Superstorm Sandy devastated the East Coast last October, causing more than $70 billion in damage to New York, New Jersey and Connecticut. Thousands of businesses suffered extensive property damage to their buildings, contents and inventory. Still more suffered loss of revenue and business interruption due to service interruption, mandatory evacuation orders, and the inability of their customers and suppliers to access their stores and warehouses.
Many insurers are taking the position that Superstorm Sandy caused only flood losses and are denying coverage to businesses that did not have flood insurance. However, depending on your policy’s language and your situation, you may still be entitled to payments.
Insurers Taking a Hard Line on Claims Payments
If your insurance company has not paid for your Superstorm Sandy losses, or has made only small partial payments, you are not alone. Virtually every insurance company covering New York City businesses has taken the position that Sandy caused only flood losses, and, if the business did not have flood insurance, there is no coverage. The insurance companies are holding to this position even when the business suffered no direct flood or water damage but only sustained a service interruption that, for example, destroyed the business’s inventory or prevented the business from opening during the days or weeks following Sandy.
Even when the business carried service interruption, machinery breakdown or spoilage coverage, many insurers are denying coverage by asserting a “water” or “flood” exclusion that is contained in most policies. In many cases, however, their reliance on these exclusions is misplaced and inappropriate because most policies, at least those issued in New York, obligate the insurer to pay for damages caused by fire and explosion, even if the fire and explosion were initially caused by water or flood. For example, a policy issued by Continental Casualty Insurance Company (a k a CNA) states:
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributed concurrently or in any sequence to the loss.
(1) “Flood,” surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow;
(3) Water or sewage that backs up or overflows from a sewer, drain or sump; or
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
But if water, as described in (1) through (4), results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage.
The Insurer Must Prove Coverage Exclusion
Of note is that the insurer bears the burden of proving that the loss is excluded under the policy. Exclusions are generally interpreted narrowly and in favor of coverage. In addition, in most jurisdictions, any ambiguity in the meaning or scope of an exclusion is construed in favor of the policyholder. For policyholders in New York City, the insurers may have a difficult time meeting their burden because the fire and explosions at ConEd’s 13th/14th Street Substation were widely documented and reported by leading news agencies. Had the fire and explosion not occurred, the power outage likely would have only been of short duration. And, if that were the case, most businesses probably would not have suffered such significant losses.
If you are one of these businesses and you had service interruption, machinery breakdown or spoilage coverage, then the insurance company may have improperly denied your claim. Indeed, even if you did not have specific “flood” insurance or your business did not suffer direct physical damage, you may be able to recover your lost revenue or the costs associated with your lost inventory. It all depends on your particular policy language and factual circumstances.
Reversing an insurer’s improper denial of a property and business interruption claim requires specialized knowledge and experience. Lowenstein Sandler’s insurance coverage lawyers have that knowledge and experience. We have spent our careers litigating coverage claims against insurance companies and helping clients negotiate insurance claims cost effectively. We have handled some of the largest property and business interruption insurance claims stemming from wide-impact disasters in the United States. And right now we are handling numerous Sandy-related claims in New York and New Jersey.