The Second Circuit Court of Appeals recently considered whether a generator damaged by Superstorm Sandy – located in the basement of the insured’s corporate headquarters in New York City – was covered under a flood policy. Based on the plain language of the policy and the definition of “covered location,” the court concluded that damage in the basement was not covered under the policy.

In Jane Street Holding, LLC v. Aspen American Inurance Company,1 the insured’s policy listed the “covered location” as “One New York Plaza, 33rd Floor, New York, NY 10004.” The policy further defined “covered location” as:

[B]usiness personal property in buildings or structures at a ‘covered location’ or in the open (or in vehicles) on or within 1,000 feet of a ‘covered location.’

The policy insured against “direct physical loss” to the property at “locations that are not described on the Locations Schedule,” however the policy limited the insurer’s obligations to $50,000 “in any one occurrence for each unscheduled location.”

When the insurer denied coverage for damage to the generator, the insured commenced an action for breach of contract, breach of fiduciary duty, and bad faith. The U.S. District Court for the Southern District of New York granted the insurer’s motion for summary judgment on all three causes of action, on the ground that the policy covered property only on the 33rd floor and did not extend to the basement where the generator had been located.

On appeal, the Second Circuit affirmed the holding of the U.S. District Court for the Southern District of New York on the basis that the flood-damaged generator was located in One New York Plaza’s (unscheduled) basement and not on the building’s (covered) 33rd floor. The insurer’s obligation was therefore capped at the policy’s $50,000 sublimit, for property not in a covered location.

1 Jane St. Holding, LLC v. Aspen Am. Ins. Co., No. 14-392, 2014 WL 5287051 (2nd Cir. Oct. 16, 2014).