Archive for the ‘Property Coverage’ Category

Not Feeling It: Court Nixes Claim for Feng Shui Fees and Finds No Bad Faith

Tuesday, June 17th, 2014

By Timothy Kevane, Sedgwick New York

In Patel v. American Economy Ins. Co., — F. Supp. 2d. —, 2014 WL 1862211 (N.D. Cal. May 8, 2014), the U.S. District Court for the Northern District of California granted the insurer’s motion for partial summary judgment, finding no coverage for the fees of a feng shui consultant, rejecting business losses outside the specified period, and concluding there was no bad faith.

The insured dental office suffered smoke damage due to a fire in the basement of premises it occupied.  Among other expenses submitted to its property insurer was a bill for $50,000 from its feng shui consultant who provided advice with respect to crystal replacements, energy balance restoration, furniture placement, and the alignment of Qi forces.  The court held that such expenses did not constitute a “direct physical loss” covered by the policy as they did not involve damage to tangible, material objects.  Furthermore, there was no evidence these expenses were incurred to minimize the suspension of the business and to continue operations (as a covered “extra expense”).  The court held that the extra expense provision was not rendered vague simply because it did not specifically exclude feng shui costs from coverage.

The court also rejected the insured’s supplemental claim for lost business income when it had to shutter its business in 2014 due to additional repairs to the building relating to the original fire, which occurred five years earlier.  The insured argued that the policy covered twelve months’ worth of lost income, and because it initially claimed only one month of lost income immediately after the fire, it remained eligible for another eleven months of coverage.  The court rejected this argument as the business income coverage was limited to the defined “period of restoration,” subject to the requirement that lost income must be sustained within twelve consecutive months from the date of loss.  The court found that it made no difference that restoration work may have resumed outside this limiting period.

Lastly, the court rejected the claim that the insurer disregarded in bad faith the insured’s need to relocate in 2014, citing the absence of any underlying contractual obligation to cover the 2014 lost income.

 

Illinois “Blasts” Non-TCPA Causes of Action Out of Coverage

Tuesday, June 10th, 2014

By Stephanie Sauvé, Sedgwick Chicago

In G.M. Sign, Inc. v. State Farm Fire & Cas. Co., 2014 IL App (2d) 130593 (May 2, 2014), the Illinois appellate court enforced a policy’s Violation of Statutes Exclusion endorsement to preclude coverage for a settlement arising out of an underlying blast-fax lawsuit that alleged various causes of action.

The underlying lawsuit was a class action in which G.M. Sign sued Michael Schane (“Schane”) and Academy Engraving Company for sending unsolicited fax advertisements. G.M. Sign asserted three causes of action in its amended complaint:  violation of the federal Telephone Consumer Privacy Act of 1991 (“TCPA”), conversion, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.  The latter two counts made no express reference to the TCPA, but each count was based on the sending of unsolicited fax advertisements to G.M. Sign and others.  Schane later entered into a settlement agreement in which he stipulated to the entry of judgment against him for $4.9 million, to be satisfied with insurance proceeds.

Schane tendered the suit to his insurer, State Farm.  His insurance policy contained a Violation of Statutes Exclusion endorsement precluding coverage for property damage or advertising injury “arising directly or indirectly” out of any action or omission that violates or is alleged to violate the TCPA or any other statute that prohibits or limits the sending, transmitting, communicating, or distribution of material or information.  Citing this exclusion, the insurer denied coverage because the amended complaint alleged violations of the TCPA.

Thereafter, G.M. Sign filed a declaratory judgment action against State Farm claiming coverage under Schane’s policy.  On cross-motions for summary judgment, the trial court found that the insurer had a duty to defend and indemnify Schane, but the appellate court reversed.  The appellate court determined that the insurer had no duty to defend in connection with the amended complaint because the exclusion applied to all counts in the amended complaint.  The court reasoned that the proper analysis of the “arising out of” language in the Violation of Statutes exclusion is a “but for” analysis — if the alleged injury would not have occurred “but for” a violation of the TCPA, then the exclusion barred coverage for the alternative causes of action which arose from the same conduct underlying the alleged TCPA violation.

Look here for more Sedgwick articles related to insurance coverage for violations of the TCPA.

District Court Seeks to Streamline Hurricane Sandy Insurance Cases Through Dismissals

Friday, June 6th, 2014

By Jeffrey Dillon, Sedgwick New York

Yesterday, in the In re Hurricane Sandy Cases, Civil Action No.: 1:14-mc-00041-CLP-GRB-RER, a committee of magistrates in the Eastern District of New York recommended that the district judges presiding over more than 150 lawsuits against insurance companies arising from Hurricane Sandy dismiss numerous state law causes of action and damages claims. The magistrates, who have been appointed to manage more than 1,000 civil actions arising from the hurricane, based their recommendation on prior rulings in Sandy-related cases that certain state law claims and types of damages are not cognizable under New York law. On February 21, 2014, the magistrates directed plaintiffs to voluntarily dismiss claims or damages not recognized by New York law, or submit letters to the Court explaining the legal basis for continuing to pursue such claims. Those plaintiffs who did not respond to the Court’s directive are now subject to the committee’s June 5th Report and Recommendation.

The committee’s recommendation is aimed at avoiding “wasteful and unnecessary” motion practice before the District Court in each of the individual Sandy-related cases, and to resolve claims that are not cognizable under New York law. Plaintiffs have 14 days from receipt of the Report and Recommendation to file objections with the Court or they will be deemed to have waived their right of appeal.

Among the state law claims to be dismissed are: (i) fraudulent misrepresentation and inducement – on the ground that plaintiffs have failed to allege the necessary elements of a legal duty owed by the insurer separate from its duty to perform under the policy and entitlement to special damages; (ii) breach of the implied covenant of good faith and fair dealing – on the ground that New York courts do not recognize a separate cause of action for breach of the implied covenant when a breach of contract claim is also pled on the same facts; (iii) bad faith denial of insurance coverage – on the ground that plaintiffs have not alleged conduct actionable as a tort, independent of the underlying insurance contract; and (iv) claims under Section 349 and 350 of New York General Business Law­ – on the ground that plaintiffs have not alleged injury independent of loss caused by an alleged breach of contract.

The committee also recommended the dismissal of demands for punitive damages, because plaintiffs have not identified that the insurers’ conduct was actionable as an independent tort, and any claims for attorney’s fees, which are not recoverable in actions against insurers to settle rights under a policy.

 

Is Defective Construction an “Occurrence”? More States Are Answering Yes

Tuesday, May 27th, 2014

By Aaron F. Mandel and Stevi A. Siber-Sanderowitz, Sedgwick New York

Last year, we examined the different approaches states have adopted to resolve whether defective construction by itself is an “occurrence” within the meaning of liability insurance policies.  See Is Defective Construction Work an “Occurrence”?  The Answer Isn’t So Concrete, Insurance Coverage Law Report (May 2013).  Since then, a number of states either have seen their highest courts depart from precedent by concluding that such claims satisfy the “occurrence” requirement, or have sought to pass legislation requiring liability policies to define “occurrence” to include faulty construction work.  Below is a summary of these developments, as well as a recommendation on how to address this trend.

The trendsetter appears to have been the West Virginia Supreme Court’s decision in Cherrington v. Erie Insurance Property & Casualty Co., 745 S.E.2d 508 (W. Va. 2013).  As previously reported on the Insurance Law Blog, that case involved a lawsuit arising out of defects at a newly constructed residential project.  Only the project itself suffered damage, and the builder’s liability insurer denied coverage on the ground that, among other reasons, allegations of defective construction do not constitute an “occurrence.”  This position aligned with several prior West Virginia Supreme Court decisions.  Ignoring precedent and stare decisis, the Cherrington court overhauled West Virginia law and held that the term “occurrence” in general liability policies includes defective construction.  The court reasoned that, by defining “occurrence” to mean “an accident,” all damages or injuries unintentionally caused by an insured fall within a liability policy’s insuring agreement.  The court supported its conclusion by noting that the “your work” exclusion implied damage to the insured’s work must be within the insuring agreement.  Otherwise, the exclusion would be meaningless.

Taking Cherrington’s lead, the North Dakota Supreme Court in K&L Homes, Inc. v. American Family Mutual Insurance Co., 829 N.W.2d 724 (N.D. 2013), also reversed course and held that defective construction may constitute an “occurrence” provided that the insured did not expect or intend the faulty work and resulting damage.  There, homeowners claimed their homes were damaged because of substantial shifting caused by improper footings and inadequately compacted soil under the homes’ footings and foundations.  After examining the standard general liability form’s drafting history and surveying cases nationwide, the court concluded that defective construction could qualify as an “occurrence” under the builder’s liability policy if the builder did not intend or expect the faulty work and the “property damage” was not anticipated or intentional.  Although the North Dakota Supreme Court previously had held that faulty or defective workmanship standing alone is not an “occurrence,”¹ the K&L Homes court explained its decision by noting that previous case law incorrectly distinguished between defective construction that damages only the insured’s work, and defective construction that damages a third-party’s work or property.  The court found there is nothing in the definition of “occurrence” which supports differentiating between the two types of damage.

Not to be outdone by its sister courts in West Virginia and North Dakota, the Alabama Supreme Court earlier this year reversed a decision less than six months old, and held that defective construction can qualify as an “occurrence” under a liability policy.  Specifically, in Owners Insurance Co. v. Jim Carr Homebuilder, LLC, the Supreme Court of Alabama held that an insured hired to build a house was not entitled to coverage for “property damage” or “bodily injury” (i.e., mental anguish) resulting from the insured’s defective construction.  No. 1120764, 2013 WL 5298575 (Ala. Sept. 20, 2013) (“Jim Carr I”).  On rehearing, the court withdrew its opinion in Jim Carr I and replaced it with a new decision that held defective construction could constitute a covered “occurrence” under a general liability policy if the damage was unintended.  Owners Ins. Co. v. Jim Carr Homebuilder, LLC, No. 1120764 (Ala. March 28, 2014) (“Jim Carr II”).  As the court explained, “the fact that the cost of repairing or replacing faulty workmanship itself is not the intended object of the insurance policy does not necessarily mean that, in an appropriate case, additional damage to a contractor’s work resulting from faulty workmanship might not properly be considered ‘property damage’ ‘caused by’ or ‘arising out of’ an ‘occurrence.’”  Because the policy did not define an “occurrence” in terms of the ownership or character of the property damage, the court concluded there was no basis for distinguishing between damages to the insured’s work and damage to third-party work.

New Jersey decided to take a different tack in addressing the “occurrence” issue.  On November 25, 2013, New Jersey State Assemblyman Gary Schaer introduced Bill No. A4510, which would have required liability policies issued, renewed, or delivered in New Jersey to define “occurrence” to include damages resulting from faulty workmanship.²  According to the bill’s interpretive statement, it required that “occurrence” be defined to address “both accidents and faulty workmanship” in order to remedy New Jersey case law that “varied in their holdings as to whether damage from faulty workmanship is accidental in nature and therefore within the definition of an occurrence.”³  Although the bill recently died in committee, its introduction demonstrates a continuing trend in states seeking to legislate the “occurrence” issue.  Laws addressing the “occurrence” issue are already on the books in Colorado, Arkansas, South Carolina, and Hawaii. See, e.g., Col. Code § 13-20-808; Ark. Code § 23-79-155; S.C. Code § 38-61-70; Haw. Stat. § 431:1-217.

The foregoing cases and proposed legislation demonstrate states’ willingness to compel liability insurers to cover risks they have not traditionally insured.  The foundation for this traditional rule is sound:  an insured can prevent damage to its own work simply by performing its work correctly.  In contrast, the reasoning behind compelling liability insurers to cover damage to an insured’s own work is shaky.  For example, courts concluding that defective construction work is covered under liability policies because there would otherwise be no reason for those policies to include the “business risk” exclusions ignore that construction defect claims often involve damage to an insured’s work and other third-party property.  The exclusions protect the insurer from having to insure uncovered damage (to the insured’s work) while preserving coverage for the covered damage (to the third-party property).  In other words, the “business risk” exclusions actually confirm that liability policies are not intended to cover damage to an insured’s work as opposed to suggesting that damage is covered in the first instance.

Despite the weak reasons courts and legislatures have cited to in compelling liability insurers to cover faulty workmanship,it is doubtful those courts and legislatures will revert back to leaving defective workmanship claims outside the realm of liability policies.  In that case, how should liability insurers respond?

Although case law and statutes declaring that defective construction qualifies as an “occurrence” within the meaning of liability policies generally leaves the policies’ “business risk” exclusions intact, we previously offered three potential responses in our earlier “Occurrence”? article:  (1) including more specific policy exclusions that eliminate coverage for “property damage” to an insured’s own work; (2) charging higher premiums for policies issued to entities engaged in the construction industry and/or issuing policies only in excess of significant self-insured retentions; or (3) refusing to issue policies to parties that perform construction work.  These options have drawbacks:  higher premiums would be passed along to project owners and developers (which would unnecessarily increase construction costs), significant self-insured retentions could limit the pool of insureds capable of performing construction work to only those that could absorb them (thus decreasing competition), and no longer affording liability coverage for construction projects may cause the construction industry to come to a screeching halt.

Absent a statute or declared public policy prohibiting insurers and their insureds from doing so, a fourth option could be that insurers specify in policies that defective construction is not an “occurrence.”  This would be the insurance equivalent of Newton’s third law (for every action, there is an opposite and equal reaction).

Limiting whether and to what extent faulty workmanship qualifies as an “occurrence” under liability policies would provide the greatest benefit to all involved:  not only would that preserve the intent of liability policies to respond only to third-party injuries caused by defective construction (such as a steel beam falling on a car or a crane collapsing onto an adjacent building), it would keep liability policy premiums down by ensuring damages to construction projects caused by faulty workmanship are addressed through traditional channels – namely, sureties.


¹  ACUITY v. Burd & Smith Constr., 721 N.W.2d 33 (N.D. 2006).

²  The proposed bill, however, noted that it was not intended to restrict or limit the “business risk” exclusions commonly found in liability policies.  In the ISO Form, the “business risk” exclusions include Exclusion j. (Damage to Property), Exclusion k. (Damage to Your Product), Exclusion l. (Damage to Your Work), and Exclusion m. (Damage to Impaired Property or Property Not Physically Injured).

³  Specifically, the bill cited to Pennsylvania National Mutual Casualty Insurance Co. v. Parkshore Development Corp., 403 Fed. App’x 770 (3d Cir. 2010) (applying New Jersey law and holding that a subcontractor’s faulty work that resulted in damage to the insured general contractor’s work was not an “occurrence”), and Firemans Insurance Co. of Newark v. National Union Fire Insurance Co., 387 N.J. Super. 434 (N.J. App. Div. 2006) (holding that faulty workmanship was not “property damage” caused by an “occurrence” under a typical general liability policy).

Lights Out for Policyholders Seeking Business Interruption Coverage Due to Loss of Electricity

Monday, May 19th, 2014

By Alex Shilliday, Sedgwick Dallas

Super Storm Sandy caused widespread power outages throughout the New York metropolitan area in late October 2012, rendering it impossible for many companies and firms to conduct business.  In Newman Myers Kreines Gross Harris, P.C. v. Great Northern Ins. Co., Civil Action No. 13-CV-2177 (S.D.N.Y. Apr. 24, 2014), a law firm with an office in New York, NY purchased a property insurance policy that included coverage for loss of business income and extra expense.  The policy provided coverage due to a business interruption “caused by or result[s] from direct physical loss or damage by a covered peril …” to the covered premises. On October 29, 2012, with the storm bearing down on New York City, the area’s electrical power servicer preemptively shut off the power to three utility service networks to preserve its equipment in the event of flooding.  The power interruption affected the law firm’s building, essentially closing it for five days. The firm filed a business interruption claim under its property policy, which the insurer denied because the law firm did not suffer a covered loss under the policy, and the law firm subsequently filed suit.

On the parties’ motion and cross-motion for summary judgment, the Southern District of New York held that preventive power outages rendering an office building unusable did not constitute “direct physical loss or damage” to the covered premises and, therefore, did not trigger coverage for loss of business income and extra expense under the property insurance policy.  The district court noted that a “direct physical loss or damage” to the covered premises was a condition precedent to coverage under the policy.

The law firm had argued that “direct physical loss or damage” did not require actual structural damage; rather, there only needed to have been a change to the covered premises from an initial satisfactory state into an unsatisfactory state caused by some external event.  The firm relied on case law from other jurisdictions, where courts applying other states’ laws found that an external event (such as an invasion of noxious or toxic gases, contamination of well water, and threat of imminent rockfall) rendering the premises unusable and uninhabitable constituted a “direct physical loss or damage” despite not being tangible, structural, or even visible. The district court distinguished those cases because each involved the closure of a building due to either a physical change for the worse, or a newly discovered risk to the physical integrity of the premises.  Conversely, the law firm’s building was closed after the decision was made to preemptively shut off power to preserve equipment at the power supply and distribution centers. The district court reasoned that the words “direct” and “physical” modified the phrase “loss or damage” and, therefore, connote a need for actual, demonstrable harm of some form to the premises in order to trigger coverage. The court found that the “forced closure of the premises for reasons exogenous to the premises themselves, or the adverse business consequences that flow from such closure,” did not constitute a “direct physical loss or damage” to the premises.  The district court held that the insured law firm failed to meet its burden of showing that the policy covered its losses and, therefore, granted the insurer’s motion for summary judgment and dismissed the case with prejudice.

The court’s holding reminds us that the phrase “direct physical loss or damage” in a property insurance policy should not be read so broadly as to include claims regarding mere loss of use of premises.  This case reinforces the requirement that there be a direct physical change for the worse to the premises, or a newly discovered risk to the physical integrity of the premises, in order to trigger loss of business income and extra expense coverage.  Without such “direct physical loss or damage” to the covered premises, the insured cannot meet its burden of proof to establish coverage.

Texas Federal Court Dismisses Insurer in Case Alleging “Bad Faith” and Violations of the Texas DTPA

Monday, May 12th, 2014

By Benjamin Motal, Sedgwick Dallas

On April 18, 2014, a federal district court in Texas granted summary judgment in favor of an insurer that had paid the policy proceeds demanded by the insureds, but nonetheless were sued for “bad faith.”  The court’s decision adds to a growing body of Texas case law weeding out unfounded first-party insurance “bad faith” lawsuits.

 
In Bell v. State Farm Lloyds, 2014 WL 1516254 (N.D. Tex. 2014), a hail and wind storm damaged the policyholder’s property in Midlothian, Texas.  The insureds submitted a property insurance claim and, five days later, the insurance company sent out an adjuster to inspect the property.  The policyholders, and their construction contractor, were unsatisfied by the adjuster’s estimate of the damage, and then sought a second opinion from a public adjuster.  However, the inspection by the public adjuster produced an estimate that was lower than the insurance company’s estimate.  Undeterred, the policyholders requested a re-inspection of the property.  A new adjuster from the insurance company conducted the second inspection, and the estimate was higher than the previous estimate.  Subsequently, the policyholders’ construction contractor sent out a “final invoice” for the same amount, as the policyholders agreed with the contractor’s estimate, and the insurer issued the requested payment. 

 
The policyholders filed a lawsuit after receiving the payment, claiming that the insurance company had breached its contract, breached the duty of good faith and fair dealing, violated the Texas Deceptive Practices Act, the Texas Insurance Code § 541, and the Prompt Payment Act § 542, and committed fraud.  The court granted the insurer’s motion for summary judgment on each of the claims.  On the breach of contract claim, the court held that the insurer’s full payment of the amount stated in the final invoice “prov[ed] that there was no breach and that the Plaintiffs suffered no damages.”  The bad faith claim also failed because there was no evidence that the insurer, among other things, failed to properly investigate or timely pay the claim, or committed any “extreme act” giving rise to independent damages.  Because the claim for bad faith failed, the court found that the claim for unfair settlement practices also failed.  Similarly, because there was no evidence that the insurer had delayed in making the required payment, the claim under the Prompt Payment Act failed.  Finally, the court held that there was no merit to the fraud claim because the policyholders failed to establish that the insurer made any false representations.  Accordingly, the court entered judgment in the insurer’s favor.

New York Federal Court Dismisses Superstorm Sandy Bad-Faith Claim as Redundant

Tuesday, April 29th, 2014

By Gilbert Lee, Sedgwick New York

In 433 Main Street Realty, LLC v. Darwin National Assurance Co., 2014 WL 1622103 (E.D.N.Y. Apr. 22, 2014), the United States District Court for the Eastern District of New York dismissed the insureds’ cause of action against their insurer for alleged breach of the covenant of good faith and fair dealing in connection with a property damage claim related to Superstorm Sandy. The court concluded that the bad-faith claim was redundant and duplicative of the insureds’ cause of action for breach of contract.

The insureds owned and were developing a residential property in Port Washington, New York when the construction site sustained wind and water damage related to Superstorm Sandy. The insureds sought coverage under a commercial inland marine policy issued by Darwin National Assurance Company which was subject to a $10,000 deductible, except for loss caused by flood, which was subject to a $250,000 deductible. Although Darwin agreed that the claim was covered under the policy, the parties disagreed as to whether the property damage was caused by flood and, therefore, subject to the $250,000 deductible. The insureds later commenced a declaratory judgment action asserting, among other things, causes of action for breach of contract and breach of the insurer’s good faith obligations premised upon Darwin’s alleged mishandling of the claim and its insistence that the higher deductible applied.

The district court acknowledged that New York implies a duty of good faith and fair dealing into every express contract, but further recognized that a breach of that duty is merely a breach of the underlying contract. In that regard, the court concluded that New York authorities do not recognize a separate cause of action for breach of the implied covenant of good faith and fair dealing when a breach of contract claim based upon the same facts also is pled. Under those circumstances, the cause of action for breach of the implied covenant of good faith and fair dealing should be dismissed as redundant.

In reviewing the insureds’ allegations, the district court held that the core of the dispute was that the insurer had not paid what the insureds believed was due under the insurance policy. Accordingly, because the insureds failed to allege facts showing bad faith differing from the facts supporting the alleged breach of contract, the district court dismissed the bad faith claim as redundant. Notably, however, the court acknowledged in a footnote that dismissal of the bad faith claim does not preclude the insureds from claiming consequential damages beyond the policy limits on their breach of contract claim based on allegations of bad faith.

Please click here to see our earlier coverage of Superstorm Sandy and related regulations and property coverage disputes.

England and Wales Court of Appeal: Do Not Disclose At Your Peril

Friday, April 25th, 2014

By Andrew Milne, Sedgwick London

The Court of Appeal in England and Wales recently affirmed the High Court’s decision in Alan Bate v Aviva Insurance UK Ltd [2014] EWCA Civ 334, which held that Aviva was entitled to rescind or avoid a domestic property insurance policy taken out by Alan Bate.

Mr. Bate took out a policy covering a substantial property he owned called the Long House, which he was converting into five separate dwellings. The Long House was damaged in a 2001 fire, and a claim was made with Mr. Bate’s previous insurers. At the time Mr. Bate sought coverage from Aviva, he represented in his application that the 2001 fire had occurred at a “previous address,” and failed to disclose the renovation being done to his property and that the company performing the work was based at the property.

In June 2006, the Long House was largely destroyed by a second, accidental fire following which Mr. Bate submitted a claim to Aviva. Aviva did not accept the claim, and informed Mr. Bate it had decided to rescind and/or avoid the policy on the grounds of misrepresentation and non-disclosure. Mr. Bate commenced proceedings against Aviva, and the High Court ruled in Aviva’s favor.

The judgment is interesting because it concerns a claim that arose before the Consumer Insurance (Disclosure and Representations) Act 2012 came into force. The Act replaced a consumer’s duty to voluntarily disclose material facts with a duty to take reasonable care not to make a misrepresentation during pre-contractual negotiations. Although a similar decision probably would have been reached in this case even if the Act had been in effect when Mr. Bate filed his claim with Aviva given the misrepresentation he made about the 2001 fire, it is unlikely to be long before we see reported cases where insurers are prevented from rescinding or avoiding consumer insurance policies in circumstances where they would have been able to do so before the Act took effect.

New Jersey Legislature Passes Superstorm Sandy Bill of Rights

Monday, March 31st, 2014

By Ryan Chapoteau, Sedgwick New York

We previously reported on the New Jersey legislature’s attempt to pass reform bills as a response to Superstorm Sandy.  Although New Jersey Assembly Bill A3710 died when referred to the Financial Institutions and Insurance Committee, the legislature recently passed Senate Bill S1804 (combined with S1306), which details how the state can distribute Superstorm Sandy federal aid relief, and established a Bill of Rights for Superstorm Sandy victims.

In relevant part, the Bill of Rights helps to ensure that victims of Superstorm Sandy can seek compensation from multiple recovery programs as well as through any applicable insurance.  If a victim is not wholly compensated through their insurance carrier, the Bill of Rights can apply to a governmental recovery program to aid in the victim’s effort to be made whole for any losses resulting from the storm.  According to this law, the State cannot deny applicants seeking aid merely because they have other applications pending for financial relief.  Now, victims have multiple avenues to be compensated for the damage occurred by Superstorm Sandy.

In June 2013, we reported on the 12 new insurance reform bills bassed by the New York State Assembly in response to Superstorm Sandy. 

Interrupted by Sandy

Friday, March 28th, 2014

By Benjamin E. Shiftan, Sedgwick San Francisco

In Johnson Gallagher Magliery, LLC v. The Charter Oak Fire Insurance Company, 2014 WL 1041831 (S.D.N.Y. Mar. 18, 2014), the United States District Court for the Southern District of New York, granting a motion for partial summary judgment, held that a law firm was not entitled to certain lost business income caused by Superstorm Sandy.

The law firm leased office space at 99 Wall Street in New York City.  The building was supplied electricity from the Consolidated Edison of New York Bowling Green Network.  On the evening of October 28, 2012, due to the looming storm, the office space at 99 Wall Street was evacuated.  The next night, on October 29, 2012, ConEd preemptively shut down the Bowling Green Network to prevent major customer and network damage.  When Superstorm Sandy hit, flooding damaged the Bowling Green Network equipment.  The Bowling Green Network was re-energized on November 3, 2012, but 99 Wall Street did not actually receive electricity until November 11, 2012.

The law firm filed a claim with its business casualty insurer, The Charter Oak Fire Insurance Company, for, amongst other things, lost business income.  Charter Oak denied the claim, citing the water exclusion in its policy.  In the ensuing insurance coverage litigation, Charter Oak filed a motion for partial summary judgment which asserted that the policy’s water exclusion barred coverage for the law firm’s lost business income when that loss was due to the interruption of electrical service by way of the Bowling Green Network, which had suffered water damage.

The Southern District of New York ruled that Charter Oak was not obligated to pay for business losses that the law firm sustained during the time period when the Bowling Green Network was shut down, from October 29, 2012 through November 3, 2012.  The court held, in part, that the water exclusion applied to business losses stemming from the shutdown of the Bowling Green Network, which suffered water damage that prevented the re-energizing of the network until November 3, 2012.  In so ruling, the court relied on deposition testimony from a ConEd senior engineer who confirmed that there was extensive water damage to the Bowling Green Network.

Sedgwick Speaks
Sedgwick’s insurance attorneys regularly present to clients and other industry professionals on a wide range of topics. Click here to see a list of upcoming Sedgwick events and scheduled speaking engagements of our attorneys and here to see prior speaking engagements of our attorneys.

Our Firm
Sedgwick provides trial, appellate, litigation management, counseling, risk management and transactional legal services to the world’s leading companies. With more than 370 attorneys in offices throughout North America and Europe, Sedgwick's collective experience spans the globe and virtually every industry. more >

Search
Subscribe
Subscribe via RSS Feed
Receive email updates: