The Court of Appeals' granted leave to appeal in Voss v The Netherlands Ins. Co., 98 AD3d 1325 (4th Dept. 2012) (Motion for leave to appeal granted on Feb. 14, 2013). Here is a summary of the matter concerning business interruption insurance.
Does an insured’s business need to resume operations in order to receive payment of insurance policy benefits for business interruption coverage? Justice Carni of New York’s Fourth Judicial Department disagreed with the Majority in Voss on this issue.
The plaintiff commenced an action against CH Insurance Brokerage Services, Co. alleging, among other things, negligence and breach of contract in connection with business interruption coverage that CH Insurance obtained for plaintiff. The parties stipulated that The Netherlands Insurance Company was substituted for CH Insurance after the plaintiff commenced the action.
The matter concerns a commercial building that housed the corporate plaintiffs and a corporate tenant. The building was damaged on three separate occasions in connection with water leaking from the roof. The leak caused a portion of the roof to collapse on two of those occasion. Notably, the first two incidents occurred while the limit for business interruption coverage was $75,000. The third incident occurred after the policy was renewed and the coverage for business interruption had been reduced to $30,000.
The plaintiffs alleged in their amended complaint and supplemental bill of particulars that the defendant failed to provide adequate coverage and was negligent in reducing the coverage. The issue that the New York Court of Appeals will most likely address is whether the proximate cause analysis concerning the failure to provide adequate business interruption coverage hinges on whether the business would resume operations if timely paid the full but allegedly insufficient insurance coverage limits.
The Majority concluded that the defendant’s negligence in failing to obtain sufficient business interruption coverage for the plaintiffs was not the proximate cause of their damages as a matter of law. Relying on the plaintiff’s testimony that, if the policy limit of$75,000 had been pain in a timely manner for each of the two incidents, the plaintiff corporation would have been able to remain operational and continue its business operations. As such, the Majority’s conclusion hinged on whether the plaintiff actually resumed operations.
Justice Carni was the lone dissenter on this issue. He concluded that whether the plaintiffs actually resumed operations is irrelevant to the proximate cause analysis concerning the plaintiffs claim that the defendant failed to procure adequate business interruption coverage limits. Justice Carni concluded that whether the defendant was negligent in failing to procure adequate insurance coverage is measured by the amount of the plaintiffs’ business income losses when compared to the policy limits determine and procured by the defendant broker. He also concluded that the defendant had failed to establish that the policy limits were sufficient to cover the amount of the plaintiffs’ business income losses during the relevant policy periods.
The New York Court of Appeals’ resolution of this appeal will impact the insurance industry writing business interruption coverage in New York. Moreover, the Court of Appeals might address and further explain the boundaries of a “special relationship” between an insurance broker and the insured.