New York Insurance Coverage Law Update

New York’s Highest Court Holds That Restaurants’ Business Losses from Coronavirus Not Covered

The insured, Consolidated Restaurant Operations, a company that owns and operates dozens of restaurants, obtained a commercial property policy from Westport Insurance Company. Subject to certain exclusions, the policy covered “all risks of direct physical loss or damage to insured property” and business interruption losses “directly resulting from direct physical loss or damage” to insured property. The insured sued Westport for coverage for its loss of revenue from the pandemic, alleging that SARS-Co-V2, the virus that causes COVID-19, was present in its restaurants and resulted in cessation of in-person dining services and related business interruption losses. The New York Court of Appeals affirmed the lower court’s dismissal of the insured’s complaint on the ground that it did not allege “direct physical loss or damage,” which the court found required “a material alteration or a complete and persistent dispossession of insured property.” The Court concluded as follows: “We do not take lightly the severe economic losses incurred by restaurants and other businesses serving the public as a result of the COVID-19 pandemic. But our task is to faithfully interpret the terms of the insurance policy before us, not to ‘rewrite the language of the polic[y] at issue’ to reach a result with ‘equitable appeal.’” [Consolidated Rest. Operations, Inc. v. Westport Ins. Corp., 2024 N.Y. Lexis 66 (N.Y. Feb. 15, 2024).]

New York Trial Court Finds That Multi-Year Policies’ Per Occurrence Limits Apply on Term (Not Annual) Basis

Century Indemnity Company insured Brooklyn Union Gas Company under several multi-year policies with per occurrence limits. After a trial, the jury found that Century was obligated to cover certain costs incurred by Brooklyn Union for government-mandated cleanups of three sites in Brooklyn, New York, and the total cleanup were costs allocated to each year in which the Century policies were in effect. In pre-trial and post-trial motions, Brooklyn Union argued that any ambiguity should be construed against Century as the drafter of the policies under the contra proferentem doctrine and that, regardless, the per occurrence limit should apply on an annual basis for each year of a multi-year policy. The Supreme Court, New York County rejected the argument and held that the contra proferentem doctrine did not apply to the Century policies because Brooklyn Union was a sophisticated policyholder. In turn, the court held that “the most reasonable way to interpret a policy limit that does not specify the period over which it applies is that the limit applies for the length of time the policy is in effect—whether that be a year, two years or five.” [Century Indem. Co. v. Brooklyn Union Gas Co., 2024 N.Y. Misc. LEXIS 98 (Sup. Ct., N.Y. Cnty. Jan. 5, 2024).]

Second Department Holds That SUM Coverage Not Triggered Because Tortfeasor’s Liability Policy Had Same Limits

Claimants were in an automobile accident with a vehicle insured under a liability policy issued by Allstate.  Allstate tendered its $50,000 per accident policy limit on behalf of its insured (the alleged tortfeasor) in settlement of the claim. In turn, the claimants sought supplementary uninsured motorists (SUM) coverage under their own policy with State Farm that also had a $50,000 per accident limit. The New York Appellate Division, Second Department, held that the claimants were not entitled to SUM coverage because “[u]nder New York law, SUM coverage is only triggered where bodily injury liability insurance limits of the policy covering the tortfeasor’s vehicle are less than the liability policy under which a party is seeking SUM benefits.” [Matter of State Farm Mut. Auto Ins. Co. v. Diaz, 2024 N.Y. App. Div. LEXIS 66 (2d Dep’t Jan. 10, 2024).]