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replacement coverage without success. For TYE 8/31/90 through
TYE 8/31/92, petitioner was effectively self-insured. No reserve
was established to fund potential liabilities, however.
Toward the end of TYE 8/31/89, Hagerman discovered that,
owing to an oversight on her part, petitioner’s theater license
had expired earlier in the fiscal year. Operating without a
license, petitioner was at risk of being closed down by the
county at any time. Petitioner was not closed for this reason
during the years at issue, but neither were its efforts to secure
renewal of its license successful. At some time early in TYE
8/31/90, the County Building and Safety Department inspected
petitioner’s complex and identified several violations of the
building code. Some of these violations were promptly corrected,
but over the next 1-1/2 to 2 years further inspections followed,
and the violations uncovered by the Building and Safety
Department multiplied. Citations from the Building and Safety
Department required remedial action in order to stay open for
business. Compliance with the building code was also a condition
for renewal of petitioner’s theater license. In the early part
of TYE 8/31/90, when petitioner received the first citations,
Hagerman expected that the total cost of correcting the
violations would amount to around $200,000-$400,000, much of
which would be attributable to the cost of reinforcing the first
floor ceiling with cement. Hagerman did not obtain an estimate
for the cement work from a contractor.
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