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Insurance Carrier Not Required to Indemnify Insured for Claimed Business Income Losses Says the Second Department

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  • Posted on: Jan 28 2019

Insurance. It is an important part of life. People buy insurance for many reasons, such as for the protection of their health, auto, business and home. The expectation is that one’s insurance policy will cover enough risks to protect against financial loss.  As explained by Investopedia, an online resource “dedicated to financial education and empowerment” (here), “[i]nsurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party. (Here.)

Not surprisingly, disputes often arise over the scope coverage. Recently, the Appellate Division, Second Department, addressed a dispute over the scope of insurance coverage (i.e., the applicability of an exclusion) arising from losses caused by Hurricane Sandy. In Cohen & Slamowitz, LLP v. Zurich Am. Ins. Co., 2019 N.Y. Slip Op. 00417 (2d Dept. Jan. 23, 2019) (here), the Court affirmed the dismissal of a breach of contract action, finding that the insurer properly declined to indemnify the insured for the claimed loss of business income caused by the hurricane.

Insurance Policies are Contracts

An insurance policy is a contract. Consequently, the principles of contract interpretation apply to an insurance policy. E.g., Gilbane Bldg. Co./TDX Const. Corp. v. St. Paul Fire and Mar. Ins. Co., 143 A.D.3d 146, 151 (1st Dept. 2016), aff’d sub nom., Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire and Mar. Ins. Co., 31 N.Y.3d 131 (2018).

In interpreting an insurance policy and the scope of coverage, the courts look to the specific language of the policy itself. Gilbane Bldg. Co./TDX Const. Corp., 143 A.D.3d at 150-151; ABM Mgmt. Corp. v. Harleysville Worcester Ins. Co., 112 A.D.3d 763, 764 (2d Dept. 2013); Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 221 (2002). Unambiguous terms are “given their plain and ordinary meaning.” Yeshiva Viznitz v. Church Mut. Ins. Co., 132 A.D.3d 853, 854 (2d Dept. 2015); see also White v. Continental Cas. Co., 9 N.Y.3d 264, 267 (2007). Thus, the courts will read the policy to comport with “common speech” and the expectations of the parties, and in “a manner that leaves no provision without force and effect.” ABM Mgmt. Corp., 112 A.D.3d at 764 (internal quotation marks and citation omitted). Whether the terms are clear and unambiguous is an issue for the courts. Yeshiva Viznitz, 132 A.D.3d at 854.

However, if the language in the policy is ambiguous, the court can use extrinsic evidence to determine the intent of the parties to the policy. State of New York v. Home Indemnity Co., 66 N.Y.2d 669, 671 (1985). If the extrinsic evidence is conclusory, failing to equivocally resolve the ambiguity in a policy, interpretation of the policy remains a question of law for the court to decide; deciding any ambiguities against the insurer. Id. See also Yeshiva Viznitz, 132 A.D.3d at 854; White, 9 N.Y.3d at 267.

Cohen & Slamowitz, LLP v. Zurich Am. Ins. Co.

As noted, the dispute concerned the coverage of losses caused by Hurricane Sandy. The alleged losses stemmed from a disruption of the plaintiff’s telephone service due to severe flooding at its service provider’s lower Manhattan switch center during the hurricane. The defendants disclaimed coverage pursuant to the language of the insurance policy with the plaintiff.

Thereafter, the plaintiff commenced the action to recover damages for breach of contract and for a judgment declaring that the defendants were obligated to indemnify the plaintiff for its claimed business income losses under the policy. The defendants moved for summary judgment dismissing the complaint and for a judgment declaring that the defendants were not obligated to indemnify the plaintiff for its claimed business income losses. The motion court granted the defendants’ motion. The plaintiff appealed.

The Second Department affirmed, finding that the language of the policy was clear and unambiguous. The Court noted that the policy required the carrier to pay for the loss of business income “due to the necessary suspension of operations caused by direct physical loss or damage by a Covered Cause of Loss to dependent property at a premises not owned, leased, or operated by the plaintiff.” Slip op. at *2 (internal quotation marks omitted). The policy defined “dependent property” as “premises operated by others on whom the plaintiff depended to “[d]eliver materials or services to [the plaintiff], or to others for [the plaintiff’s] account (not including water, communication or power supply services).” Id. Based upon the foregoing language, the Court held that since the plaintiff’s claimed business income losses “resulted from damage to a property operated by a communication service provider,” “the cause of loss was a disruption in communication services, not a ‘Covered Cause of Loss’ to ‘dependent property’ under the policy.” Id.

Accordingly, the Court affirmed the dismissal of the contract claim, concluding that “the defendants [were] not obligated to indemnify the plaintiff for its claimed business income losses pursuant to the policy.” Id.

Takeaway

As discussed, “[a]n insurance agreement is subject to principles of contract interpretation.” Universal Am. Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680 (2015). “Any … exclusions or exceptions from policy coverage must be specific and clear in order to be enforced.” Seaboard Sur. Co. v Gillette Co., 64 N.Y.2d 304, 311 (1984.) In Cohen & Slamowitz, the Court found that the terms of the policy were clear and unambiguous. Under those circumstances, denial of coverage was properly denied.

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