13. COMMITMENTS AND CONTINGENCIES

 

Litigation

 

The Company is involved in claims from time to time, which arise in the ordinary course of business. In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be exposure to loss in excess of those amounts accrued. The estimated loss, if any, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. In the opinion of management, the Company has made adequate provisions for potential liabilities, arising from any such matters, which are included in Accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims, and changes in any such matters, could have a material adverse effect the Company’s business, financial condition, and operating results.

 

On July 13, 2015, a putative class action was filed against the Company in the Federal District Court of New Jersey seeking to obtain declaratory, injunctive and monetary relief for a class of New Jersey consumers based upon alleged violations by the Company of the New Jersey Truth in Customer Contract, Warranty and Notice Act and the New Jersey Consumer Fraud Act.  The Company continues to vigorously defend the action. 

 

Insurance Recovery

 

As a result of hurricanes that occurred during the three months ended September 30, 2017, the Company incurred damage at certain stores located in Florida and Texas. The Company has comprehensive insurance coverage and while it expects that it is probable the insurance proceeds will cover the entire replacement cost of the damaged stores, certain deductibles and limitations will apply and no assurances can be made that proceeds will be sufficient to cover the costs of the entire restoration. During the three months ended September 30, 2017, the Company recorded $1.4 million in charges based on the initial damage assessment and terms of the deductibles under the insurance policies, of which $1.3 million relates to the Company’s wholly-owned properties and $0.1 million relates to the Company’s portion of the charge taken by an unconsolidated real estate venture.  To the extent that insurance proceeds, which are on a replacement cost basis, ultimately exceed the net book value of the damaged stores, a gain will be recognized in the period in which all contingencies related to the insurance claim have been resolved. The estimated charges for the insurance deductibles are included in Property operating expenses and Equity in losses of real estate ventures in the consolidated statement of operations.