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Second Circuit affirms verdict in warehouse loss against Travelers Insurance Company and confirms damage award of $1.1 million

On September 21, 2017, the Second Circuit Court of Appeals in Manhattan affirmed the District Court's decision finding that Travelers breached its contract with its insured, Warehouse Wine, and subsequently determined that the insured suffered damages in the amount of $1.1 million. Weg and Myers initiated suit against Travelers after it denied coverage for a theft of Warehouse Wines liquor inventory that was temporarily stored in a warehouse by the insured's transportation carrier. The transportation carrier and the warehouse were both operated by James Ceseretti. Mr. Ceseretti subsequently allocuted to the theft in a criminal proceeding. The District Court had granted Weg and Myers' Summary Judgment motion wherein it sought a determination, as a matter of law, that the entity who had stolen the inventory was a "carrier for hire", thus triggering coverage. A trial then took place with respect to the value of the inventory that was stolen. Subsequent to the District Court's entry of judgment in favor of the insured in the amount of $1.1 million, Travelers appealed. In rejecting Travelers' appeal the Second Circuit found that the evidence clearly established that Warehouse Wine had placed its inventory into the hands of a transportation carrier and that the theft of the inventory occurred while in its possession. The Second Circuit also rejected Travelers' attack on the Court's calculation of damages and the application of pre-judgment interest, holding that "Travelers cannot circumvent §5001(b) by denying coverage while conducting a nearly year-long investigation into Warehouse Wines' claims, and then, once it is adjudicated liable, avoid paying prejudgment interest from the 'earliest ascertainable date the cause of action existed'. The trial and appeal were handled by Dennis T. D'Antonio and Joshua L. Mallin and assisted by Amanda Peterson. Click here to read the entire decision.


Jury returns multimillion dollar verdict against a subsidiary of Alliant Insurance Services, Inc. as a result of the broker's failure to notify the carrier of the insured's Hurricane Irene Loss

On February 7, 2017 Weg and Myers successfully obtained a jury verdict in New York Supreme Court Sullivan County in favor of its client, Swan Lake Resort, against Swan Lake's insurance broker, Defendant T&H Brokers, a subsidiary of Alliant Insurance Services. With the inclusion of pre-judgment interest, it is estimated that the verdict will exceed $3.7 million. The case centered upon allegations that the broker failed to report to Swan Lake's property carrier that Swan Lake had suffered a loss as a result of Hurricane Irene. The carrier had successfully denied the claim and extricated itself from liability as a result of its receiving untimely notice of the loss. The broker claimed that it never received any notice from Swan Lake about this loss until February 2012, at the time that the insured changed insurance brokers. The jury, after reviewing all of the evidence, including various phone records, as well as hearing the testimony of representatives from Swan Lake and T&H Brokers, rejected the insurance broker's defense and returned a verdict in favor of Swan Lake after deliberating for less than one hour. The case was tried by Dennis T. D'Antonio and assisted by Joshua L. Mallin and Amanda Peterson.

The Swan Lake verdict represents the fourth trial verdict obtained by Weg and Myers in favor of its clients over a 12 month period. The cumulative amount of these verdicts total $35.5 million.


Court directs verdict in favor of Insurance Agent against Lincoln Benefit Life for unpaid commissions

The United States District Court in Nebraska directed a verdict in favor of a former Lincoln Benefit Life agent against the company as a result of the company's failure to pay him commissions in connection with the conversion of $29 million in life insurance. The directed verdict came after a complete presentation of the evidence and prior to submission of the case to the jury. This dispute was connected to an earlier dispute between Lincoln Benefit Life and a former insured with respect to whether life insurance policies sold by the Company contained a right to convert those policies to whole life policies. In April 2013 a jury in the Southern District of New York found that Lincoln Benefit Life wrongfully refused to convert the policies to universal life policies. Subsequent to that jury verdict, the insurance agent who placed those policies demanded contractually required commissions be paid to him. The company once again refused and resulted in this litigation and Memorandum and Order directing a verdict in favor of the agent. Click here to read this Memorandum and Order.


Jury Awards Insured $20 million in damages against its former insurance broker

On Friday, June 17th, at 5:00pm, a Federal Court jury in the Southern District of New York handed a second knockout blow to Alliant Insurance Services Inc., a national insurance brokerage firm that had bungled the insurance coverage for buildings at Industry City/ Bush Terminal ahead of Hurricane Sandy. Cammeby's is a New York real estate management company with an excess of $1.5 billion in properties under management.

Following a claim for $30,000,000.00 worth of hurricane related damages at Industry City on October 29th 2012, Cammeby's insurance company, Affilliated FM, informed it that prior to the loss the coverage had been reduced by $20,000,000.00. Thereafter Cammeby's retained the highly regarded Insurance Coverage firm Weg and Myers to sue Affiliated FM and its insurance broker, Alliant Insurance Services.

In August of 2014, the case was tried for the first time by Weg and Myers' partner, Dennis D'Antonio. Prior to the first trial, a $1,000,000.00 settlement offer had been turned down. Following a two week trial, a jury returned a $20,000,000.00 verdict in favor of Cammeby's finding that Alliant was negligent. Thereafter, the verdict was set aside by Judge Rakoff based upon an instruction that had been given to the jury after they had begun deliberations. More recently, after turning down a $4,000,000.00 offer from Alliant, the matter proceeded to a second trial before Judge Rakoff that began on June 8, 2016. At the second trial, the case was again tried by Dennis D'Antonio and his partner Joshua Mallin. On June 17th, a second jury in as many years returned a second $20,000,000.00 verdict against Alliant in favor of Cammeby's. Accordingly, the amount now due to Cammeby's, with interest, will exceed $26,000,000.

Cameby's was represented by Dennis D'Antonio and Joshua Mallin of Weg and Myers , PC, who were assisted by associates Krysta Ku and Daniel Belzil.

Cammeby's trial attorney is Dennis D'Antonio, Esq. who is the managing Partner and lead trial lawyer for Weg and Myers, a boutique Manhattan Insurance Coverage firm representing the real estate industry in insurance coverage matters for over 30 years. Mr. D'Antonio's largest single insurance recovery to date is $150,000,000.00.

Alliant was represented at the first trial by Paul Kovner of Rubin Fiorella & Friedman LLP

Alliant was represented at the second trial by Paul Kovner of Rubin Fiorella & Friedman LLP and Richard A. Simpson and Benjaman C.Eggert of Wiley Rein LLP

For further information, please contact Dennis D'Antonio at 212.227.4210; 646.361.0693 or ddantonio@wegandmyers.com. Click here to read a copy of Judge Rakoff's Findings of Fact and Conclusions of Law

The effects of Superstorm Sandy has put insurance in the forefront of people's minds once again. It has become clear that many insurance claims remain unresolved. As a result, in an unprecedented move, both the States of New York and New Jersey have instituted mediation programs for certain Sandy claims that have been denied or remain unresolved. While New York has limited this program to residential non-FEMA claims, the announcement out of the New Jersey Governor's Office indicates that its program, not yet codified will include non-FEMA commercial claims as well. Click here to see a copy of the New York regulations. You can also click here for a copy of the press release in connection with the New Jersey mediation program. Once this becomes codified we will post this on our website. In addition, as a public service, we have prepared a basic checklist that all policyholders can review in connection with claims that they may have. This checklist only covers the basics as it relates to claim presentations and is primarily geared to the homeowner who may be confronted with these insurance issues for the first time . Please click here to access this checklist. In addition, since preparing this checklist, FEMA has issued a Bulletin which suspends various Proof of Loss filing requirements for Superstorm Sandy claims that were referenced in the checklist. Click here to access a copy of that Bulletin. For more sophisticated business and homeowner claim issues, we are available for consultation.

Second Department affirms reformation of insured's policy and orders carrier to defend. Click here to read a copy of the Second Department's decision in Essex Ins. Co. v. Vickers.

Court rejects carrier's use of the "earth movement" exclusion to disclaim coverage as a result of dewatering activities at adjacent property. Click here to read a copy of the Court's decision.

Appellate Division reinstates verdict in favor of Public Adjuster's right to its fee, in connection with a litigated coverage action. Click here to read the Appellate Division's decision in PAB v. Seward Park.

Weg and Myers wins at the Court of Appeals. Reinstating a victory won at the Supreme Court level, the Court of Appeals, adopting the position advocated by Weg and Myers in its entirety, ruled that violation of New York City Administrative Code Sec. 27-1031(b)(1) imposes absolute liability on a defendante whose excavation work caused damage to an adjacent property. While the violation of an Administrative Code violation usually does not impose absolute liability on the violator, the Court ruled that because a historical analysis of the section in question revealed that it had its origins in State law, the imposition of absolute liability was appropriate. Click here to read the Court's decision in Yemen v. 281 Broadway Holdings, et al.

Appellate Division affirms decision allowing plaintiffs to pursue punitive damage claims against various contractor defendants. Click here to read the Court's decision in 11 Essex v. Tower Insurance Company et al.

Court compels Subcontractor's Carrier to Defend Contractor. Issue of whether subcontractor's activities took place while working at job site is an issue yet to be decided but is not a basis to deny defense coverage to contractor. Click here to read the Court's decision.

Southern District Court holds that a carrier cannot compel an insured to submit to an appraisal when coverage issues still must be resolved. Read the attached decision.


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Federal Plaza 52 Duane Street, New York, NY 10007

New Developments In Business Interruption Claims From The Insured's Perspective

By Joshua L. Mallin and
Ricky M. Capozza

INTRODUCTION

I. Property Damage Claims

A. Covered Perils/Causation 

When reviewing coverage under a policy, you must first determine what type of insurance policy the inured maintains and what types of risks that policy insures against. For the most part, risks are covered in two different ways. Either the policy insures on an all-risk basis or on a specified peril basis. In essence both of these policies differ dramatically as to their approach for extending coverage.

1. All Risk Coverage

An all-risk policy starts with the premise that all fortuitous and direct property damage losses are covered unless they are particularly excluded from coverage by unambiguous policy exclusions. The courts and legal encyclopedias have defined all-risk policy as follows: An all-risk policy covers all losses which are fortuitous. David Danzeinsen Realty Corp. v. Continental Ins. Co., 170 A.D.2d 432, 565 N.Y.S.2d 233. An all risk policy covers “all fortuitous losses not resulting from misconduct or fraud. See 70 N.Y. Jur.2d, Insurance, §1434, at 294. A fortuitous event is defined in Insurance Law § 1101(a)(2) as “any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.” A & B Enterprises Inc. v. Hartford Ins. Co., 198 A.D.2d 389, 604 N.Y.S.2d 166 (2 nd Dept. 1993). Further, under McKinney’s Insurance Law § 1101(a)(2), the issue of fortuitousness under an all-risk policy may be decided as a matter of law.

2. Specified Perils Coverage

Under a specific perils or a named perils policy starts with the premise that no risk is included within the coverage of the policy unless coverage is expressly created for that particular loss. Named peril policies expressly exclude all risks not specifically included in the contract, 7 Couch on Ins. §101:7 (3d ed). Also note that coverage under either an all-risk policy or a named peril policy is limited only to direct physical loss and damage that arising from a covered peril.

3. Insurance Law § 3404

See attached exhibit “A”.

4. Exclusions and Burden of Proofs

In addition to the nature of the risks covered, there is another significant difference between assessing the merits of a claim under an all risk and a named perils policy. That is the burden of proof on the issue of coverage.

In order to recover under an all-risk policy, the burden of proof lies on the insured to prove that the loss was fortuitous, and that it occurred to covered property. The insured need not prove the cause of the loss. In re Balfour MacLaine Intern. Ltd, 85 F.3d 68 (2 nd Cir. 1996). The inured’s initial burden of proving a fortuitous loss must establish that the event could not have been expected to occur over a period of time. Avid Equities, LTD. v. Commerce and Indus. Ins. Co., 225 A.D.2d 446, 639 N.Y.S.2d 352 (1 st Dept. 1996).

After establishing that an all risk policy exists and that the insured suffered a loss to covered property, the burden of proof shifts to the insurer to demonstrate that an exclusion contained in the policy defeats the claim. Throgs Neck Bagels, Inc. v. GA Ins. Co. of NY, 241 A.D.2d 66, 671 N.Y.S.2d 69 (1 st Dept. 1998). Some examples of specific exclusions found in an insurance policy include but are not limited to the following: Ordinance or law; Earth movement; Water damage; Power failure; Neglect; War; Nuclear hazard; and Intentional loss. It is also important to note that such exclusions will apply, “regardless of any other cause or event contributing concurrently or in any sequence to the loss.” Casey v. Gen. Accid. Ins. Co., 178 A.D.2d 1001 (4 th Dept. 1991).

Further, where the meaning of a policy provision is subject to more than one reasonable interpretation, it is resolved in favor of the policyholder. This is especially true where an exclusionary clause is subject to more than one interpretation. Moneta Development Corp v. General Ins. Co. of Triesta and Venice, 212 A.D.2d 428, 622 N.Y.S. 930, 931 (1 st Dept. 1995). Venigalla v. Penn Mut. Ins. Co., 130 A.D.2d 974, 975, 515 N.Y.S.2d 939 (4 th Dept. 1987). However, policies must be considered as a whole and the meaning of one clause may be sharpened by reference to another. Lilco v. Hartford Acc. & Indem. Co., 350 N.Y.S. 967 (1973).

B. Damages

1. Insurable Interest

Generally speaking, a person has an insurable interest in property whenever he would profit by or gain some advantage by its continued existence and suffer some loss or disadvantage by its destruction. If the insured would sustain such a loss, it is immaterial whether he has, or has not any title in, or lien upon or possession of the property itself. Modern Music Shop v. Concordia Fire Ins. Co., 131 Misc. 305, 226 N.Y.S. 630. It is not necessary for the insured to actually be the owner of the property. The insured is covered, no matter what his interest is, up to the extent of his interest. However, if an insured is carrying insurance on property on which he has no interest, the policy is null and void.

In the well known case of Alexandra Restaurant v. New Hampshire Insurance Co., 272 A.D. 346, 71 N.Y.S.2d 515, aff’d. Ct. of App. 297 N.Y. 858, the facts indicated that the lessee of a restaurant had installed improvements and betterments to the extent of $19,000 and carried a policy covering the said property. The landlord under the building policy, carried insurance covering the same items and it was conceded that the moment the fixtures and improvements and betterments were installed, they became part of the building and were covered under the building policy. It was further shown that afterthe loss occurred, the landlord restored the fixtures to the condition in which they existed prior to the loss. The tenant made claim against his underwriters to recover and the underwriters refused on the ground that the fixtures, having been repaired by the landlord, there was no loss actually sustained by the tenant.

However, the Appellate Division held that there was no substance to this argument; that the tenant had taken out a policy and paid a premium, it had an insurable interest in these fixtures and the mere fact that it recovered through an outside contract with the landlord, did not relieve the underwriters from liability.

As a practical matter, the underwriters have since obviated this double payment feature by inserting in the new forms a proviso that in the event the property is restored through some other source, that the tenant shall not be held to have sustained any loss.

2. Valuation of Damages

(a) Actual Cash Value

Policies of property insurance commonly contain a statement which limits the insured to recovering what he or she lost. Couch on Ins. 3d, § 175:10. The great majority of policies limit the insured’s recovery to the “actual cash value” of the property at the time of the loss. “ Actual cash value” is not defined by the insurance policy, nor is it defined by statute. According to the law of New York, there is no single determining measure for actual cash value. Rather all evidence of value must be considered by the trier of fact. McAnarney v. Newark Fire Insurance Co., 247 N.Y. 176, 159 N.E. 902 (1928). That standard is commonly known as “the broad evidence rule.”

In McAnarney, the leading case on the measure of damages in property insurance cases, the Court of Appeals held that,

Where insured buildings have been destroyed, the trier of fact may, and should, call to its aid, in order to effectuate complete indemnity, every fact and circumstance which would logically tend to the formation of a correct estimate of the loss. It may consider original cost and cost of reproduction; the opinions upon value given by qualified witnesses; the declarations of interest which have been made by the insured; the gainful uses to which the buildings might have been put; as well as any other fact reasonably tending to throw light upon the subject.

It is thus apparent that no rigid formula may be used to determine the “actual cash value”. Rather, the concept of “ actual cash value” is amorphous, and the trier of fact must consider all relevant factors, bearing in mind the purpose of the policy, which is to put the assured in as good a position as he would have been had no fire occurred. See Fifty States Management Corp. v. Public Service Mut. Ins. Co., 324 N.Y.S.2d 345 (N.Y. Sup. Ct. 1971) and Esperance v. Royal Globe Ins. Co., 512 N.Y.S.2d 313 (N.Y.C. Civ. Ct. 1987).

The court’s adoption of the above-quoted formula was based upon its understanding that the goal of the policy is indemnification, the court noting that: “Indemnity is the basis and foundation of all insurance law.” Id. Furthermore, the McArnarney court indicated that “ Actual Cash Value” is not simply synonymous with market value.

(b) Replacement Cost Value

Replacement cost insurance protects the insured from having to bear the brunt from the fact that depreciation and the like have decreased the actual value of the property below the amount of money that would be required to replace the property as the time of loss. Such provisions address whether the insurer is essentially obligated to pay more than the actual cash value. Couch on Insurance, 3d § 176:56.

While a standard policy compensating an insured for the actual cash value of damaged or destroyed property makes the insured responsible for bearing the cash difference necessary to replace old property with new property, replacement cost insurance allows recovery for the actual value of property at the time of the loss, without deduction for deterioration, obsolescence, and similar depreciation of the property’s value. Couch on Insurance, 3d § 176:56.

In Eshan Realty Corp. v. Stuyvesant Insurance Co. of New York, 202 N.Y.S.2d 899, aff’d 12 A.D.2d 818, 210 N.Y.S.2d 256 (1961), aff’d 11 N.Y.2d 707 (1962), the Court ruled that under an insurance policy limiting amount recoverable to actual cash value at time of loss but not exceeding amount it would cost to repair or replace property with material of like kind and quality, and insured suffering a partial building loss was entitled to replacement with new materials without any deduction for depreciation.

The rationale behind this case is that if depreciation is deducted from the cost to repair the partially damaged property, the insured will not be able to completely repair his property, thus, falling short of being fully indemnified as required under a standard fire insurance policy. Therefore, when there is a partial loss, replacement cost less depreciation is an entirely inadequate formula. The concept of depreciation is better suited to property as a whole. Thus, even in an actual cash value policy, there is an argument that in order that the insured be completely indemnified, depreciation should not be deducted from the cost of the materials necessary to repair the damaged property.

(c)  Silverstein case: Binder vs. Policy

The leaseholder for the World Trade Center properties, which were destroyed in a terrorist attack by two hijacked airplanes, has sued the property insurers to recover for the losses incurred. The insured’s main contention in this case is that the leveling of the two towers by two hijacked planes on September 11, 2001 amounted to two occurrences for insurance purposes. However, the United States District Court for the Southern District of New York by District Judge Martin in SR International Business Insurance Co. v. World Trade Center Properties LLC, --- F.Supp.2d --, 2002 WL31118331 (S.D.N.Y. 2002) held that the destruction of the buildings was a single occurrence under the binder’s definition and granted partial summary judgment for three insurers.

The District Court stated, “Under New York law, the terms of an insurance policy are interpreted from the vantage point of the average person on the street.” Id. at 12 (citing Nat’l Screen Serv. Corp. v. United States Fidelity & Guaranty Co., 364 F.2d 275, 278 (2 nd Cir.), cert. Denied, 385 U.S. 958, 87 S.Ct. 394, 17 L.Ed.2d 304 (1966)). The court further stated, “Complex comprehensive general liability policies issued to large corporate manufacturers … should be viewed as if by a reasonably intelligent business person who is familiar with the agreement and with the industry in question.” Id. They concluded that an “ordinary businessman would have no doubt that when two hijacked planes hit the Twin Towers in a sixteen minute period, the total destruction of the World Trade Center resulted from one series of similar causes” as the WilProp form defines as an occurrence. Id.

The courts of New York have long adhered to the principle that, absent peculiar policy language, events stemming from a single cause constitute a single “loss” or “occurrence” for insurance purposes. See, e.g., Champion Int’l Corp. v. Continental Cas. Co., 564 F. 2d 502 (2d Cir. 1976) (Assured’s multiple sales, to numerous unrelated buyers, of defective vinyl paneling used in some 1400 vehicles constituted one occurrence for deductible purposes under product liability policy); Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368, 1383 (E.D.N.Y. 1988) (110 deliveries of Agent Orange to military over seventeen months under three separate contracts constituted single occurrence for purposes of calculating deductible); Michaels v. Mutual Marine Office Inc., 472 F. Supp. 26 (S.D.N.Y. 1979) (for purposes of deductible of $10,000 for any “one loss, accident, or disaster,” approximately 200 holes and dents in ship’s deck caused by repeated drops of grab bucket over several days during unloading of heavy scrap steel constituted single loss under New York law, where same continuous negligent act was cause of all damage); Aguirre v. City of New York, 214 A. D. 2d 692, 693, 625 N.Y.S. 2d 597, 590 (2nd Dept. 1995) (windblown paint damage to forty cars caused by defendant’s negligent application of spray paint to nearby vessel was single occurrence); Bethpage Water District v. S. Zara & Sons Contracting Co., Inc., 154 A. D. 2d 637, 638, 546 N.Y.S. 2d 645 (2nd Dept. 1989) (damage to water mains in more than 250 areas caused by negligent backfilling of sewer trenches over two years was single occurrence).

The same rule is observed in the majority of jurisdictions. In Appalachian Insurance Co. v. Liberty Mutual Insurance Co., 676 F.2d 56, 61 (3d Cir.1982), the Third Circuit held,

The general rule is that an occurrence is determined by the cause or causes of the resulting injury. "(T)he majority of jurisdictions employs the 'cause theory'. (Citations omitted.) Using this analysis, the court asks if '(t)here was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.'" Bartholomew v. Insurance Co. of N. America, 502 F. Supp. 246, 251 (D.R.I.1980), aff'd. sub nom. Bartholomew v. Appalachian Ins. Co., 655 F. 2d 27 (1st Cir. 1981), citing Olsen v. Moore, 56 Wis.2d 340, 202 N.W.2d 236 (1972); Transport Ins. Co. v. Lee Way Motor Freight, Inc ., 487 F. Supp. 1325, 1330 (N.D.Tex.1980); contra, Elston-Richards Storage Co. v. Indemnity Ins. Co. of N. America, 194 F. Supp. 673, 682 (W.D.Mich.1960), aff'd., 291 F.2d 627 (6th Cir. 1961).

676 F. 2d at 61. It therefore found that multiple and various instances of sexual discrimination by the assured company over some six years constituted a single occurrence, because they all resulted from a single policy decision made by management.

Further, the District Court in SR International Business Insurance Co. explained how the Wilprop form that was incorporated in the insurance binders of the insurance carriers was binding even though there were negotiations still occurring as to the final version of the insurance policy.

The court stated, “An insurance binder is a unique type of contract, while not all of the terms of the insurance contract are set forth . . . a binder is a present contract of insurance.” Id. at 1. The District Court further stated that the terms of a binder are not left to future negotiations. As the New York Court of Appeals explained in Employers Commercial Union Ins. Co. v. Firemen’s Fund Ins. Co., 45 N.Y.2d 608, 612-13, 412 N.Y.S.2d 121, 384 N.E.2d 668 (1978):

It is common and necessary practice in the world of insurance, where speed often is of the essence, for the agent to use this quick and informal device to record the giving of protection pending the execution and delivery of a more conventionally detailed policy of insurance. Courts, recognizing that the cryptic nature of binders is born of necessity and that many policy clauses are either stereotypes or mandated by public regulation, are not loath to infer that conditions and limitations usual to the contemplated coverage were intended to be part of the parties’ contract during the binder period.

The court further explained that the law of New York with binders is that it does not look to the negotiations of the parties to see what terms might have transpired into a formal policy, but rather, the binder itself becomes in effect the same as a regular policy. (See Seiderman v. Herman Perla Inc., 268 N.Y. 188, 190, 197 N.E. 190 (1935)). The court noted “to consider a binder merely a preliminary agreement could deprive the insured of ‘protection pending the execution and delivery of a more conventionally detailed policy of insurance.” Id. at 2.

II. BUSINESS INTERRUPTION CLAIM

Business interruption insurance (a/k/a business income insurance) is typically purchased as part of a commercial property insurance program. Business interruption insurance is designed to protect a business from a loss after it has been partially or wholly disabled. Typically, under business interruption coverage, the insurance policy, among other things, covers the actual loss sustained by the insured during a period of interruption directly resulting from physical loss or damage of the type insured against by the policy, to property not otherwise excluded by the policy, utilized by the insured and located as described elsewhere in the policy.

The typical coverage promise for business interruption insurance provides that the insurance company:

Will pay for the actual loss of Business Income you sustain due to the necessary suspension of your “operations” during the “period of restoration.” The suspension must be caused by direct physical loss of or damage to property . . . . The loss or damaged must be caused by or a result from a Covered Cause of Loss.

Typically, “Business Income” is defined to include “Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred” and “Continuing normal operating expenses incurred, including payroll.”

Additionally, “Period of Restoration” is typically defined to begin at the time of “direct physical loss or damage” and end on the earlier of “the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality” or “the date when business is resumed at a new permanent location.”

However, in order to recover business income a necessary element to an insurance policy is that the loss of business income is attributable to a physical loss or damage. (See 523 Madison Avenue Gourmet Foods, Inc. v. Finlandia Center, Inc., 96 N.Y.2d 280, 727 N.Y.S.2d 49 (2001); National Children’s Expositions Corp. v. Anchor Ins. Co., 279 F.2d 428 (2 nd Cir. 1960)).

Even though, the loss of business income is not attributable to a physical loss or damage, the insured may be able to recover if it falls within the additional coverage of civil authority. In pertinent part it states:

We will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss.

In other words, the business interruption claim is caused by the physical loss or damage to another’s property but it affects the insured because that physical loss or damage prohibits access to his premises causing a suspension of the insured’s business operations. For example, if a fire physically damaged a property up the street from the insured, and the entire street was closed to the public until the damaged building in danger of collapse could be demolished then the insured would be entitled to business income for that period.

In addition to Business Income an insured can collect for Extended Business Income. Generally, there are two types of Extended Business Income: 1) Business Income Other than Rental Value and 2) Rental Value. In pertinent part it states:

(1) Business Income Other Than “Rental Value”

If the necessary suspension of your “operations” produces Business Income loss payable under this policy, we will pay for the actual loss of Business Income you incur during the period that:

(a) Begins on the date property is actually repaired, rebuilt or replaced and operations are resumed; and

(b) Ends on the earlier of:

(i) The date you could restore your “operations”, with reasonable speed, to the level which would generate the business income amount that would have existed if no direct physical loss or damaged had occurred; or

(ii) 30 consecutive days after the date determined in (1)(a) above.

(2) Rental Value

If the necessary suspension of your “operations” produces a “Rental Value” loss payable under this policy, we will pay for the actual loss of “Rental Value” you incur during the period that:

(a) Begins on the date property is actually repaired, rebuilt or replaced and tenant-ability is restored; and

(b) Ends on the earlier of:

(i) The date you could restore tenant occupancy, with reasonable speed, to the level which would generate the “Rental Value” that would have existed if no direct physical loss or damaged had occurred; or

a. 30 consecutive days after the date determined in (2)(a) above.

In summary, business income coverage is designed to pay the profits and unavoidable continuing expenses caused by an interruption of the policyholder’s business. Business Income coverage protects policyholders who have to suspend production or business due to property damage. It also reimburses policyholders for expenses that continue despite the cessation of business, such as salaries, certain utility charges, and insurance premiums.

III. PRESENTING THE CLAIM

A. Process

1. Notice of Claim

Virtually every insurance policy has a provision requiring that the insured give timely notice of an occurrence which may result in a claim. In the usual property policy the notice requirement is expressed as a condition precedent and generally requires the insured to provide immediate notice of claim to the insurer of circumstances which may give rise to a claim.

The basic Commercial Property form provides:

Duties in the Event of Loss or Damage

a. You must see that the following are done in the event of loss or damage to Covered Property:

(1) Notify the police if a law may have been broken.

(2) Give us prompt notice of the loss or damage. Include a description of the property involved.

(3) As soon as possible, give us a description of how, when and where the loss or damage occurred.

The New York Insurance Law Section 3407(b) provides:

If any contract of insurance issued or delivered in this state, covering Loss of or damage to property by fire provides that the insured give immediate notice, in writing, to the insurer, of any loss or damage, it shall be sufficient compliance if immediate written notice is given, by or on behalf of the insured, to any licensed agent of the insurer in this state, with particulars sufficient to identify the insured and the property insured under such contract and to notify the insurer of the time and place of such loss or damage.

Most courts have interpreted notice provisions such as this to require that notice be given within a reasonable time under the circumstances. Generally, notice must be in writing and delivered to the insurer or its agent. A telephone call to the broker will not suffice.

The Appellate Division, First Department succinctly set forth the purpose and effect of notice of claim provisions in Power Authority v. Westinghouse Electric Corp., 117 A.D.2d 336, 502 N.Y.S.2d 420 (1 st Dept. 1986).

An insurer’s obligation to cover its insured’s loss is not triggered unless the insured gives timely notice of loss in accordance with the terms of the insurance contract. Security Mutual Ins. Co. of New York v. Acker-Fitzsimmons Corp., 31 N.Y.2d 436, 340 N.Y.S.2d 902, 293 N.E.2d 76 (1972); Allstate Ins. Co. v. Furman, 84 A.D.2d 29, 445 N.Y.S.2d 236 (2 nd Dept. 1981), aff’d 58 N.Y.2d 613. 458 N.Y.S.2d 532, 444 N.E.2d 996 (1982). Without timely notice an insurer may be deprived of the opportunity to investigate a claim and is rendered vulnerable to fraud. Late notification may also prevent the insurer from providing a sufficient reserve fund. (See Utica Mutual Fire Ins. V. Fireman’s Fund Ins. Co., 748 F.2d 118, 121 (2 nd Cir. 1984)). For these reasons “the right of an insurer to receive notice has been held to be so fundamental that the insurer need show no prejudice to be able to disclaim liability on the basis [citations omitted].

The Court in Heydt Contracting v. American Home, 146 A.D.2d 497, 536 N.Y.S.2d 770 (1 st Dept. 1989) held that the obligation to give notice is a condition precedent to coverage and a four month delay was not excused by the insured’s good faith belief that another party would pay for the loss.

New York is the minority in that it is not necessary to show prejudice by delay in order for a claim to be disclaimed by the insurance carrier. Power Authority v. Westinghouse Electric Corp., 117 A.D.2d 336, 502 N.Y.S.2d 420 (1 st Dept. 1986).

2. Proof of Loss Requirements

The basic Commercial Property form provides in relevant part:

3. Duties in the Event of Loss or Damage:

a. You must see that the following are done in the event of loss or damage to Covered Property:

(7) Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within 60 days after our request. We will supply you with the necessary forms.

Policies of insurance typically provide that a loss is not payable until 30 or 60 days after receipt of a duly executed proof of loss setting forth specified information.

4. Loss Payment

We will pay for covered loss or damage within 30 days after we receive the sworn proof of loss, if your have complied with all of the terms of this Coverage Part and:

(1) We have reached agreement with you on the amount of loss; or

(2) An appraisal award has been made.

New York has enacted a statute which provides that the insured is not required to submit a proof of loss unless demanded by the insurer.

New York Insurance Law Section 3407 provides:

(a) The failure of any person insured against loss or damage to property under any contract of insurance, issued or delivered in this state or covering property located in this state, to furnish proofs of loss to the insurer or insurers as specified in such contract shall not invalidate or diminish any claim of such person insured under such contract, unless such insurer or insurers shall, after such loss or damage, give to such insured a written notice that it or they desire proofs of loss to be furnished by such insured to such insurer or insurers on a suitable blank form or forms. If the insured shall furnish proofs of loss within sixty days after the receipt of such notice and such form or forms, or within any longer period of time specified in such notice, such insured shall be deemed to have complied with the provisions of such contract of insurance relating to the time within which proofs of loss are required. Neither the giving of such notice nor the furnishing of such blank form or forms by the insurer shall constitute a waiver of any stipulation or condition of such contract, or an admission of liability thereunder.

The failure to submit a proof of loss in response to a proper demand is a breach of a condition precedent and an absolute defense to coverage under the policy.

In Igbara Realty Co. v. N.Y.P.I.U., 63 N.Y.2d 741 (1984), the Court of Appeals affirmed the general principle that the failure to submit duly executed proof of loss within 60 days following a proper demand is an absolute bar to coverage. The Court of Appeals held that an insured served with a demand to file proofs of loss prior to commencement of an action, couldn’t cut off the defense by bringing the action which requires the insurer to answer prior to the expiration of the time period for filing the proof of loss. The court noted that if the insurer had answered after the 60-day period and failed to raise it in its defense then the issue of waiver would arise.

Further, the Court of Appeals in Maleh v. N.Y.P.I.U., 64 N.Y.2d 613, 485 N.Y.S.2d 32 (1984) stated that “plaintiff’s submission of documentation and participation in oral examination did not discharge their obligation to submit sworn proofs of loss within 60 days after the insurer’s demand.” Finally, on a technical note, the sixty-day requirement entails only mailing by the insured, not receipt by the insurer within that time frame. Ball v. Allstate Ins., 81 N.Y.2d 22 (1993).

Another issue, which often arises, is the calculation of interest in the event of a failure of the insurer to pay the claim. The New York Court of Appeals has held that a claim under an insurance policy does not accrue until 60 days after the submission of a duly executed proof of loss, and that therefore, interest begins to run from that day onward.

In Farmland Market v. North River Insurance, 481 N.Y.S.2d 80, aff’d 64 N.Y.2d 1114 (1985), the Court held that interest was not recoverable from the date of loss but commenced 60 days after the proof of loss was submitted by the insured. The policy, in conformance with the New York Insurance Law, provided that payment would be made 60 days after submission of the proof. The Court found that by its express terms the insurer was not liable until 60 days after the proof was submitted and therefore interest ran from that date. The Court noted “interest upon a loss payable under a fire insurance policy is not recoverable before the payment of principle is due pursuant to the policy.” Id.

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