Schlamm Stone & Dolan, LLP v Seneca Ins. Co.
Annotate this CaseDecided on March 4, 2005
Supreme Court, New York County
Schlamm Stone & Dolan, LLP, Plaintiff,
against
Seneca Insurance Company, Respondent
603009/2002
Karen S. Smith, J.
Defendant Seneca Insurance Company, Inc.'s motion, pursuant to CPLR § 3212, for an order granting summary judgment against plaintiff Schlamm Stone & Dolan, LLP is granted solely to the extent of dismissing plaintiff's claim for business loss arising from September 11 to September 16 and is denied as to the remainder of plaintiff's claim.
This action arises out of plaintiff's claim, pursuant to a Special Business Owners insurance policy ("the Policy") issued by defendant, for business losses caused by the conditions in lower Manhattan following the collapse of the World Trade Center towers on September 11, 2001. Defendant now moves for summary judgment against plaintiff on the ground that the policy does not provide coverage for the losses plaintiff claims.
The following facts are contained in defendant's moving papers and plaintiff's response and are not in dispute. Plaintiff is a law firm with offices in a building located at 26 Broadway, New York, New York. On July 10, 2001, plaintiff renewed its Policy with defendants. The policy provides coverage for losses due to damage to plaintiff's business premises. In particular, Section I, Coverage C of the Policy contains the following provision
This policy covers the actual business loss sustained by the insured and the expenses necessarily incurred to resume normal business operations resulting from the interruption of business or the untenantability of the premises when the building or the personal property is damaged as a direct result of an insured peril.
(Policy, p. 2). There is no contention that, at any time relevant, the Policy was not in effect.
On September 11, 2001, terrorists flew hijacked commercial airliners into Towers 1 and 2 at the World Trade Center. Both towers collapsed and dust, soot and smoke filled the air in downtown Manhattan for many days. The City of New York ordered lower Manhattan closed to all non-essential personnel from September 11 up to and including September 16, 2001.
As a result of the order, plaintiff's members and employees were denied access to their offices at 26 Broadway until September 17, 2001, during which time plaintiff was not able to conduct business. On September 17, plaintiff's personnel were able to return to the offices. In its complaint, plaintiff alleges that, even though its employees were physically allowed to return to its offices on September 17, dust and other particles which remained in the air made it difficult to remain in the [*2]offices for a long period of time. Plaintiff alleges that certain of its personnel who suffered from asthma and other respiratory ailments were only able to stay in the offices for a few hours a day. Plaintiff alleges that, despite cleaning carpets, airshafts, furniture and surfaces in the office, this problem persisted, causing further business losses for the month of September 2001.
On November 27, 2001, plaintiff submitted a claim to defendant for business losses for the month of September in the amount of $279,279.74. Plaintiff alleges that this figure is the difference between its average monthly billing rate for 2001 (not including the month of September) and its monthly billing rate for the month of September. In its claim, plaintiff stated that the loss was caused by the City's order closing lower Manhattan to non-essential personnel and the continued poor air quality following the lifting of that order.
On February 11, 2002, defendant's senior property adjuster, Al Forte, sent plaintiff a letter denying the claim on the grounds that plaintiff's business interruption losses were caused by "order of Civil Authority" and not by direct damage to the insured premises. Consequently, plaintiff's claims were not covered under the policy. On March 13, 2002, Mr. Forte reiterated defendant's position.
Plaintiff then commenced the underlying action by serving defendant with summons and complaint on August 13, 2002, alleging that it suffered a business loss for the month of September as a result of the dust and dangerous conditions present in lower Manhattan. Plaintiff asserted that defendant's failure to pay plaintiff's claim arising from that loss constituted a breach of contract.
Defendant now moves for summary judgment dismissing plaintiff's claim, arguing that plaintiff's business losses are not covered by the Policy. Specifically, defendant argues that the Policy explicitly limits coverage of business losses to those caused by damage to the insured's building or personal property. Defendant argues that plaintiff has failed to allege any damage to its property and that its losses were caused by the City of New York's order closing lower Manhattan from September 11 to September 16, and the interruption of utilities following that time. Plaintiff responds by arguing that its losses were due to damage to its personal property, inasmuch as plaintiff's premises were filled with dust, soot and smoke following the Tower's collapse and that this damage was a cause of plaintiff's loss.
The proponent of a motion for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence in an admissible form to demonstrate the absence of any material issues of fact (Guiffrida v. Citibank 100 NY2d 72, 81 [2003]). Once the movant has made such a showing the burden shifts to the party opposing the motion to produce evidence in an admissible form sufficient to establish the existence of any material issues of fact requiring a trial of the action (Id).
In questions of insurance coverage, when determining whether a loss was caused by a covered or non-covered event, the question to be determined is what is the proximate cause of the loss. (Home Insurance Company v. American Insurance Company, 147 AD2d 353, 354 [1st Dep't, 1989]). The inquiry is a limited one and traces the loss back only to its efficient physical cause. (Id). Therefore, defendant bears the initial burden of establishing, prima facie, that the immediate, efficient cause of plaintiff's business interruption loss was not by damage to plaintiff's property. Since different causation issues arise for the period during the City's order and the period following the City's order, the court will examine each period of time separately.
For the period from September 11, 2001, up to and including September 16, 2001, defendant [*3]has shown, and plaintiff admits, that plaintiff was denied access to its offices as a direct result of the City's order. Defendant asserts, and plaintiff admits in its November 27, 2001 letter, that plaintiff's losses for the period the order was in effect were caused by the order. Therefore, defendant has made a prima facie showing that it was the City's order, and not damage to plaintiff's property, that was the direct cause of plaintiff's business losses.
The burden now shifts to plaintiff to demonstrate an issue of fact as to the cause of its business interruption for that period. The court notes at the outset that defendant's argument that plaintiff should be denied business interruption coverage because plaintiff failed to file a claim for actual damage to its property fails on its merits. The insurance contract does not condition a business interruption claim upon the filing of property damage claim. The defendant has not cited, nor has the court found, any clause in the body of the contract to the contrary. Moreover, an insured may have valid reasons for not filing a claim with its insurer. For instance, the transaction costs for recovering the claim may be higher than the value of the claim itself.
Plaintiff, however, has not shown that, despite the City's order, its losses for the period were caused by damage to its premises. Plaintiff has not alleged that its offices were so damaged that, even if the order had not been in place, it would not have been able to return to business. Nor has plaintiff demonstrated that the City's order was so intertwined with the damage to its premises to show that the City's order was not a superseding, intervening cause of its injury. Plaintiff's reliance on Throgs Neck Bagels v. GA Insurance Co. (241 AD2d 66 [1st Dep't, 1998]) is unconvincing. Plaintiff cites that case for the principal that a municipal ordinance is not the independent cause of a business loss if that ordinance is issued as a direct result of an insured peril. In that case, fire damaged a building occupied by a bagel shop. The insurer disclaimed liability for the shop's business losses on the ground that the losses were caused not by the fire itself but by a vacate order issued by the Department of Buildings. Although loss by fire was covered in the shop's policy, loss due to government action was expressly excluded. The court determined that the efficient cause of the shop's business losses was the fire and not the vacate order and therefore the insurer was liable. The court found that the vacate order was issued because the fire had rendered the building uninhabitable. Since the vacate order was issued precisely because of an insured peril (fire damage to the building) the court concluded that the insurer should not escape liability merely because a vacate order had been issued.
Plaintiff analogizes that case to the present action, in that an order was issued as a result of the cause of the alleged damage, namely the collapse of the Towers, and argues that the City's order in this case should not preclude defendant's liability. However, unlike the vacate order in Throgs Neck, plaintiff has not alleged that the order was so closely linked to the damage to plaintiff's property that it was the damage to plaintiff's property, and not the order itself, that caused plaintiff's loss. The precise reasons for the order are not clear to the court. It may have been because of the dust and poor air quality in the area, as plaintiff contends, or it may have been to facilitate cleaning up the World Trade Center site, or it may have been for security reasons.
In short, plaintiff has not alleged facts sufficient to demonstrate that, despite the order, damage to its property was the proximate cause of its loss. Plaintiff's remaining arguments on this point are without merit. Accordingly, the court grants defendant summary judgment dismissing plaintiff's claims arising during the time period from September 11 to September 16, 2001.
Turning to plaintiff's claims from September 17 on, defendant has not met its burden of [*4]showing that no issue of fact exists. Defendant contends that plaintiff has failed to allege any damage to its property. Plaintiff argues that it has alleged property damage, namely in the form of dust and noxious particles in the air, in the carpets and on other surfaces in its offices after it returned However, defendant argues that the presence of noxious particles, particularly in the air, is not property damage, as nothing that belongs to plaintiff has been damaged. Therefore, the central question before the court on this portion of plaintiff's claims is whether "property damage" as used in the Policy includes noxious particles in an insured premises.
In interpreting insurance contracts, the guiding principal should always be the intent of the parties. (Bird v. St. Paul Fire and Marine Ins., 224 NY 47, [1918]). Provisions that are clear and unambiguous must be given their plain and ordinary meaning and ambiguous provisions must be resolved in favor of the insured and against the insurer. (United States Fid & Guar. Co. v. Annunziata, 67 NY2d 229, 232 [1986].) The Policy clearly limits business loss coverage to losses caused by damage to the insured's property. (Policy, 2). The policy itself defines property damage as follows:
(a) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (b) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.
(Policy, 23, emphasis in the original). The Policy defines "occurrence" as " an accident . . . which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured . . ." (Id). A reasonable reading of either definition requires damage or destruction to the insured's property.
On their face, under the framework of the policy, plaintiff's allegations of property damage can be divided into two separate categories under the policy, the dust and noxious particles in the carpets and on surfaces, and the dust and noxious particles in the air. The court will consider each in turn.
Under the Policy, particles that have settled in the carpets and on other surfaces in plaintiff's offices constitutes property damage. The carpets and other surfaces are property of plaintiff, and the presence noxious particles thereon clearly impairs plaintiff's ability to make use of them. Moreover, both the Buildings and Business Personal Property subsections of the Property Coverages section explicitly include coverage for debris removal. (Policy, 1). As such, any business loss that arises as a result of the particles in the carpets and on surfaces is clearly covered under the policy.
As regards to particles in the air, the owner of a parcel of land does not "own" the air above her parcel. Rather, she merely has the right to occupy the space above her land. (1-6 Warren's Weed New York Real Property § 6.01). Therefore, under a cursory reading of the Policy, the presence of dust in the air in plaintiff's office cannot constitute damage to plaintiff's property as plaintiff does not own the air in its office. Thus, the Policy does not appear to provide coverage for business losses that arise out of noxious particles in the air in plaintiff's premises.
However the distinction between particles that have settled and particles suspended in the air raises serious problems in practical application. Particles that have settled on surfaces could easily be stirred up and cause business interruptions not unlike that the particles suspended in the air would cause. However, unlike losses caused by particles which have never settled, the losses caused by the [*5]stirred up particles would be covered under the policy because they arise from property damage. Hence, the parties would be faced with the impossible task of demonstrating what portion of the losses were caused by particles suspended in the air that had never settled, and what portion were caused by particles that had been stirred up. The court is not aware of any conceivable method for establishing this distinction. However, the reading of the policy that says that particles in the air in the premises do not constitute property damage seems to require this. Therefore, this cannot be the intended reading of the policy, as it is inconceivable that the parties would have intended to set the terms of their agreement as to make it practically impossible to determine whether losses are covered. Following the rule that ambiguities in an insurance policy must be construed in favor of the insured and against the insurer, the court reads the policy to include, under the definition of property damage, particles both on surfaces and in the air in the insured premises. This reading is further supported by the express inclusion of debris removal coverage under the property damage sections. That provision makes no distinction between debris that has settled on surfaces in the premises and debris that remains suspended in the air.
Consequently, the presence of noxious particles, both in the air and on surfaces in plaintiff's premises, would constitute property damage under the terms of the policy. As such, defendant has failed to show the absence of a material issue of fact on plaintiff's claims for business losses from September 17, 2001 until the end of September, 2001 and defendant's motion is denied as to that portion of plaintiff's claims.
Accordingly it is
ORDERED that defendant's motion is granted to the extent that summary judgment is awarded for defendant and against plaintiff for that portion of plaintiff's claims that arises between the dates of September 11, 2001 and September 16, 2001 and is denied as to the remainder of plaintiff's claims, and it is further
ORDERED that the action shall continue as to the remainder of plaintiff's claims, and it is further
ORDERED that all parties shall appear before the court on March 31, 2005, at 11:00 a.m. for a status conference.
This constitutes the decision and order of the court.
Dated: March 4, 2005ENTER:
J.S.C.
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