Those handling Superstorm Sandy claims have likely seen their fair share of business interruption losses. In the last month, there was a ruling from a New York state trial judge in favor of an automotive dealer for business interruption losses sustained due to Superstorm Sandy.1 The interesting holding of the case concerned whether a flood exclusion applied to exclude the business interruption loss.
Tower National Insurance Company refused to cover the dealership’s business interruption losses to inventory and from having to shut down for a month after Sandy. Tower cited the flood exclusion in support of its position. The lawsuit ensued, and the policyholder argued the flood exclusion did not specifically exclude business interruption losses when they are flood related. The policy involved was an “all-risk” policy, meaning that all fortuitous losses are covered unless clearly excluded by the language of the policy. Policy interpretation is generally interpreted in favor of the policyholder against the insurance carrier, which is the drafter of the policy.
The policyholder in the case argued in a motion for summary judgment that the Court could rule in its favor on the issue of coverage for its business interruption losses from Sandy. The policyholder argued the special form containing the flood exclusion excluded coverage for direct physical loss or damage to property, but did not tie the flood exclusion to business interruption, therefore, business interruption losses are not excluded by flood under the terms of the policy. The carrier countered that the policy was clear: To have coverage for business interruption, there must be damage to buildings or contents as a result of a covered loss. Flood is excluded as a cause of loss, so according to the carrier, the business interruption losses are excluded.
The judge held that the terms of the policy were clear and the policy failed to tie the flood exclusion to the coverage terms for business interruption. The Court held that the flood exclusion was inapplicable, and awarded summary judgment to the policyholder on its claim for business interruption losses.
This case may likely be around in the appellate system following this ruling. We will continue to monitor its progress and will update accordingly.
1 Five Towns Nissan v. Universal Underwriters Ins. Co., et al., No. 651164/2013 (N.Y. Sup. Ct., New York City Jan. 16, 2014).