Broad St., LLC v Gulf Ins. Co.

[*1] Broad St., LLC v Gulf Ins. Co. 2005 NY Slip Op 51661(U) [9 Misc 3d 1119(A)] Decided on September 9, 2005 Supreme Court, New York County Lehner, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 9, 2005
Supreme Court, New York County

Broad Street, LLC, Plaintiff,

against

Gulf Insurance Company, Defendant.



602991/02

Edward H. Lehner, J.

Before the court is a motion by defendant for partial summary judgment to dismiss the portion of the complaint that seeks recovery of loss of income after September 17, 2001 and consequential damages.

Plaintiff's complaint has four causes of action: i) breach of contract for damage to covered property; ii) breach of contract for failure to pay for loss of income; iii) breach of duty of good faith; and iv) declaratory judgment. Plaintiff withdrew the third of said causes of action and its claim for punitive damages (Occhipinti affirmation dated March 22, 2005, ¶ 3).

Plaintiff owns and operates the building located at 25 Broad Street (the "Building") which has 345 residential apartments and three commercial spaces. Defendant is an insurer that issued a Commercial General Liability Policy for a one-year period commencing January 15, 2001 (the "Policy"). The Policy contained the following provisions relating to loss of business income: "COVERAGEWe 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 at the premises described in the Declarations ... caused by or resulting from any Covered Cause of Loss.

1.Business Income

Business Income means the:

a.Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred; and

b.Continuing normal operating expenses incurred, including payroll. [*2]

G.DEFINITIONS

* * * 2.'Operations' means your business activities occurring at the described premises.3.'Period of Restoration' means the period of time that:

a.Begins with the date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises; and

b.Ends on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality.

Plaintiff contends that it derives business income from the rental it receives from the tenants of the Building; that the Building is located three blocks from the site of the World Trade Center ("WTC") towers destroyed in the attack on September 11, 2001; that as a result of the attack, it sustained physical property damage including "inches of ... soot, dust and debris that was caked on (the Building) so that people could not open their windows" (Julie Menin deposition, page 59); that this smoke and debris required replacement of air filters in each of the residential apartments (Harte deposition, pages 37, 47-49); that the common area air filters had to be replaced monthly until mid-2002 (id. pages 43-46); that while some tenants returned by September 18, 2001 (id. pages 20-21), many tenants departed and plaintiff was forced to offer reductions in rent to encourage the tenants to return or remain (Menin affidavit, ¶¶ 17-19); that the Building required an exterior power wash to remove asbestos in February 2002 (Harte deposition, pages 52, 54); that the Building's lost rental income is attributable to the physical damage it suffered on September 11, 2001 and plaintiff is entitled to recover for its reduced rental income under the Policy.

Defendant contends that all of the Building's utilities and the hot water were operable by September 18, 2001 (id. pages 18-19); that the tenants who had previously left the Building were able to return by that date (id. pages 20-21); that approximately 20 tenants did in fact return by that date (id. page 20); and that therefore plaintiff's business had resumed operations and the period of restoration

ended on September 17, 2001 and consequently that defendant is not liable for any of plaintiff's loss of income after that date.

In construing an insurance policy, "(w)here the provisions of the policy 'are clear and unambiguous, they must be given their plain and ordinary meaning, and courts should refrain from rewriting the agreement. The policy must, of course, be construed in favor of the insured, and ambiguities, if any, are to be resolved in the insured's favor and against the insurer" [United States Fidelity& Guaranty Co. v. Annunziata, 67 NY2d 229, 232 (1986)](internal citations omitted). Moreover, "(a) court may not create policy terms by implication or rewrite an insurance contract. Nor should a court reach to find an ambiguity where the policy language has a definite and precise meaning" [Adorable Coat Co., Inc. v. Connecticut Indemnity Co., 157 AD2d 366, 369 (1st Dept. 1990)](internal citations omitted). See also Bretton v. Mutual of Omaha Insurance Co., 110 AD2d 46 (1st Dept. 1985), aff'd. for the reasons stated, 66 NY2d 1020.

Since defendant is seeking summary judgment, it "must make a prima facie showing of [*3]entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact .... Once this showing has been made, however, the burden shifts to the party opposing summary judgment to produce evidentiary proof sufficient to establish the existence of material issues of fact requiring a trial" [Alvarez v. Prospect Hospital, 68 NY2d 320, 324 (1986)]. However, "(i)n considering a summary judgment motion, evidence should be analyzed in the light most favorable to the party opposing the motion" [Martin v. Briggs, 235 AD2d 192, 196 (1st Dept. 1997)]. "A plaintiff's evidence in opposition to a defendant's summary judgment motion need not conclusively prove her case (since)(t)he motion court's proper role is merely issue finding, not issue determination, and the court must draw all reasonable inferences in the opposing party's favor" [Rose v. Da Ecib USA, 259 AD2d 258, 259 (1st Dept. 1999)] (internal citation omitted).

In a case involving a store that had existed in the WTC concourse, the restoration period was held to be "the time it would take to rebuild, repair, or replace the WTC store itself, not the entire complex, ... (and that once plaintiff) could resume functionally equivalent operations in the location where its WTC store once stood, the Restoration Period would be at an end" [Duane Reade, Inc. v. St. Paul Fire & Marine Insurance Co., 279 F. Supp. 2d 235, 239 (S.D.NY 2003)]. This holding was modified on appeal [411 F.3d 384 (2nd Cir. 2005)], to eliminate the requirement that the rebuilt store be at the WTC site, holding that once plaintiff "could resume operations in a permanent location reasonably equivalent to the site of the former store at the WTC, the Restoration Period would be at an end (and any) losses continuing beyond that point would be addressed by the 'Extended Recovery Period' provision in the policy, not the Restoration Period Clause." In Admiral Indemnity Co. v. Bouley International Holding LLC, 2003 WL 22682273 (S.D.NY), it was held that "the facilities at Bouley Bakery were operable given that they were used for the Red Cross contract (and) there is no genuine dispute that the property was, or should have been repaired by September 29, 2001 (the day after plaintiff's adjacent restaurant reopened), and accordingly this was the end of the 'period of restoration'."

"The purpose of business interruption insurance is to indemnify the insured against losses arising from inability to continue normal business operation and functions due to the damage sustained as a result of the hazard insured against .... In other words, the goal is to preserve the continuity of the insured's earnings" [Howard Stores Corp. v. Foremost Insurance Co., 82 AD2d 398, 400 (1st Dept. 1981)], aff'd. for reasons stated, 56 NY2d 991 (1982) (internal citations omitted). See also Cytopath Biopsy Laboratory, Inc., v. United States Fidelity & Guaranty Co., 6 AD3d 300 (1st Dept. 2004).

Defendant's counsel states that "what is covered by the business interruption coverage is simply not intended to last until the insured has been put back in exactly the same situation that it enjoyed before the loss ... (but rather) the time necessary for an apartment building ... to 'restore functionally equivalent operations'" (¶ 50 of affirmation of Joshua Wall dated May 6, 2005). The fact that approximately 5% of the tenants of the Building returned by September 18 and that the utilities and hot water by then had been restored does not, in light of the lack of clean air in the Building's ventilation system and the existing soot and other debris which allegedly prevented the opening of windows, demonstrate that this residential apartment building was restored to "functionally equivalent operations" within a week after the destruction of the WTC.

Here a triable issue has been raised as to whether the admitted damaged condition of the Building, resulting from the destruction of the WTC a few blocks away, continued after September [*4]17 so as to prevent the plaintiff from then providing functionally equivalent services to the residential tenants occupying apartments at the time of the attack. It is noted that defendant's own expert in a report dated January 13, 2005 estimated the period of restoration to be eight weeks. Accordingly, the application to dismiss plaintiff's claim for any losses sustained after September 17, 2001 is denied.

With regard to the claim for consequential damages, plaintiff has failed to raise a triable issue as to i) whether at the time of the issuance of the Policy such damages were within the contemplation of the parties in the event of a breach [see, Special Exclusion for consequential damages on Form 5424 (§C-4)], and ii) the existence of any such damages suffered by it as a consequence of defendant failing to make the payments claimed to be due under the Policy as sued for herein. See, Kenford Company, Inc. v. County of Erie, 73 NY2d 312 (1989); Lava Trading, Inc. v. Hartford Fire Insurance Company, 365 F. Supp. 2d 434, 445 (S.D.NY 2005). Cf. Sabbeth Industries, Ltd. v. Pennsylvania Lumbermens Mutual Insurance Company 238 AD2d 767 (3rd Dept. 1997).

In conclusion, i) the motion of defendant for summary judgment insofar as it seeks a declaration that plaintiff is not entitled to recover for any loss of business income sustained after September 17, 2001 is denied, and ii) the branch of the application seeking dismissal of plaintiff's claim for consequential damages is granted.

This decision constitutes the order of the court.

Dated: September 9, 2005_______________

J.S.C.