- 3 -
in the fishing grounds off the western coast of the United
States.
On December 9, 1991, BFI purchased an insurance policy on a
commercial fishing vessel, the F/T Ocean Rover (Ocean Rover).
The insurer agreed to indemnify BFI for any “loss of hire”
damages, including lost profits from operations that might result
from a mechanical breakdown. In March and July 1992, the Ocean
Rover experienced several breakdowns, and BFI realized a loss of
profits. The losses were covered under the insurance policy, and
BFI filed a claim with the insurer. In May 1993, the insurer
paid $1,024,517 on the claim to BFI, which BFI reported as
ordinary income.3 However, a dispute arose as to the extent of
the damages suffered by BFI, and the insurer refused to pay any
further amounts on the claim.4 In September 1995, BFI filed a
lawsuit against the insurer alleging a breach of contract, bad
faith, and consumer protection violations.
On January 25, 1996, Bochica entered into an agreement with
a Norwegian corporation, Norway Seafoods A/S (Norway), for the
3Any proceeds received by BFI from the insurance claim would
have represented ordinary income.
4On Dec. 15, 1993, BFI filed a bankruptcy petition pursuant
to 11 U.S.C. sec. 362 (1994). The insurance claim survived the
bankruptcy proceedings and remained an asset of BFI as of the
close of the 1995 tax year. In those proceedings, the insurance
claim was assigned a zero value. However, a disclosure statement
dated Aug. 22, 1994, noted that “debtor believes that perhaps as
much as $1 - 4 million could be recovered on this claim.”
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