Specialty Insurance, said he stopped marketing the somewhat expensive policies to ski resorts, which prefer hedging their bets with simpler methods like offering cheap season passes early in the fall.
Holmes said the agreement between Mountain Creek and Everest using third-party calculation sounded complicated, and he would rather benchmark a policy against a nearby temperature at one or more established weather stations.
"It's a lot simpler, it's a lot easier to verify, and there's one less party involved," Holmes said. "There's more than one way to skin a cat, and usually the simplest is better."
Eliot Caroom: (973) 392-7919, ecaroom@starledger.com and @eliotter on Twitter
15 May, 2012
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